[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE AMERICAN ENERGY INITIATIVE, PART 9: H.R. 909, A ROADMAP FOR
AMERICA'S ENERGY FUTURE

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

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

JUNE 3, 2011

__________

Serial No. 112-57

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

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COMMITTEE ON ENERGY AND COMMERCE

FRED UPTON, Michigan
Chairman

JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania EDOLPHUS TOWNS, New York
MARY BONO MACK, California FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chair DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi JOHN BARROW, Georgia
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BILL CASSIDY, Louisiana DONNA M. CHRISTENSEN, Virgin
BRETT GUTHRIE, Kentucky Islands
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

7_____

Subcommittee on Energy and Power

ED WHITFIELD, Kentucky
Chairman
JOHN SULLIVAN, Oklahoma BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois JAY INSLEE, Washington
GREG WALDEN, Oregon JIM MATHESON, Utah
LEE TERRY, Nebraska JOHN D. DINGELL, Michigan
MICHAEL C. BURGESS, Texas EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California ELIOT L. ENGEL, New York
STEVE SCALISE, Louisiana GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington LOIS CAPPS, California
PETE OLSON, Texas MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia CHARLES A. GONZALEZ, Texas
CORY GARDNER, Colorado HENRY A. WAXMAN, California (ex
MIKE POMPEO, Kansas officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

(ii)

C O N T E N T S

----------
Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 1
Prepared statement........................................... 3
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 5
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 139
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 140
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, prepared statement............................. 141

Witnesses

Hon. Devin Nunes, a Representative in Congress from the State of
California..................................................... 6
Prepared statement........................................... 9
David Sandalow, Assistant Secretary for Policy and International
Affairs, Department of Energy.................................. 17
Prepared statement........................................... 20
Thomas Hicks, Deputy Assistant Secretary of the Navy (Energy).... 33
Prepared statement........................................... 35
Answers to submitted questions............................... 228
Neil Auerbach, Managing Partner, Hudson Clean Energy............. 54
Prepared statement........................................... 57
Jack Spencer, Research Fellow, Nuclear Energy, The Heritage
Foundation..................................................... 71
Prepared statement........................................... 73
James T. Bartis, Senior Policy Researcher, Rand Corporation...... 109
Prepared statement........................................... 112

Submitted Material

H.R. 909, A Bill to expand domestic fossil fuel production,
develop more nuclear power, and expand renewable electricity,
and for other purposes......................................... 144

THE AMERICAN ENERGY INITIATIVE, PART 9: H.R. 909, A ROADMAP FOR
AMERICA'S ENERGY FUTURE

----------

FRIDAY, JUNE 3, 2011

House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:05 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman of the subcommittee) presiding.
Present: Representatives Whitfield, Walden, Terry, Bilbray,
Scalise, McMorris Rodgers, Olson, McKinley, Gardner, Pompeo,
Inslee, Green, Gonzalez, and Waxman (ex officio).
Staff present: Charlotte Baker, Press Secretary; Patrick
Currier, Counsel, Energy and Power; Garrett Golding,
Professional Staff Member, Energy and Power; Cory Hicks, Policy
Coordinator, Energy and Power; Ben Lieberman, Counsel, Energy
and Power; Dave McCarthy, Chief Counsel, Environment/Economy;
Carly McWilliams, Legislative Clerk; Mary Neumayr, Counsel,
Oversight/Energy; Tiffany Benjamin, Democratic Investigative
Counsel; Jackie Cohen, Democratic Counsel; Greg Dotson,
Democratic Energy and Environment Staff Director; and Caitlin
Haberman, Democratic Policy Analyst; Alexandra Teitz,
Democratic Senior Counsel, Environment and Energy.

OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

Mr. Whitfield. Call the hearing to order this morning, and
today is the ninth day in our American Energy Initiative
hearing, and today we are going to be discussing a more
comprehensive plan to explore ways to produce the necessary
energy for the American people.
As you know, when we talk about energy, we talk about
electricity as one part of it and transportation and fuel for
transportation as the other part of it. We also know that we
have a vast amount of natural resources within the borders of
the United States of America, and many of us believe that we
have not been able to fully explore and produce from those
natural resources. And there are many impediments out there to
it. We also understand that natural resources here in America
alone will not meet all of our demands for the future.
We also recognize that not only must we use fossil fuels,
but we have to use renewables, and we need to explore
opportunities and more green ways to produce energy for the
American people, but we also need to be realistic that by 2035,
the amount of electricity, for example, needed in America is
going to increase by about 50 percent, and we have to be
realistic on recognizing the cost of green energy, how much can
it realistically provide, and what will the cost of electricity
be for the American people because we find ourselves in a
global marketplace in which we are competing with other
countries around the world, and our electricity prices and
transportation prices have to be competitive if we are going to
be sure that businesses expand in the U.S., locate in the U.S.,
and we create jobs in the U.S.
So I look forward to today's hearing. We have three panels
today. On the first panel we have Devin Nunes, a member of
Congress from California, who has done extensive work on the
energy needs of America and has actually developed legislation
to address some of those problems and issues. So I look
forward--we look forward to his testimony, and at this time I
would like to recognize the gentleman from California for his
opening statement. Mr. Waxman.
[The prepared statement of Mr. Whitfield follows:]

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[GRAPHIC] [TIFF OMITTED] T2153.002

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Waxman. Thank you very much, and Mr. Chairman, today we
are holding a hearing on a bill that is titled, ``Roadmap for
America's Energy Future.'' Our Nation faces major energy
challenges and we need to have a serious conversation about the
American energy future. But I am sad to say the legislation we
are examining today proposes no innovative solutions to our
Nation's energy needs. It doubles down on oil, and it doubles
down on old, ineffective policies.
We have seen this roadmap before. This is a recycled
version of a plan developed by the secretive Bush-Cheney Energy
Task Force and pushed through Congress by Republicans while
they were in office. The Bush administration and Congressional
Republicans spent 8 years following this roadmap. They pushed
oil and gas drilling, onshore and offshore. They expedited
permits and weakened environmental protections. They opposed
efforts to increase fuel economy. They called for nuclear fuel
reprocessing. They tried to greenwash proposals for drilling in
the Arctic National Wildlife Refuge by implying congressional
appropriators could use royalty revenues to support renewable
energy. They pushed the dirtiest alternative and unconventional
fuels, coal-to-liquids, oil shale, and tar sands.
And where did they get this--and where did this roadmap
lead us? Energy prices soared, and carbon pollution increased.
And we have become even more dependent on foreign oil. In the
last year of the Bush administration the Energy Information
Administration projected that our dependence on oil and oil
imports would continue to rise year after year.
Today, we are sending nearly $1 billion per day overseas
for foreign oil. We use 25 percent of the world's oil, but we
only have 2 percent of the world's oil reserves. We've worked
to increase our domestic crude oil production by nearly 300,000
barrels per day. And yet gas prices remain high.
Increasing oil production is not going to solve our energy
needs. Even if we doubled our oil production, oil prices would
still be set by world markets and leave us vulnerable to price
shocks.
H.R. 909's roadmap doesn't lead to the future. It leads to
the past. The technology to turn coal into liquid fuel has been
around since World War II. Its problem is as it has always
been: huge amounts of carbon pollution that will drive
uncontrolled climate change.
American entrepreneurs and inventors are using technology
to unlock real energy solutions: energy sources that are clean,
safe, and affordable, and grow our economy. In testimony
provided to the committee for today's hearing, we will hear
that the wind and solar industries will create over 200,000 new
jobs. But H.R. 909 would abandon our clean energy future to
China. For many reasons it is unlikely to help renewable
energy, because of flaws in its reverse auction mechanism.
The bill does nothing on efficiency, which is the cheapest
and most reliable new source of supply. It promotes the form of
nuclear energy that risks putting nuclear bomb grade material
into the hands of terrorists. It does nothing to develop carbon
capture and storage, the technology that coal needs to remain a
competitor in a carbon-constrained world.
In 2001, Vice President Cheney said, ``Conservation may be
a side of personal virtue, but it is not a sufficient basis for
a sound, comprehensive energy policy.'' Ten years later the
Republican budget defunds the federal investment in energy
conservation and innovation. The rest of the world has been
racing ahead over the last decade. It is too bad the
Republicans' energy policies have not.
We have seen this roadmap before, and we know where it
leads us.
Thank you, Mr. Chairman.
Mr. Whitfield. Thank you. At this time I would like to
recognize Congressman Devin Nunes for his opening statement
regarding his legislation, and Congressman, we are delighted
you have come before the subcommittee, and we look forward to
your testimony, and thank you for being here.

STATEMENT OF HON. DEVIN NUNES, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA

Mr. Nunes. I do appreciate that, Mr. Chairman and Ranking
Member, for allowing me to testify here today. It is an honor
to be before the Energy and Commerce Committee. In fact, I have
never been before the Energy and Commerce Committee before, so
it really is an honor and a privilege for me to be here today.
Our Nation has been blessed with great abundance of natural
resources. Consider these astounding facts. ANWR potentially
contains 10 billion barrels of oil, the Outer Continental Shelf
is estimated to hold 85 billion barrels of oil and 420 trillion
cubic feet of natural gas, and over two trillion barrels of oil
are held in oil shale deposits, more than are contained in all
of the countries in the Middle East combined. Additionally, our
Nation has nearly 250 billion tons of recoverable coal
reserves, which is the estimated equivalent of 800 billion
barrels of oil and constitutes more than three times Saudi
Arabia's proven oil reserves.
Unbelievably, our government has chosen not to utilize
these resources fully, despite the repeated promises to achieve
energy independence by both Democrats and Republican
administrations and Congresses alike. But continued inaction is
unacceptable with stubbornly high unemployment, lackluster
economic growth, widespread unrest in the Middle East, and the
prospect of escalating gas prices punishing American families.
Nothing done by our government in the past 4 decades has
actually helped to achieve the goal of energy independence, or
for that matter, kept energy prices affordable for American
families and businesses. The reverse is true. We are more
dependent on foreign oil today than ever before and far more
economically vulnerable than at any point in our Nation's
history.
If we summon the political will to enact this legislation
before the committee, H.R. 909, would reverse this course,
immediately lower energy prices, and finally deliver on the
unfulfilled promises of recent decades.
The energy roadmap is not a radical alternative to current
energy policy. That is, while we can all agree that we need a
comprehensive approach, this approach must be market-based and
gradual if we are to achieve true energy independence. I
predict that any other approach will ultimately be rejected by
the American people.
The energy roadmap would lift restrictions on development
and extraction of resources in ANWR and OCS. This could create
up to two million jobs and maybe just the construction of these
jobs would create another 100,000 construction jobs.
The roadmap recognizes that dependence on any one fuel
source is dangerous and short-sighted. It also recognizes that
the American people have made it clear that they do see the
merit in federal resources to develop and transition to
alternative energy sources and to reduce carbon emissions when
economically and technologically feasible.
The status quo does not provide adequate support to the
development of alternative energy. It is not necessarily a
question of resources as much as it is a question of the
appropriate structure to deliver support for the development of
renewable energy. For example, while many renewable energy
companies support the current production tax credit, they are
frustrated with its lack of predictability and that it can get
caught up in the legislative process and lapse.
Accordingly, H.R. 909 would provide the financial resources
and structure necessary to transition our economy to renewable
and advanced energy alternatives. It would do this by
depositing the new federal lease and royalty revenues,
estimated to be over $500 billion in the next 30 years, into a
trust fund. These dollars would then be made available to
renewable energy producers through a reverse auction. This
market-based mechanism would ensure that the cheapest and most
efficient technology thrives while simultaneously opening the
alternative energy market to greater innovation and
competition.
Importantly, the roadmap would not end the credit. Rather,
it would give an alternative to energy entrepreneurs to choose
to receive the credit or to forego it to receive support
through the reverse auction. Moreover, the support provided
under the energy roadmap for the development of renewable
energy would not be subject to the federal budget or the
legislative process. Put simply, it provides the best mechanism
to develop, produce, and transition to alternative energy.
Another component of the roadmap would establish or would
mandate that 200 reactors be--permits be granted by 2040. This
bill would provide new, streamlined regulations and a system to
manage the waste that will drive private sector investments in
these facilities, which today are stalled as a result of red
tape, lawsuits, and parochial concerns. Nuclear power in my
estimation is essential to achieving an abundant and affordable
supply of electricity to fuel our Nation's economy.
H.R. 909 would enhance our national security by removing
barriers to expand our Nation's secure coal supplies to fill
the tanks of the American military vehicles and jets. In fact,
the bill's near-team goal is to produce at least 300,000
barrels of CTL, coal to liquid. Such supply would equal the
amount of fuel consumed daily by the U.S. military for domestic
operations.
The American people are looking to us for leadership. They
know intuitively that we are running out of time, and they are
worried about the future of our country and for their--and our
country's future for their children. They have given us the
opportunity to offer solutions to this and other big problems.
My fellow colleagues, it is time for us to act, and I really do
appreciate, Mr. Chairman, Ranking Member, for having the
opportunity to testify here today.
[The prepared statement of Mr. Nunes follows:]

[GRAPHIC] [TIFF OMITTED] T2153.003

[GRAPHIC] [TIFF OMITTED] T2153.004

[GRAPHIC] [TIFF OMITTED] T2153.005

[GRAPHIC] [TIFF OMITTED] T2153.006

Mr. Whitfield. Well, thank you, Mr. Nunes, for that
testimony, and I will recognize myself for a period of
questions and then will recognize Mr. Waxman for the same
purpose.
In your testimony you talked a little bit about a reverse
auction for a fund to encourage more development of renewable
fuels. Would you elaborate a little bit on the way this reverse
auction would work?
Mr. Nunes. Absolutely, Mr. Chairman. I believe that despite
the ranking member's testimony at the beginning, I think this
is something that is new, is innovative, and it would change
the way that alternative energy is deployed. Basically to put
it simply you take the royalty revenues, which some people
estimate to be $500 billion over 30 years, it could be higher,
it could be lower, but a significant amount of money. And what
you do is essentially that money is there, and it acts as a
reverse auction. So the lowest bidder wins.
So if I could maybe give you an example. Say that someone,
one person has windmills that they want to put up in
California, and someone has a windmill farm that they want to
put up in Nevada. And if one company says that they need $100
to get their project off the ground, in California let us say
it is $100, but in Nevada that company for the same size
project only needs $90, they would submit those bids, and it is
per megawatt, and the Nevada company would win.
So you would--basically it gets to the cheapest way to
deploy renewable energy, and this has been I think met with--in
the Silicone Valley and the entrepreneurial community in
California, this has been well received throughout the
companies that want to see changes to the way these
technologies are deployed.
Mr. Whitfield. Now, is there an example of where this type
of reverse auction has been implemented in other places and has
been proven that it works very well?
Mr. Nunes. Yes. Matter of fact, good question, Mr.
Chairman. I was quite embarrassed to learn that when I
developed this legislation I thought that I had developed
something new. In fact, this is being used in Brazil, and to my
knowledge, although I have not talked--I do coach the Brazilian
Caucus, which is even more of an embarrassment that I didn't
know that this was there, but from my understanding it is
working very well.
Mr. Whitfield. And they use it for the same purpose, for
the development of renewables?
Mr. Nunes. Yes, and I think it would be, it would probably
for this committee, it would be worth your time maybe to look
into that if you have another hearing.
Mr. Whitfield. We have heard a lot recently, particularly
from our friends on the other side of the aisle, about removing
production tax credits and other things from the oil industry,
and without getting into a discussion about that proposal per
se, I would like to just broaden it, and do you think it would
be reasonable or would it be helpful if we are going to have a
debate about removing tax credits from the oil industry,
should--in your view, should we have a debate about just
removing incentives from all energy production?
Mr. Nunes. In fact, Mr. Chairman, we have been--Chairman
Camp of the Ways and Means Committee, we have been conducting a
series of hearings of tax reform, and we have had many
different companies from both foreign nationals and small
businesses basically all say the same thing, that they would
like to see the tax rate reduced and would basically forego all
of these types of little production tax credits and different
tax credits that are out there.
And so I think President Obama-, you were at the meeting
the other day, he indicated that this is something that he
would like to do also, so I think simplifying of the tax code,
getting rid of all these credits would be something worthwhile,
and that is what the Ways and Means Committee is working on.
Mr. Whitfield. You are working on that right now?
Mr. Nunes. Yes.
Mr. Whitfield. Now, in your proposal you talk about
licensing 200 new nuclear plants in a relatively short time. I
forgot if you said 2040, or whenever it was, but recognizing
that we have this significant issue of how do we dispose of
this waste because the administration has basically stopped
Yucca Mountain after the expenditure of $15 billion and after
judgments against the Federal Government of $15 billion and
after taxpayers and energy users have paid the fee for this,
how do you propose that we would get rid of this waste?
Mr. Nunes. Well, one of the--what I tried to achieve in
drafting this legislation was that tried to create a scenario
where the Congress forces an administration to act one way or
the other on Yucca Mountain and reprocessing and a whole host
of issues, because as you know, it seems like every President,
no matter if it is Republican or Democrat is--they are all for
nuclear power yet nothing ever happens, and I think that our
country, I think the most significant innovation in the last
100 years from my perspective is the development of nuclear
power.
And I think we have been set back in this country over the
last 4 decades because we really have not invested in new
nuclear technology, and we are in real danger of falling behind
China, who, you know, some folks estimate that they are on
their way to build over 200 nuclear reactors. We don't really
know, but I think they are building several dozen right now
that are being built or in the process of it.
So to not--so what this bill does is it basically forces
the administration to say, yes or no, and it develops a
timeframe so that we would either know that Yucca Mountain will
be used or it will not be used, but we need to get to the
bottom of that and get it, well, either stop it or start it.
Mr. Whitfield. Well, thank you, Mr. Nunes.
At this time I will recognize Mr. Waxman for his 5-minute
question period.
Mr. Waxman. Thank you very much for your testimony, and I
think I might have been a little too harsh in my opening
statement. I do want to consider your idea because I have long
believed that we need to have market mechanisms to try to drive
the results that we want. I don't think we can decide the
winners and losers. We ought to say what we want to achieve and
help the entrepreneurs in this country, unleash them and let
them go forward and profit when they accomplish the goals we
want. That is what we try to do, not to everybody's
satisfaction in the cap-and-trade bill because we said if you
can figure out new technology and ways to reduce the carbon
emissions, it will be to your economic benefit. You will be
able to have a clear profit for it.
You seem to be doing that in a very different way, but
nevertheless, you are trying to accomplish something that I
find attractive, and I want to understand this more from you
and from other witnesses later on.
Mr. Nunes. Absolutely.
Mr. Waxman. As I understand it, in order to be eligible for
the reverse auction a renewable energy project must have a
power purchase agreement in place, and the price in that
contract is essentially the bid in this reverse auction. It
would seem that because the prices will already be set in the
contract, generators will not be able to change their bids as
the auction proceeds, and the price-driving mechanism of a
traditional reverse auction will not be available.
I assume the intent of the provision to drive down the
price of renewable energy. Isn't that what you are trying to
do?
Mr. Nunes. That is correct.
Mr. Waxman. And do you anticipate generators breaking or
renegotiating power purchase agreements in order to lower their
bids?
Mr. Nunes. Well, one of the things, Mr. Chairman, that--and
I do appreciate your comments as it relates to the reverse
auction, this is--it was a very difficult provision to draft,
and we have spent several years doing it. You may remember that
there in EPAC, whatever year that was, '05, there was something
similar for renewable fuels that was put in.
However, and the President actually has I think $150
million in his budget for that proposal, but the way that the
law was drafted and then how the regulations were written
basically there has never been any money put into it, and there
doesn't seem to be any interest from the renewable fuel
community to utilize it.
So what we attempted to do here was to keep it as clear and
basic as possible so that you would have a clean way to run
this auction. So, I mean, this is actually probably an
expertise of yours on this committee, but we actually modeled
it after the--originally when--before I knew that other people
had tried this, we modeled it after the spectrum sales, the way
that you auction off spectrum sales. So that was kind of our
goal and then asking, when the regs would come out to basically
have kind of three different levels so that you could have one
level for technological development and research, you would
have kind of a mid-sized level so that maybe small businesses
and folks could utilize the program, and then you would have
another pot at the highest level for the big energy companies
to go out and build, you know, big wind farms or big solar
farms.
That is the attempt of the legislation. I would, you know,
I think one of the options here is in this bill some of the oil
provisions have moved through the House already, and I think
there is an opportunity for this committee to maybe take this
reverse auction and move it by itself, spend some time, you
know, to make sure that it would work, you know, in a
bipartisan way and maybe, you know, get this bill marked up and
get it out to the floor, just the reverse auction provision. I
would be very supportive of something like that.
Mr. Waxman. Do you have a concern that if the choice
between a reverse auction and a production tax credit, that the
production tax credit is more certain, and the groups, the
businesses involved will decide to forgo the reverse auction
and stick with the tax credit?
Mr. Nunes. I think that there is a--the uncertainty now in
the production tax credit business is leading to a more
complicated deployment of renewable energy, renewable power. I
think there is some people that can use these credits, some
people can't, and I think--and because I think what is 2012,
they lapse anyway, and if you just look down the road, I mean,
when you have Republicans and Democrats agreeing that we need
to get out of this tax credit business to some degree, I just
don't think it is--I think this program, having a trust fund in
place where you take royalty revenue from oil and gas, is a way
that would give some real certainty.
Mr. Waxman. My time has expired, but let me thank you for
your hard work on this legislation. You are a highly respected
member of our California delegation and in the House, and I
want to look at this more carefully because I do think we need
a bipartisan approach, and I like the idea of something that
will drive the markets rather than dictate the markets.
Mr. Nunes. Well, Mr. Chair or Mr. Ranking Member, I would
be willing to come and sit down with you and walk you through
this or your staff.
Mr. Waxman. I don't walk through things when I am sitting
down, but I would be glad to----
Mr. Whitfield. Well, in keeping with the procedures of our
committee, Congressman Nunes, the chairman and ranking member
are the only ones that would be asking you questions today, but
our staff has looked at your legislation, and you have some
really innovative approaches like the reverse auction, and we
are going to continue to look at that and at some point work
with other committees and try to move something to address some
of the problems that you are trying to address in your
legislation.
So thank you for your time and for your involvement in this
important issue.
Mr. Nunes. I really appreciate it.
Mr. Whitfield. Appreciate that.
Mr. Nunes. Thanks for the opportunity, Mr. Chairman.
Mr. Whitfield. At this time I would like to call up the
second panel of witnesses. On the second panel we have Mr.
David Sandalow, who is the Assistant Secretary for Policy and
International Affairs at the U.S. Department of Energy, and we
also have Mr. Thomas Hicks, who is the Deputy Assistant
Secretary of the Navy, and we would like to welcome both of you
to this hearing. We appreciate your taking time to be with us
and offering us your expertise and knowledge, and with that,
Mr. Sandalow, I would like to recognize you for 5 minutes for
your opening statement.

STATEMENTS OF DAVID SANDALOW, ASSISTANT SECRETARY FOR POLICY
AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY; AND THOMAS
HICKS, DEPUTY ASSISTANT SECRETARY OF THE NAVY (ENERGY)

STATEMENT OF DAVID SANDALOW

Mr. Sandalow. Thank you to members of the subcommittee.
Thank you for the opportunity to be here today to discuss H.R.
909, the Roadmap for America's Energy Future.
The administration agrees with many of the goals of this
bill. For example, the administration believes that
facilitating the efficient responsible development of our oil
and gas resources is a necessary component of energy security.
We are working to expand cleaner sources of energy, including
renewables like wind, solar, and geothermal, nuclear power, as
well as clean coal and natural gas on public lands.
However, the administration has serious concerns with many
provisions in this legislation. For example, a number of the
changes in Title I would make amendments to Interior's Offshore
Energy Program, undercutting safety and environmental reforms
adopted in the wake of the Deepwater Horizon oil spill, and it
would open the coastal plain of the Arctic National Wildlife
Refuge to oil and gas drilling. Department of the Interior and
other involved agencies may have additional views on this
legislation.
H.R. 909 touches on programs implemented by a number of
administration's agencies, and I will not comment in detail
about programs outside of the Department of Energy's purview.
In the remainder of my time I would like to discuss the
administration's energy agenda and address several specific
provisions from H.R. 909.
In the State of the Union address President Obama laid out
a plan for the United States to win the future by out-
innovating, out-educating, and out-building the rest of the
world while at the same time addressing the deficit. Many
countries are moving aggressively to develop and deploy the
clean energy technologies that the world will demand in the
coming years and decades. As the President said, this is our
generation's Sputnik moment.
We must rev up the great American innovation machine to win
the clean energy race and secure our future prosperity. To that
end, President Obama has called for increased investments in
clean energy research, development, and deployment.
In addition, he has proposed generating 80 percent of
America's electricity from clean energy sources by 2035. A
clean energy standard will provide a clear, long-term signal to
industry to bring capital off the sidelines and into the clean
energy sector. It will grow the domestic market for clean
sources of energy, creating jobs, driving innovation, and
enhancing national security.
And by drawing on a wide range of energy sources, including
renewables, nuclear, clean coal, and natural gas, it will give
utilities the flexibility they need to meet our clean energy
goals while protecting consumers in every region of the
country.
The Department of Energy's goal is to strengthen the
Nation's economy, enhance our security, and protect the
environment by investing in key priority, including supporting
groundbreaking basic research, leading in the development and
deployment of clean and efficient energy technologies to reduce
our dependence on oil, and strengthening national security by
reducing nuclear dangers, maintaining a safe and secure and
effective nuclear deterrent and cleaning up our cold war
legacy.
As the President said in his State of the Union address,
investing in clean energy will strengthen our security, protect
our planet, and create thousands of new jobs here at home. We
are doing this through programs to make, for example, homes and
buildings more energy efficient with a new Better Buildings
Initiative. We are also developing new sources of wind, solar,
and geothermal supporting the modernization of the electric
grid and carbon capture and sequestration technologies. We are
supporting reducing our dependence on oil by developing the
next generation of biofuels and promoting electric vehicle
research and deployment supporting the President's goal of
putting one million electric vehicles on the road by 2015.
Mr. Chairman, I drove to work today in a plug-in hybrid
vehicle. At night I plug that car into an outlet in my garage.
I often get 80 miles per gallon as I drive through the streets
of Washington, DC, and I am pleased to say that today I drove
to this hearing from the Department of Energy garage in one of
the new plug-in electric vehicles in the Department of Energy's
fleet. So I think building on the investment that we are making
in this country in electric vehicles we can bring down our
dependence on oil. That is going to require further investment
in lithium ion batteries, and Mr. Chairman, someday I hope that
one of my grandchildren will look at one of my children who are
now teenagers and say, what, you mean you couldn't plug in cars
back when you were young.
At the Department of Energy we are also focused on moving
clean energy technologies from the lab to the marketplace. Over
the past 2 years our loan programs have supported more than $30
billion in loans, loan guarantees, and conditional commitments.
I want to emphasize, too, that nuclear energy has an important
role to play in our energy portfolio. To jumpstart the domestic
nuclear industry the President's budget requests up to $36
billion in loan guarantee authority. It also invests in the R&D
for advanced nuclear technologies, including small modular
reactors. H.R. 909 takes a different approach to expanding
nuclear power production.
H.R. 909 creates a reverse auction mechanism to fund
renewable energy projects just discussed in the last panel. We
share Representative Nunes's view that reverse auctions are a
useful took for promoting renewable energy. From our experience
with reverse auctions it is important to protect the taxpayers
by requiring adequate assurance from bidders that they will
perform. We look forward to working with the committee on a
provision that accomplishes our shared goal of promoting
American renewable energy and protecting taxpayers.
To spur innovation, the administration has prioritized
investments in basic and applied research. These are discussed
in more detail in my statement, which I have submitted for the
record.
Mr. Chairman, in conclusion I want to thank the committee
for inviting me to testify on issues associated with H.R. 909
that relate to the DOE's mission. I appreciate the opportunity
to discuss the President's roadmap for a clean and secure
energy future.
[The prepared statement of Mr. Sandalow follows:]

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Mr. Whitfield. Thank you, Mr. Sandalow.
At this time, Mr. Hicks, you are recognized for a 5-minute
opening statement.

STATEMENT OF THOMAS HICKS

Mr. Hicks. Thank you, Chairman Whitfield and distinguished
members, members of the subcommittee, thank you for the
opportunity to appear before you today at this hearing on H.R.
909. While neither the administration nor the Department of
Defense has a formal position on this legislation, I am here to
share with you the perspective of the Department of the Navy.
As the Deputy Assistant Secretary of Navy on Energy, I have
been actively involved in assessing the policy, economic,
technological, and environmental costs and benefits associated
with the use of fossil fuels and alternative fuels. I and many
members of my staff and colleagues have personally met with
dozens of industry representatives of U.S.-based organizations
from a wide range of interests including alternative fuel
companies, large oil companies, venture capital, private
equity, and industry associations. We have also met with
government experts from DOE, the Department of Defense,
Department--U.S. Department of Agriculture, NASA, EPA, and
others. So the perspective provided here today is drawn on
these discussions and on contemporary studies and analysis on
the topic of alternative fuels.
Changing the way the United States uses, produces, and
acquires energy is one of the central policy challenges that
confront the Nation. It is something that Secretary Mabus cares
deeply about, and it is something that the Navy and Marine
Corps, under his leadership, has been aggressively working
towards for the last 2 years.
As a military and as a country, we rely far too much on
fossil fuels, far too much on foreign sources of oil. This
dependency degrades our national security and negatively
impacts our economy. Our dependency on fossil fuels makes us
more susceptible to price shocks, supply shocks, natural and
man-made disasters, and, as we have recently seen, political
unrest in countries halfway around the world.
The challenges we face today are not just about what types
of fuels we use or where and how those fuels are produced.
Clearly we must be more efficient in the fuels that we use. The
best barrel of oil is the barrel of oil we do not use. The
challenge we face in the Navy today is the 280 ships we have
today, the 3,700 aircraft are largely the ones we are going to
have tomorrow and into the future, so focusing on new sources
of fuel, drop-in replacement fuel is critical.
For ships being more efficient means we can increase the
days between refueling, improving both its security and combat
capability. Better fuel economy for our aircraft means we can
extend the range of our strike missions, enabling us to base
them farther away from combat areas. Being more efficient and
more independent and more diverse in our sources of fuel
improves our combat capability both strategically and
tactically.
The Department of the Navy's interest in this topic of
alternative fuels is fundamentally about improving our national
security and our long-term energy security. The more we replace
for in sources of oil with more diverse, domestically-produced
alternative fuels the better we are as a military and the
better we are as a Nation. How one successfully accomplishes
that objective is where the debate lies, and it is a topic that
the Department of the Navy has a perspective.
It has recently suggested before this committee that the
best near-term approach to meet the Department of Defense fuel
needs is essentially a coal-derived or a mixture of coal-
derived and biomass Fischer-Tropsch fuels. Fischer-Tropsch is a
thermo-chemical conversion process invented and developed in
pre-World War II Germany to convert resources such as coal,
natural gas, and biomass to fuel oil. In this country given the
enormous quantities of biomass required and its relative
limited availability at the scales required to run a Fischer-
Tropsch or an FT plant, biomass as a long-term feedstock that
is typically not considered. More often than not, coal is
viewed as the primary, if not exclusive, feedstock, and as a
result, in addition to requiring large, new sources of coal, it
requires enormous quantities of water, $5 to $10 billion in
capital per plant to provide a fuel result that is more than
twice as carbon intensive as petroleum.
From the Navy's perspective, there simply are too many
questions to suggest that this is the best near-term solution.
In our ongoing dialogue with industry, venture capital, and the
equity communities, one thing is clear. America's advanced
biofuel industry knows no geopolitical boundaries, and unlike
the proposed near-term solution, the feedstocks and refineries
needed to produce advanced biofuels to power the fleet or our
aircraft can literally be produced in every State, all 50
States.
The U.S.-based companies comprising this industry that are
currently producing or will soon be producing fuels across the
spectrum from the tens of thousands of gallons to the tens of
millions of gallons. These are companies new and old, some are
small businesses, and some are now publicly traded. These
companies represent the type of innovation and spirit needed to
meet the energy demands of the future. In conclusion, a robust
advanced drop-in biofuels market is an essential element of our
national energy security. Energy security for the Nation
requires unrestricted, uninterrupted access to affordable
energy sources to power our economy and our military.
Traditional fossil-fuel based petroleum derived from crude oil
has an increasingly challenging market and supply constraints.
Chief among these is limited, unevenly distributed, and
concentrated global sources of supply. Advanced biofuels that
use domestic, renewable feedstock provide a secure alternative
that reduces the risks associated with petroleum dependence.
Just in closing, I would like to personally thank the
committee for addressing the important topic of alternative
fuels and for providing the Department of the Navy the
opportunity to offer its perspective. Thank you.
[The prepared statement of Mr. Hicks follows:]

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Mr. Whitfield. Thanks, Mr. Hicks. We appreciate your
testimony as well.
I will recognize myself for 5 minutes of questions.
Mr. Sandalow, you are Assistant Secretary for Policy and
International Affairs at DOE, and you know as well as any of us
that we are utilizing about 20 million barrels of oil a day
here in the U.S. for all of our needs, most of it
transportation. And since 19--my first memory was 1976, on this
subject when Jimmy Carter was President, and the big push was
made, we have got to be less dependent on foreign oil.
Now, this administration in my personal view is overselling
the electric cars and some of these renewable energy
mechanisms, not that we don't need them but I don't
realistically think that they are going to be able to meet all
of our increased energy demands any time soon.
But you have probably studied this even more than I have
since you are head of policy. What is your realistic appraisal
on our ability to significantly reduce the amount of oil that
we are buying from the Middle East and other countries, and
what kind of timeframe from your analysis do you think is
realistic?
Mr. Sandalow. I think the ability of this country to meet
any great challenge is extraordinary, Mr. Chairman, and I
believe that if we set our minds to it that we can reduce our
dependence on oil, reduce our dependence on imported oil, and
we can do it by following a number of different pathways. I do
believe that electric vehicles have tremendous potential, and
by the way, not just to reduce our dependence on oil but also
to create jobs in this country.
Mr. Whitfield. Let me just make one comment on electric
cars. The other day I saw a 1917 issue of the New York Times,
and the front page was, electric cars are the cars of the
future. That was 1917, and so I just point that out, that I
would like for you to go on with your explanation and talk
about some timelines as well.
Mr. Sandalow. Yes. Thank you, Mr. Chairman. Fortunately,
today we have new battery technologies like lithium ion
batteries that weren't in existence in 1917, that are
transformational that I think are really going to make a
difference in this sector.
But I fundamentally agree with the point you made about it
is not just electric vehicles. I mean, we also need to pursue a
number of other technical pathways. Biofuels have already been
discussed, and biofuels have tremendous potential to reduce our
dependence on imported oil and by also creating jobs here in
the United States. And we need to do that with new advanced
biofuels, we need to build the infrastructure to make that
work, and we need to pursue natural gas as a transportation
fuel. We have tremendous resources of natural gas here in this
country expanding dramatically.
We need to improve efficiency. That will matter
tremendously in terms of it, and then finally we need to expand
production of domestic oil as well, and we need to do it in an
environmentally responsible way. That can make a big
difference.
So if we pursue all of these pathways, Mr. Chairman, I am
absolutely confident that we can get off of imported oil in a
significant way.
Mr. Whitfield. Thank you. Many of us had a lot of
frustrations up here about some of the money, the way it was
spent on the Stimulus Package and others, and specifically I
want to ask you about this one. The first company that DOE
chose to give a federal loan guarantee was Solyndra, which is a
solar manufacturer. It received $535 million in 2009. Since
then the information we have is that the company has imploded.
Its initial public offering failed, auditors have raised
questions about whether the company will survive, and it has
closed one of its facilities and laid off 180 workers.
Could you tell me what your information is on this company?
Mr. Sandalow. Yes. I don't have specific information on
that project to relate here today, Mr. Chairman. I would be
happy to follow up for the record on that, but I would say more
broadly this loan guarantee program has created tens of
thousands of jobs and helped put America in a competitive
footing in some of these renewable energy technologies.
Mr. Whitfield. Well, I mean, some of them may have created
tens of thousands, but that one--they have already laid off
180, and I might also say that First Wind Holdings had sort of
the same experience. So, I mean, I think all of us are
encouraging people to develop alternative fuels, but to be
spending this kind of money on failed projects is just
irresponsible in my view.
And then I want to ask this question also. We hear a lot
about wind power, and everyone I talk to does not think wind
power is a realistic, major producer of energy anytime soon,
and I want to know have you all conducted any studies with any
groups on the amount of land that is necessary to produce any
meaningful amount of electricity from wind? I mean, I am
genuinely concerned about the amount of land that it takes to
produce any meaningful amount of energy from wind.
Mr. Sandalow. Mr. Chairman, I would say the wind power is
already producing significant amounts of energy and growing in
this country. It has been one of the major sources of new
energy in this country for the past couple of years.
In--there was a study done actually in the prior
administration which pointed to the potential for wind power in
this country at the range of 20 percent and more in the decades
ahead.
Mr. Whitfield. To be without incentives. Right now there is
a $24 per kilowatt hour incentive for wind power.
Mr. Sandalow. But the cost is coming down like it is with
all these new technologies, and you know, I would say on the
topic of land, that certainly land is required for some of
these big turbines, but there is increasing interest right now
in offshore wind all the way around, you know, around the
world. So I think this is another area where with American
innovation, American ingenuity, and research we can create the
technology of the future that will allow us to have cheap,
clean, secure energy.
Mr. Whitfield. Thank you. My time has expired.
Mr. Gonzalez, you are recognized for 5 minutes.
Mr. Gonzalez. Thank you very much, Mr. Chairman.
Let me go straight to Mr. Hicks, because you said a couple
of things that were rather interesting. Regarding DOD and the
role that it can play obviously as we go in search for
alternatives, on page--I am trying to see what page this is
actually. I think it is page 3 of your testimony, ``the
camelina grown in Florida and Montana, the algae grown in New
Mexico, Hawaii, or in Pennsylvania, for example, can be turned
into fuels blended in existing infrastructure in the Gulf or on
the East or West Coast to power the Fleet.''
So you are saying that that may be a realistic alternative
in your opinion?
Mr. Hicks. It certainly is a realistic and growing
alternative for us, literally and figuratively. I mean, it is
one that we are seeing--today we are aware of a facility in
the--in Texas, for example, that is capable of alternative
fuels, bio-based alternative fuels, 90 million gallons per
year, and claiming at competitive prices with petroleum.
So we are seeing that. You know, what we are looking at is
fuels that don't need new infrastructure, and that is both for
the commercial sector but also for us. We need ready, dropped-
in fuels, fuels that don't require changes to our platforms and
our engines, that don't require changes to our infrastructure
to store and use the fuel, and that is exactly what we are
getting by looking at these advanced biofuels.
And to be clear, we are looking at these in 50/50 blends,
so these are blended with petroleum, and that is a common point
for the commercial industry as well, going to a 50/50 blend.
Mr. Gonzalez. In the production of these alternatives, but
they still require some incentives, some encouragement in the
way of tax credits and such that we have attempted to do in the
past. Is that something that still would be in the mix?
Mr. Hicks. Certainly that would help. That said, there are
companies and there are about a handful of those that are
publicly traded now and are moving forward with their plans
without necessarily those subsidies in hand. But certainly that
type of support would accelerate the maturation of that market
and enable that--those technologies in this country to be
something that can be exported outside of this country, and I
think to the betterment of those commercial industries.
Mr. Gonzalez. Let me ask you about the Department of
Defense specific as far as contracting for alternatives. Are
you allowed to enter contracts that are long-term, because
obviously that would have some benefits, there would be some
predictability in the producers of biofuels alternatives and so
on.
What is the situation when it comes to DOD contracting long
term?
Mr. Hicks. Sure. So for contracting long term for fuels and
to be very clear, the Navy and all the services purchase our
fuels through Defense Logistics Agencies, Energy, which is part
of the Department of Defense. Their limit is a 5-year agreement
to purchase fuels.
Mr. Gonzalez. And I don't know the answer, that is why I
would ask you. Is 5 years something that works to the benefit
of both the Department of Defense as well as the producers of
the alternatives that were seeking greater use?
Mr. Hicks. Well, certainly as we have talked to the
producers, 5 years for an emerging industry is not something
that they feel is sufficient, and I know through legislative
proposals the Defense Logistics Agency Energy has put forward
requesting as much as 20 years, and what we have heard
consistently from industry is 10, 15 years are needed, but I
think where the Department of Defense is today is requested
through DLA Energy upwards of 20 years.
Mr. Gonzalez. And full disclosure, Mr. Griffith and I have
a bill to that effect. That is the reason I am asking. It is
kind of self-serving but----
Mr. Hicks. We thank you for your support, and I think it
would be a help as well as the ability to address some of the
scoring issues that go with those purchases as well.
Mr. Gonzalez. I only have 40 seconds left, and Mr.
Sandalow, I have a question for you, and that is I know the
chairman had some doubts about electric vehicles, but I do see
that is an increasing role, but have you all been able to or is
there another agency or department that would be more
appropriate to factor in the increased demands on the
production of electricity if, in fact, we increased the number
of electric vehicles? Some could be hybrid, and some would be
like the Leaf, which is fully electric. Nevertheless, you still
got to plug them in.
Mr. Sandalow. Thank you for the question, Congressman. That
is something the Department of Energy has looked at very
closely, and the good news there is that we have a lot of
excess capacity in our power generating sector at night, and
when cars plug in at night, they are going to be able to
refuel.
Another piece of good news is that these electric vehicles
are very efficient. They are much more efficient in terms of
their use of energy than in a standard internal combustion
engine. So the technical productions that have been done say
that even with tens of millions of these cars on the road we
would not be putting major stresses on our electric generating.
Mr. Gonzalez. Thank you very much. My time is up.
Thank you, Mr. Chairman.
Mr. Whitfield. Yes, sir, and Mr. Terry, you are recognized
for 5 minutes.
Mr. Terry. Thank you. Mr. Hicks, I appreciate your
testimony here today and presence. In your opening you made
statements and suggestions about making the Navy vehicles more
energy efficient, and of course, you also then mentioned that
the major users of fuel are ships and planes.
How do you make them more fuel efficient? How do you get
better air miles per gallon for your planes and ocean miles for
your ships? And following up you can just make them more
efficient, why haven't you?
Mr. Hicks. Well, we are making them more efficient, and the
way you do that, and I will speak both for our surface vessels
as well as our aircraft, in many ways you can look at the
codings on those, and so for our service vessels, for example,
we are putting on whole codings, propeller codings to make the
ships effectively silkier in the water, better able to float
through the water.
We are also putting on stern flaps onto many of our ships,
and where we can, where it is economically justified in the
lifespan of those platforms, as they go through their dry
docking procedures, we are putting those measures on place--on
board.
With our aircraft it is largely, again, looking more at
some of the codings we have on our aircraft, and again, we are
doing that, but there is another opportunity that we are
working on, we have had some success with our surface vessels,
and that is an incentivized energy conservation program. We
call it INCON, and it is a way for the skipper of the ship as
they go forward and plot out their course if they can do that
in a more efficient way, some of the savings that comes from
that could be used for other supplies on the ship, and the rest
of that savings coming back to the Navy for other purchases
such as fuel order training.
So there is a culture aspect to this as well that we are
looking at, and we are also looking at the so-called hotel
loads on these--on the ships, so not only as they are under
way, what do we really need to power and when and then
certainly as they plug into the shore and literally plug in and
get much of their power from the shore, how can we reduce the
energy on there to limit it to what is really required to
maintain the combat readiness of that craft.
So we are doing these, and we are exploring many other
opportunities as well, but, you know, the ships and the
aircraft we have today are the ones we are going to have for
the future. So being more efficient is critical to that but
also finding alternative sources of fuel is----
Mr. Terry. Let us go into that quickly, and you had
mentioned coal to liquid, and in fact, a few years ago that was
a major push by the Department of Defense for national security
and defense security in having a domestic source that is
reliable and secure.
Where are--where is the Defense Department overall, Navy,
on production of aviation fuel or diesel fuel from coal? Has
that been shut down?
Mr. Hicks. Well, the Navy--I can't speak for all the
Defense Department, but the Navy never really had a coal to
liquid certification program. The Air Force has had that
program. They are also testing hydro-renewable fuels, jet
fuels, as we are. Our path has been more with the hydro-
renewable jet fuels. We will have tested and certified every
service vessel and every aircraft frame by 2012, to use 50/50
blends of alternative fuel, hydro----
Mr. Terry. Is the Navy's position that they would like to
have a coal-to-liquids program? You had mentioned that in your
statement.
Mr. Hicks. I don't believe I mentioned it, sir, and if I
did, I misspoke, but I think we are very comfortable with the
program that we are on, and we feel that that is the best near-
term solution for the Department of Navy is one that is focused
on alternative biofuels. The challenges with coal to liquids,
as has been mentioned before, it is a technology that has been
around since pre World War II Germany. The challenges there are
the capital expenditures required, $5 to $10 billion, the
amount of water and the sources of water that you need for
that, the amount of waste that is generated from those plants,
and then certainly there is the carbon picture there that--
which is typically those plants without carbon capture and
storage----
Mr. Terry. And my last----
Mr. Hicks [continuing]. Hasn't been done in this country.
Mr. Terry [continuing]. Question, I hate to interrupt but--
--
Mr. Hicks. Sure.
Mr. Terry [continuing]. I have been told that the Navy has
used aviation fuel blend with the aviation fuel from algae. Can
you tell me how that has worked?
Mr. Hicks. It has worked flawlessly. I have actually had
the privilege to sit down with the pilot of the F-18 that used
the 50/50 blends of biofuels. Part of what we, you know, one of
the things that we require is that the ready drop-in fuels, the
blends that we have is transparent to the end users and does
not sacrifice any part of our mission, and that is what we are
finding today.
So F-18 hornet a year ago in April flew at mach 1.2 and has
since gone through its entire envelope with not a--any sort of
issue at all with the fuel, and we are finding out that same
case in the rivering command boat that we have got, a Seahawk
helicopter, and the other platforms that we see. Algae is one
of the biofuels or feedstocks that we have used to date. It is
not the only one. We have also used camelina, and there are
many other types that would be, that could be grown in, again,
all 50 States in the country, and we are seeing that.
Mr. Terry. Thank you.
Mr. Whitfield. Thank you. Mr. Waxman, you are recognized
for 5 minutes.
Mr. Waxman. Thank you very much, Mr. Chairman. Mr. Sandalow
and Mr. Hicks, I would like to thank you for appearing before
us.
Mr. Hicks, our Armed Services set an interesting nexus in
our energy policy. They are both the biggest single user of
energy and also reliant on the civilian energy infrastructure.
Because of these two factors they can be a significant catalyst
for helping the Nation transition to a clean energy future by
advancing new technology and leading the way for the
development of new commercial transportation fuels.
In 2007, we enacted the Energy Independence and Security
Act. Section 526 of that act contained a provision to ensure
that long-term government contracts are not used to prop up
dirty, unsustainable fuels.
Mr. Hicks, from the Navy's perspective what signal has
Section 526 sent to industry and the Armed Services, and can
you explain what the result has been?
Mr. Hicks. I can explain that from the Department of Navy's
perspective, again, not speaking for Department of Defense or
the administration, but what we have seen is in working with,
again, industry from the refiners and the companies themselves
to the equity communities that support them is that they are
responding to that, and they are holding themselves to that
higher standard, not only on greenhouse gas emissions as 526
requires, so we see that as an effective policy tool, but also
on things such as food, security, water use, land use, indirect
and direct, and they are holding themselves to that higher bar
because, well, I will leave it to them to describe why, but
that is what we are seeing as a trend.
Mr. Waxman. Well, you mentioned the algae-driven jet fuel
the Navy purchased from Solazyme. I had the opportunity to
visit their operations in Northern California. It is the
world's first 100 percent algae-based jet fuel, and you have
mentioned that there are other things along those same lines,
but this just seems to be the right result from the market
signal that has been sent by Section 526. Is that right?
Mr. Hicks. Yes, it does, and I think as you mentioned
Solazyme is a great example as a company that literally started
in a garage as I understand it and has as of a week ago just
went public and was over subscribed by 10 or 12 fold. So--and
hundreds of jobs coming along with that, but bottom line
providing fuel for us in the areas where we have used it for
the testing and certification, you know, blended with
traditional fuels and, again, transparent to the users.
It has been an effective tool. The market is responding to
this and is ramping up to support it, and I would also say that
private equity in our conversation, multiple, multiple
conversations with them is lining up as well, and they are
starting to see these companies with some very solid business
plans and business models and supporting them as well.
Mr. Waxman. The bill that is before us for discussion would
repeal Section 526. From the Navy's perspective, from your
perspective, would repealing Section 526 send the right
direction of the industry and the Armed Services?
Mr. Hicks. I think, again, we are comfortable with 526. It
is an effective policy tool. It is having an affect on the
market that I think is one that is the right direction in the
sense that it is providing not only clean fuels but fuels that
ultimately will be competitive, and I think that is what we are
looking for.
Mr. Waxman. It in effect means the Armed Services and the
Congress are consistent in the message that we must pursue new,
more sustainable fuels. I think that is an important policy
that we want to continue.
Mr. Sandalow, the bill before us purports to be a roadmap
to our energy future, but it omits key policies that many
recognize are critically important. For example, it does not
even mention energy efficiency. It also fails to mention
technologies that show so much promise and are just now
beginning to be commercialized like electric vehicles.
Instead it seems to be a proposal to return to the energy
policies of the Bush administration with a focus on drilling in
the Arctic Refuge and the Outer Continental Shelf.
Can, Mr. Sandalow, can you discuss whether this legislation
identifies the right areas for us to focus on as a roadmap to
our energy future?
Mr. Sandalow. Well, thank you, Mr. Ranking Member. Let me
emphasize in response to the point you made about energy
efficiency. I talked to a power plant executive recently who
told me that the cheapest power plant for him is the one that
he doesn't have to build, and he underscored the tremendous
potential in this country to improve our economic performance
by saving energy, by stopping the wasting of energy. So any
comprehensive energy plan for our country needs to include
energy efficiency, what some people call the first fuel.
It also needs to emphasize innovating, and you know, we are
an extraordinary Nation with--throughout our history we have
innovated and succeeded by doing so. The energy race in the
next century is going to be absolutely central, and I think
government and business working together can help position the
United States in this global competitive marketplace.
Mr. Waxman. If this committee were to craft an energy
policy to meet our Nation's needs now and in the future, would
the Department be willing to work with us and support those
efforts?
Mr. Sandalow. Yes, Mr. Ranking Member, very closely.
Mr. Waxman. Thank you. Thank you, Mr. Chairman.
Mr. Whitfield. Mr. McKinley, you are recognized for 5
minutes.
Mr. McKinley. Thank you, Mr. Chairman.
Since I have come to Congress now, what, 140 days now, I
have come to really understand more the frustration of the
process here, and I have really come to the characterization
coming from West Virginia that is a coal State, I really can
sense a strong disdain in this administration for using coal,
and it manifests itself time and time again, even at the White
House here today, how he, the President mischaracterized fly
ash as being poisonous and running in our streams and killing
our marine life. Just patently false.
I see in Wellsville that there was a coal liquefaction
facility plan for there to create diesel fuel, excuse me,
airplane fuel for our military. That has been held up by
permitting. There was a facility constructed in Marshall
County, West Virginia, in the '60s with a coal liquefaction
facility there.
I would ask you, I guess, Mr. Sandalow, that might be--no
one has records of that that we can find. Is that something
that you could get back that that plant was operating for
numbers of years to prove the viability of that technology and
conclusions?
As I recall from the '60s that there was something that as
long as petroleum was over $40 a barrel, that is age ago, that
is before inflation obviously, that it was commercially viable
that we could take coal and liquefy it.
Could you possibly try to find that, some of those older
findings so we could refresh that? It is just an ongoing
characterization I have of this administration that they have--
they are avoiding--you all seem to be avoiding accountability.
I am an engineer. I want to solve a problem, not take on more
problems. Once I identify and we have got issues out here, and
we never seem to finish them.
We have talked--we know about liquefaction, we know about
some of these things, but now let us take on another project so
that we never conclude that project. Clean coal technology.
Everyone was thumping their chests over the years. We were
going to have clean coal technology, we are going to put more
money into research, and then when the President submits his
budget, he slashes the money in the National Energy Technology
Lab. It is just so blatantly evident that you all don't want to
use coal.
So now my question would be if we can, I guess we just have
to wait you out. Two years we will find out. Can we not use the
spent fuel rods? Then you all have, I mean, participated--the
Yucca Mountain Project is on hold. Correct? Can we put fuel
rods in Yucca Mountain today? The answer is no?
Mr. Sandalow. Congressman, if I could, first I want to be
sure to respond to the question you asked about the specific
plant you mentioned, and I would be happy to--I am not familiar
with that particular plant, but I would be happy to look into
that for you.
Mr. McKinley. Thank you.
Mr. Sandalow. Follow up on that. Second, I want to state
clearly that coal is a vital energy source for this Nation,
that it is one that is essential for our future, and it is one
that this administration is committed to as an important source
of energy for our country. And that is one reason that we have
invested so much in our coal future, in funding for clean coal
research, and funding for deployment of carbon capture
technologies, and a variety of other programs that would make
the difference for this country, and you know, I have had the
privilege of visiting the National Energy Technology Lab in
your State, Congressman. It is--I think it is a real jewel of
the Department of Energy lab system, doing important work in
this area.
So I hope it is something we can work on.
Mr. McKinley. The Department, the EPA has become a rogue
agency for--they are pulling permits for mines, they are
shutting them down, they were operating for 4 years, Melville
Mine down in Logan County. They pulled the permit for Dan Mine
in northern West Virginia over a water permit.
These are operating mines. I want to get back now to the--I
think it is clear where the administration is. They don't want
to be held accountable, they want to continue doing research
rather than finish the job on what they are, and one of those
elements is coal.
But I want to go back to nuclear. Is there any way that we
can take those spent fuel rods instead of storing them, are
they--is there any way that we could use them for the military
in fueling our ships that once they have been completed, their
lifecycle is finished for creating energy?
Mr. Hicks. We can take that one back for the record, sir. I
am not able to speak to that today.
Mr. McKinley. Do you have any----
Mr. Sandalow. I know this, I mean, this committee has had
extensive conversations about Yucca just this week,
Congressman, I know, and my colleague, Pete Lyons, was up here
testifying on exactly this topic, and I know he is answering
extensive questions for the record from your committee on
exactly this topic.
Mr. McKinley. But right now for the--we cannot store any
fuel rods at Yucca Mountain. Is that correct?
Mr. Sandalow. Right. I mean, Yucca Mountain, of course,
Congressman, is, you know, right now not in a position, and it
is----
Mr. McKinley. Fifteen billion dollars spent----
Mr. Sandalow [continuing]. The blue ribbon----
Mr. McKinley [continuing]. And we can't put anything in it
yet.
Sorry. I have run over my time.
Mr. Whitfield. The gentleman from Texas, Mr. Green, is
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I have a number of
questions.
My first one is for Mr. Hicks. Section 526 of the Energy
Independence and Security Act of 2007 sought to limit the DOD's
ability to enter into contracts for fuels derived from coal-to-
liquid fuels or ``non-conventional'' oil sources, such as
Canadian oil sands. Advocates of Section 526 claim it was
supposed to impact the purchase of fuels that were made
available to the general fuel supply, but environmental groups
are suing DOD for purchasing fuels derived from oil sands.
Is it practically possible for the DOD to determine which
fuels are derived from Canadian oil sands or which are not in
the general--Nation's general fuel distribution system?
Mr. Hicks. Congressman, I appreciate that question. I think
the best way for me to answer that is really take that one for
the record. That is really a better question I think for
Defense Logistics Agency Energy, who is the one who that is
purchasing the fuel on behalf of the services to answer. Yes. I
would prefer that, to take that for the record, sir.
Mr. Green. Well, I have refineries that produce--bring in
crude oil from a lot of different places, and the result is
aviation fuel, and you can't tell if the aviation fuel meets
the criteria whether it comes from the Gulf of Mexico, Saudi
Arabia, or even Canadian oil sands. So----
Mr. Hicks. Yes, Congressman. I know that is a challenge and
how they can find that accounting, and we can do, can kind of
track where the dropped fuel and barrel of oil came from, but
it is one that is probably better suited for DLA Energy to
respond.
Mr. Green. Thank you.
Mr. Sandalow, Wednesday the last question from my
colleague, the Environment Subcommittee had a hearing on Yucca
Mountain. In that hearing we discussed the need to develop at
least one interim storage facility to ease the burden of the
storage dilemma.
The President has said that he supports investments in
alternative forms of energy, and Secretary Chu testified before
this committee that we are unable to meet the President's goal
if we do not continue to invest in nuclear energy. This, of
course, means that we will have to have an increase in nuclear
waste, and we need to safely store it. So we will need to
resolve the situation sooner or later.
In June of 2009 the DOE withdrew its proposed Global
Nuclear Energy Partnership Technology Demonstration Program.
This program would explore different ways to recycle spent fuel
much as the French system. If the administration does not
support long-term storage at Yucca Mountain or recycling fuel
rods but remains insistent on we must rely on energy sources
such as nuclear, then just what do we intend to do with this
nuclear waste? Is there an alternative? Because I know the
French have been, you know, recycling those rods for at least
20 years.
Mr. Sandalow. Yes. Thank you for the question, Congressman.
It is very important and along the same lines as Congressman
McKinley.
This is a topic that is being addressed by Blue Ribbon
Commission appointed by the Secretary of Energy, composed of
some of our Nation's leading experts on this topic, and their
report is expected this summer. So I would defer any further
question, you know, and answer on that, I mean, answer on that
to Blue Ribbon Commission.
Mr. Green. Mr. Chairman, we might need to have the Blue
Ribbon Commission come up some time because I wasn't in
Congress in the '80s when the decision on Yucca Mountain was
made, but obviously, hopefully, they had a Blue Ribbon
Commission in the 1980s to make that decision.
Let me ask a question also. H.R. 909 has set up a reverse
auction to incentivize renewable energy development. I have
some concerns on how the details are laid out in the
legislation. Mr. Sandalow, you testified about the Department's
experience with reverse auction for cellulosic biofuels which
has yet to achieve its objectives. The cellulosic biofuels
industry, which was expected to take off, has stalled, and last
summer's call for bids in the reverse auction went unanswered.
Clearly reverse auctions must be carefully crafted in order
to achieve the dual goals of saving money and incentivizing
production. Several aspects of reverse auction in this
legislation may be problematic. Reverse auctions have potential
as incentive for renewable energy development, but it is clear
from DOE's experience that the details matter, and if our
committee develops legislation on the matter, we will be
mindful to do so very carefully.
For example, in order to be eligible to participate in
reverse auction, facilities have to have power purchase
agreements in place. My question, Mr. Sandalow, is what stage
of development will a renewable energy project developer enter
into a power purchase agreement?
Mr. Sandalow. Well, I think the way that that relates to
the reverse auction is something that will need to be worked
out in the course of discussions about this legislation,
Congressman. I agree completely with the point you are making
that reverse auctions have tremendous potential. They are an
important market-based mechanism, but the details do matter in
terms of how we work that out.
Mr. Green. Is there any portion of the renewable energy
sector in your estimation that has progressed to that stage?
Mr. Sandalow. I am sorry, Congressman. When you say that
stage?
Mr. Green. To the stage of even talking about a power
purchase agreement.
Mr. Sandalow. Yes, absolutely, Congressman, there are.
Mr. Green. And as soon as they reach that stage, will they
have done so without the benefit of federal loan guarantees
included in--including DOE loan guarantees and loan guarantees
administered by USDA for biofuels?
Mr. Sandalow. That is a good question which I will take for
the record, Congressman.
Mr. Green. OK. I don't expect you to answer about USDA, but
if you could--if they have done it without the Department of
Energy loan guarantees.
Mr. Chairman, I know I am out of time. I will submit the
rest of the questions.
Mr. Whitfield. OK. Mr. Olson, you are recognized for 5
minutes.
Mr. Olson. Thank you, Mr. Chairman. I seem to be the guy
who always comes up when votes are being called, so I will try
to be brief. But thank the witnesses for coming today, thank
you for your expertise.
My first question is for you, Mr. Sandalow. As you know
now, the U.S. is the largest producer of natural gas in the
world, and there is great potential there to improve our energy
security, our national security. Hydraulic fracturing
advancements in horizontal drilling techniques have been the
key to developing these resources. President Obama in the State
of the Union and energy speeches this year has said natural gas
is a big part of our energy future.
EPA is studying the fracturing process over concerns about
contamination of drinking water, but Administrator Jackson
admitted on the Hill over on the Senate side last week that
there are no known cases of contamination as results of
hydraulic fracturing.
Last year in a reference to hydraulic fracturing Secretary
Chu was quoted as saying, this is a quote, ``We are going to
have some regulation going on then.'' Let me read that again.
``We are going to have some regulation going on then.'' So
basically DOE is looking to have DOA doing some regulation, and
has your agency been actively pursuing any regulations over the
practice of hydraulic fracturing?
Mr. Sandalow. Congressman, thank you for your question. A
couple of points in response to it. First, I would emphasize
that all the--that the technical progress that we have made in
shale gas in the past couple of years is extraordinary and
impressive and that much of it started with funding from the
U.S. Department of Energy. It is a great example of the
important role of the Federal Government in spurring
technological innovation.
At this--in your question about the environmental impacts,
the Secretary of Energy has asked his advisory board to take a
look at this issue, and in fact, just this week that advisory
board has been meeting, looking at technologies that will allow
us to develop our shale gas resources using hydraulic
fracturing and doing so in a way that minimizes environmental
impact. And that has been the main focus of our activity at the
Department of Energy on this topic.
Mr. Olson. OK, but there is no known contamination of
drinking water from a DOE perspective. Correct?
Mr. Sandalow. I don't have specific information on that,
Congressman. That would mainly fall into the purview of the
Department of the Environmental Protection Agency.
Mr. Olson. I couldn't agree with you more. The government
has a great record of investing resources but once we get
beyond that, that is about it, and it is my concern that we
don't have the competing things, EPA, these things to keep
these resources going, because, again, our natural gas reserves
are--right now, clean source of energy, so our generation is
probably in transportation, the next, you know, replace
gasoline with something we need to do right here in our
country, American jobs and decrease our dependence on foreign
sources of oil.
Mr. Hicks, I appreciate your comments today about the
Department of Defense, the Department of the Navy's dependence
on fossil fuel. If I understand your comments to Mr. Terry, DOD
and the progress you are making isn't because you are changing
fuels per se. It is because you are doing all sorts of things
outside, streamlining the aircrafts, moving in the propellers,
those type of things, the screens on the surface vessel subs.
And obviously wind and solar aren't going to be used in those--
our carriers, our subs, or our airplanes. I mean, some fossils
are going to be a big part of our future and very specific
fossil fuels; mosinavia and JP, JP-5, JP-8. JP-8 was on--
because it was specifically designed to have a lower flash
point so the fires we had in history like the USS Forrestal
during the Vietnam War.
And that is a very special fuel, and most of that, a lot of
that is, built is not the right word, but is processed in the
district Congressman Green represents at the shale facility in
Deer Park, Texas, and you know, it is, again, if it was made
more difficult to obtain these fossil fuels, would that have a
weakened affect on the military of today?
Mr. Hicks. Certainly that would have an effect, and I think
it speaks to our overall energy strategy, which is both one of
efficiency and one of finding domestic alternative sources so
we can be more independent in our field choices, and, again,
the waypoint that we are going toward is a 50/50 blend of the
JP-5 that you mentioned in hydro-renewable jet fuel, and
likewise, F-76 Marine diesel and a combination of HRD hydro-
renewable diesel fuel for our service vessels.
Mr. Olson. Thank you for those comments, and I am about
running out of time, but I know you share these sentiments,
but, you know, our job, our main job of our military is to kill
our enemies, and our job here in Congress and your job is to
give them all the equipment, the proper equipment, the proper
fuel they need to do that and not to be some sort of test bed
for some future generated source of energy. Other people can do
that. We need you to have your fuel and fossil fuels for as
long as you need it to have the best equipment out there that
is second to none.
I yield back the balance of my time. Thank you.
Mr. Whitfield. Mr. Inslee, you are recognized for 5
minutes.
Mr. Inslee. I thank you, thanks, Mr. Sandalow, for being
here. Glad you are on duty, and I want to ask you both about
biofuels potential. I am going to be a little parochial talking
about this for a moment because we really have an aggressive
effort to develop a biofuels industrial base in the Pacific
Northwest. There is a very active consortium with Boeing and a
host of civilian aviation firms, and we appreciate Secretary
Mabus's leadership on this. He was hugely excited on our Earth
Day last year in the rose garden when he announced that we had
had our Green Hornet first time break the sound barrier using
biofuels. That was pretty exciting.
Mr. Sandalow. Yes.
Mr. Inslee. So I guess the question is what can we do to
facilitate a bioreactor actually going in out in the Northwest,
how can we help that effort, and what is the status of those
considerations?
Mr. Sandalow. I am going to start by thanking you,
Congressman, for your long-time leadership on these issues. I
have learned a lot from reading what Mr. Inslee has written
and----
Mr. Inslee. Good. There was somebody out there. I wasn't
sure.
Mr. Sandalow. This is an extremely important area of our
country, one with tremendous potential. I am going to have to
take back the specific question about the opportunities in the
State of Washington and come back to you on that, but there is
no question that overall this country can create jobs and
reduce our dependence on oil with investment in new biofuels
technologies. We just heard what I think is an amazing American
story about taking a fighter jet to mach 1.2, you said, I
believe, and using American-made, you know, biofuels from a
technology nobody would I think believe was possible 10 or 20
years ago.
That is exactly the type of thing that we can do, and the
future, I think, many--I have heard experts say that the next
stage in this industry is scaling up commercial-sized bio-
refineries that will get significant volumes of biofuels that
have been tested at bench scale up and into the marketplace,
and I think it is very important that we look at ways to do
that in the years ahead.
It is important that we continue the research in the new
types of feedstocks that are really going to make a difference
in the years and decades ahead.
Mr. Hicks. And if I could add, and I would be remiss if I
didn't mention that the Green Hornet actually has now gone to
1.7, mach 1.7. Commander Weaver, Pie, as he is known, I think
would want it to be known that he has taken it to its full
limit with no challenges at all to the fuel whatsoever.
Certainly as we know a couple of companies in the State of
Washington, they are doing great work, AltAir Fuels is one, and
I believe Imperium is another, and we are watching those
companies as they mature.
In terms of your question I think just, you know, continued
support toward alternative fuels is something that we can do as
a country to help us and enable us to be more energy
independent. As David mentioned, you know, R&D plays a critical
role in this both in the near term and the long term. I think
for our efforts being able to test and certify the platforms we
have and be able to accomplish those missions at 100 percent of
their abilities with no challenges at all with those fuels is
something that we would also just, you know, request continued
support for.
Mr. Inslee. Well, just to be a little parochial, there is
an amazing consortium out in our neck of the woods, and we have
multiple companies, Targeted Growth is doing genetically-
modified base, a company with some leadership in Washington
State, Sapphire Energy, is doing algae-based. There are now
commercial scale or pre-commercial scale ponds in New Mexico,
and I know you will be looking for--from growing to
distribution to testing to commercialization. I think we are
developing that kind of environment out in the Northwest, and
if there is any way we can help accommodate your efforts, that
would be great.
I want to ask you about coal to liquids. I am a person who
has supported the effort to develop cleaner coal to reduce CO2,
and we supported here in the bill we passed in the House last
year, the year before last, a billion-plus dollars a year to
help develop a way to use coal in a way that does not
significantly disrupt the climate.
But the coal to liquids that I am familiar with that are
addressed in this bill it appears to me would actually go
backwards from a CO2 pollution context and lifecycle of the
product. If that is correct, then why would we want to go
backwards to a product that actually is going in the opposite
direction than we all know we need to go?
Mr. Hicks. I would just say those are some of the questions
that we have from the Navy's perspective, which are--I think
there are some large questions around that technology and may
explain why some of those in that industry are pulling back or
dialing back some of their efforts there.
But the questions of the enormous capital expenditures
needed, $5 to $10 billion, enormous water needed, as well as,
you know, just some of the waste product that would come out of
that are all areas that need to be addressed, in addition to,
and this is what is great with Department of Energy is dealing
with and doing the research and development on carbon capture
and storage technology, which can be used, you know, with the
coal plants that we do have, the plants that have been
providing affordable power for, you know, a century now and
will into the next and using that technology focused on those
plants I think is something that could be an advantage.
But for coal-to-liquid facilities and to suggest that that
is the near-term solution with all these other question marks I
think is something that needs further inquiry.
Mr. Inslee. Thank you.
Mr. Whitfield. Thank you. We have one vote on the House
Floor, and so we are just going to take a little time off here.
I think Ms. McMorris Rodgers will be coming back, and when she
comes back, I think she will have questions for the two of you,
but whether she does or does not come back, we will be back
within about 10 minutes.
So we will be in recess until then.
[Recess.]
Mr. Terry. [Presiding] Hopefully I will have some of my
colleagues continue to join me, but we are finished with the
second panel. So Mr. Sandalow and Mr. Hicks, really appreciate
your testimony. It was interesting, and I thought you gave good
detail on your answers, which is much appreciated by this
committee.
So at this time you are dismissed.
At this time we will call up the next panel. While we are
setting up name plates and getting the chairs organized, our
third panel is Neil Auerbach from the Hudson Clean Energy,
James Bartis, Senior Policy Researcher, RAND Corporation, and
Jack Spencer, Research Fellow, Nuclear Energy, from The
Heritage Foundation.
Mr. Auerbach, we are going to start with you. Give us just
a few more seconds to get settled in, get your water, turn your
mike on, and Mr. Auerbach, if you would begin.

STATEMENTS OF NEIL AUERBACH, MANAGING PARTNER, HUDSON CLEAN
ENERGY; JACK SPENCER, RESEARCH FELLOW, NUCLEAR ENERGY, THE
HERITAGE FOUNDATION; AND JAMES T. BARTIS, SENIOR POLICY
RESEARCHER, RAND CORPORATION

STATEMENT OF NEIL AUERBACH

Mr. Auerbach. Thank you very much, members of the
committee, for the opportunity to testify for you today. It is
an honor and privilege.
My name is Neil Auerbach, and I am the Founder and Managing
Partner of Hudson Clean Energy Partners. Hudson Clean Energy
Partners is a global private equity firm that focuses
exclusively on investing in the clean energy sector. With over
$1 billion in assets under management, Hudson is a leading
global investor in sectors that include wind, solar and
hydroelectric energy, and biofuels, biomass, smart grid,
electric vehicles, energy efficiency, and storage. Given our
position on the front lines of these fast-growing industries,
we have seen firsthand the impact of government policies on
private sector capital flows, both at home and abroad.
New capital flowing into our sector is coming in at such a
quick pace that we are already drawing nearly equal to capital
flowing into new fossil-fuel-fired power plants around the
world, and in fact, in 2010, the amount of capital in renewable
energy power generation was about 85 percent of global capital
flowing into fossil-fuel powered generation. So this is
becoming and is now a very big business.
The increasing scale of our industry is causing dramatic
changes and strategic thinking of industry players and
policymakers around the world. Other forces at work in the
energy industry are also causing a reassessment of strategic
thinking, most notably the rapid advances made in extracting
shale gas cheaply.
While these and other forces at work are putting pressure
on lowering the cost of power, upward pressure on the price of
oil is occurring, leading to higher prices at the gasoline pump
for motorists here in the U.S. and around the world.
As the Chinese economy continues to grow, demand for
petroleum will continue to increase. Today China is by far the
world's largest market for automobiles, yet on a per capita
basis the market penetration for automobiles is roughly about
1/20 of what it is in the United States. Imagine what will
occur when they draw equal to the United States.
While my written testimony addresses the reverse auction
mechanism in Title III of H.R. 909, I just want to articulate
first, although my specialty and frankly a majority of my
network and my career is now devoted to clean energy, I am
broadly in support of an all-of-the-above strategy and that
strategy informing this legislation, and so I support the basic
concept of using dedicated oil and gas royalties as a funding
source to create a trust fund out of which payments will be
made to renewable energy generators.
It is important to understand why I believe so passionately
in the future of clean energy and why I believe it is actually
in the present. There are three basic reasons why clean energy
is increasingly attractive to consumers and to policymakers
around the world. It is good for energy security, including
American energy security, it is good for economic growth, and
it is also good for the environment, and I believe that by
looking at all three factors one concludes that more clean
energy, in particular, renewable energy, is better than less
for America's energy future.
I want to focus before getting into renewable--to reverse
auctions directly on the chart which is to my right, and if you
want, I can--if the camera can focus on it. Just as an
illustration to make it as clear as I can with a chart, that
looks fairly complex I will try to simplify it, at just how
dramatic the changes are that I refer to in the--in what is
happening today in clean energy.
Over the past 80 years there have been obviously
significant price movements in the electricity sector in the
United States of coal-fired, gas-fired, nuclear-fired, wind-
powered, and solar-powered electricity. And what this chart
shows is how prices have come down as each of these power
sources has scaled over the past roughly 100 years. The fastest
declining cost for power is coming from solar, and that is the
orange dotted line all the way on the right. Next fastest is
wind, and then we have got natural gas and coal and then
nuclear, which to date has actually been increasing in cost.
Now, again, I am not against any of the power sources but
ultimately I believe that the reverse auction mechanism that I
will address in more detail now speaks to the need to allow
market forces to drive down the cost of all sources of energy
in our economy, and the most--and so what we have seen here is
enormous progress.
Last week the research director for GE gave his
pronouncement that he thought that solar electricity would be
cheaper than coal, electricity in 3 to 5 years. My personal
assessment from investing hundreds of millions, if not
billions, of dollars in the solar industry over the past 10
years is that it may be 5 years away, maybe a little bit more,
but it is coming very fast.
Just to give you a further example, the solar industry has
grown from 2005 to 2011, 15 times. The changes that are
occurring in that industry alone are enormous, and they are
going to bring cheaper power to Americans everywhere if we
scale up the industry wisely in the United States.
The reverse auction mechanism, first of all, very simply,
there is a lot of confusion about what a reverse auction is,
and I think Congressman Nunes addressed it clearly. A regular
auction is clearly where one seller is trying to induce
multiple buyers to bid, to raise the price. In a reverse
auction the buyer is trying to do the opposite, and so there is
a lot of window dressing or detail associated with how one
constructs a reverse auction, but reverse auctions work, and
they have been demonstrated to work, and I will get into the
Brazil example in a few minutes.
The bill effectively proposes replacing the current tax
credit system over time that has existed for about 18 years for
supporting renewable energy with a reverse auction. I want to
point out here that the reverse auction mechanism in essence
works. There are some issues that need to be addressed, and I
will just mention two of them, and then we can get into the
rest of it in questions.
I believe that we need to remove the reverse auction from
annual appropriations. Billions, hundreds of billions of
dollars of capital can be mobilized in support of renewable
energy in the United States, but capital will not flow if the
reverse auction mechanism is subject to annual appropriation,
and I think that the PPA issue that has been raised by several
members that is noted in my testimony also needs to be
addressed. In my written testimony we focus on a recommendation
to actually expand the use of the reverse auction to include
all three revenue streams.
[The prepared statement of Mr. Auerbach follows:]

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Mr. Terry. Thank you. I appreciate that, Mr. Auerbach.
Mr. Spencer of The Heritage Foundation.

STATEMENT OF JACK SPENCER

Mr. Spencer. Mr. Chairman, members of the subcommittee, my
name is Jack Spencer. I am the Research Fellow for Nuclear
Energy Policy at The Heritage Foundation. The views I express
in this testimony are my own and should not be construed as
representing any official position of The Heritage Foundation.
Thank you for inviting me to testify before you today
regarding the Roadmap for America's Energy Future. I would like
to focus on the nuclear power provisions of that bill.
Nuclear is among America's least expensive electricity
sources. It emits nothing into the atmosphere, has a great
safety record in the United States, including no injuries.
Despite these facts, no plants have been ordered for over 3
decades. In many instances there will be none, there will be no
additional construction without taxpayer backing.
So this has been the basic approach of most policymakers.
In fact, looking at many of the proposals currently under
consideration, one might conclude that Washington thinks that
it can subsidize nuclear energy into commercial viability.
I would suggest, however, that a lack of taxpayer support
is not the problem. The problem is an incoherent nuclear waste
management policy and an antiquated regulatory system. The
energy roadmap begins to address both of these areas.
Ultimately, America's failed approach to nuclear waste
management presents a substantial risk to the future of nuclear
power. Constructing a nuclear materials repository is essential
to fixing this problem. Current law states that the repository
shall be built at Yucca Mountain. The energy roadmap breaks the
impasse over Yucca Mountain by establishing a 90-day timeline
for the Nuclear Regulatory Commission to determine based on
technical and scientific data whether or not to issue a permit
for repository construction. If Yucca is not suitable, the
proposal sets forth a process to find an alternative site.
But the roadmap goes a step further. It directs the
Department of Energy to report back to Congress on the
feasibility of both establishing an organization outside of the
Department to manage Yucca and of removing the fee that
ratepayers pay to the Federal Government for waste management
services. Removing the fee would allow for a market-based
system to emerge. It is this provision of the--that sets the
roadmap apart from recent, from its recent predecessors.
Instead of attempting to fix the flawed system, this
legislation allows for a fundamental reform of how nuclear
waste is managed. In a market-based system instead of paying a
preset fee to the Federal Government to manage used fuel or in
this case not managed used fuel, nuclear power operators would
pay a fee for service. This could include simply paying a fee
for geologic storage or a more complex suite of processing
services.
The key is to establish a pricing mechanism for placing
nuclear waste storage in a geologic repository. Nuclear power
operators could then decide, given the price of used fuel in
Yucca, how to manage their waste. As the price to access Yucca
goes up, so will the incentive for nuclear operators to do
something else with their used fuel.
This should give rise to an industry that competes to
provide used management, used-fuel management services. One
could imagine a marketplace where everything from interim
storage to full fuel reprocessing was available. The basic
regulation would be that all the waste must be disposed of by
the time the plant is decommissioned, and of course, that
everything is done within the guidelines set by the NRC to
protect public health and safety.
This idea is gaining ground. For example, Tim Echols, a
Georgia State Public Services Commissioner, recently published
an op-ed in the Atlanta Business Chronicle supporting the
approach. More recently, experts from the Center for Strategic
and International Studies, the Federation of American
Scientists, the University of Illinois Champaign-Urbana, and
The Heritage Foundation, I would be the representative there,
authored a report entitled, ``U.S. Spent Nuclear Fuel: A
Market-Based Solution.'' Even nations like Finland and Sweden
are finding great success in waste management programs where
waste producers are responsible for waste management.
The energy roadmap also would reform how new reactors are
permitted by creating a second permitting track that would
allow for a permit to be issued in approximately 2 years. The
expedited process would entail more efficient processes for
both environmental and technical review.
The bill also begins to build regulatory support for new
reactor technologies. Without this regulation, new technologies
are effectively banned from the marketplace. Customers do not
want reactors that the NRC will not regulate, and the NRC does
not want to put its resources toward a reactor technology that
has no customers. The result is that new technologies are at a
severe disadvantage.
To begin changing this, the roadmap directs the NRC to
develop a set of guidelines for technology-neutral nuclear
plants. Allowing our reactor designers to meet a general set of
plant guidelines would represent a significant step forward in
building a more diverse and competitive nuclear industry.
And the final point that I would like to bring to the
committee, the subcommittee's attention is that the proposal
would give the NRC a 90-day deadline to report to Congress what
personnel and resources are required to establish a
predictable, regulatory program for small modular reactors.
Like other elements of the bill, this provision moves away from
the subsidy-first mentality that consolidates market power in
Washington to a market-based division that allows the actual
commercial value of a technology to determine its ultimate
success.
That concludes my testimony. I look forward to your
questions.
[The prepared statement of Mr. Spencer follows:]

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Mr. Whitfield. Mr. Bartis, you are recognized for 5 minutes
for your opening statement.

STATEMENT OF JAMES T. BARTIS

Mr. Bartis. Mr. Chairman and distinguished members, thank
you for inviting me to further elaborate on the testimony that
I gave to this subcommittee on May 5 of this year. I will be
focusing my remarks today on the policy implications of
sections of H.R. 909 that deal with oil shale and coal
liquefaction, as is RAND's policy. My testimony neither
endorses nor opposes specific legislation.
The United States has enormous oil shale, has an enormous
oil shale resource base, enough to support the production of
millions of barrels per day for centuries. But getting a useful
fuel from this resource is technically complex, requiring
temperatures that are much higher than those used in processing
Canadian oil sands.
Moreover, nearly all of the high-value oil shale resources
geographically concentrated on federally managed lands lie in a
very small area, roughly 30 by 35 miles in Colorado's Piceance
Basin and within a small portion of the Uinta Basin within
Utah. That oil shale belongs to all of us. The public value is
potentially tens of trillions of dollars.
But reaping that public benefit, not to mention the energy
security benefits of domestic alternative fuels production,
requires the development of a commercial oil shale industry
capable of producing a few million barrels per day. That level
of production should be the long-term strategic goal for oil
shale. At this stage I don't know if that goal can be achieved.
We are talking about a tremendous amount of industrial
activity, especially when we consider supporting infrastructure
within a very small reason. Extensive measures will be required
to prevent serious adverse ecological and social economic
impacts and to protect the quality of the Colorado River.
My analysis of the oil shale provisions of H.R. 909 is that
they do not move our Nation towards that long-term strategic
goal of large and sustainable commercial production. My
specific concerns are detailed in my written testimony.
There are a few areas where Congress may need to provide
direction so that the Nation can realize the full opportunity
that oil shale offers. The critical step is obtaining early
production experience. Until we understand the performance of
the process options, it is not productive to engage in
establishing a detailed, regulatory structure for a large,
multi-million barrel-per-day commercial industry.
I suggest the following for consideration by the committee.
First, require that the Departments of Energy and the Interior
and the Environmental Protection Agency cooperatively develop
and publish a federal plan for promoting the construction and
operation of a limited number of pioneer commercial plants.
That plan should be designed to attract America's top high-
technology firms.
Second, require that the Department of the Interior
develop, publish, and implement a 15-year schedule for multiple
offerings of small R&D leases.
And third, require the preparation of plans for conducting
critical environmental and ecological research and an
assessment of the carbon management options in the vicinity of
the federally managed oil shale lands.
Turning to coal, here we have another enormous resource
that we could be utilizing to meet our liquid fuel needs.
Technical approaches are available to produce liquid fuels from
coal or a combination of coal and biomass with life cycle
greenhouse gas emissions that are comparable or significantly
below those associated with conventional petroleum.
Moreover, over the long-term, liquid fuels derived from a
combination of coal and biomass could provide a new market for
coal that could counter the adverse local and regional economic
impacts of reduced demand for coal in power generation due to
measures to reduce greenhouse gas emissions.
I am concerned with the slow progress towards gaining
commercial experience in coal-derived liquids production in the
United States. However, I do not believe that government
ownership of alternative fuels production facilities is a
credible solution. If the Congress is interested in using the
purchasing power of the Defense Department to promote early
commercial experience, I suggest providing the Department with
the authority to make long-term agreements to guarantee a
minimum sale price to the benefit of the alternative fuel
producer in the event that oil prices are low. In return for
this benefit the Department would negotiate a maximum purchase
price that would be lower than world oil prices in the event
that world oil prices pass a specified threshold.
I would also like to make a few comments regarding 526 of
the Energy Independence and Security Act of 2007. The primary
policy issue raised by repeal of this section is whether it is
in the national interest to allow government agencies to
promote the production of alternative fuels to have life-cycled
greenhouse gas emissions that are significantly higher than
their petroleum counterparts. For example, repeal of this
section would open the door to a government procurement of
coal-derived liquids produced without any management of
greenhouse gas emissions.
As enacted, Section 526 places severe constraints on the
government's ability to purchase fuels. This is because
commercially-available fuels might contain certain amounts of
alternative fuels that fall under the prohibitions of that
section, as was mentioned by the Congressman from Texas.
Congress attempted to correct this problem in 2010, when it
enacted Public Law 111314, but the language of Section 3010 of
that law is very unclear. Congress should consider clarifying
the meaning of that section.
If the intent of Congress is to promote the early
production of alternative fuels with greenhouse gas emissions
that are comparable or very close and well within the
uncertainty of our petroleum imports, then Section 526 can be
appropriately amended. For example, an amendment could allow
government purchases of alternative fuels derived from coal if
90 percent of greenhouse gases produced during the production
process were captured and sequestered. Such a provision would
greatly simplify the ability of a coal-to-liquids plant to
qualify for government purchase contracts.
My written testimony contains a section-by-section review
of the oil shale and coal-to-liquid provisions which I hope you
will find useful.
Thank you very much, sir.
[The prepared statement of Mr. Bartis follows:]

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Mr. Whitfield. Well, thank you all for your opening
statements, and at this time I am going to call on Mr. Terry
for 5 minutes of questions.
Mr. Terry. I appreciate that, Mr. Chairman.
Mr. Auerbach, fulfilling my promise, but it is one of the
more intriguing aspects of the bill is reverse auctions and
clean energy. So in the context of Brazil, you said you were
going to tell us about Brazil, but put it in the context of
what also you think would positively and negatively work in the
United States to encourage more clean energy.
Mr. Auerbach. Sure. Certainty provides greater investment
in clean energy infrastructure, and the current system we have
of tax credits that expire every couple of years has introduced
uncertainty and has stymied deployment. The reverse auction
mechanism in Brazil, which came actually I think it was last
year, the year before that was called ``the PROINFA feed-in
tariff,'' at an average price for wind of about $136 a
kilowatt. I am sorry. A megawatt hour.
In the reverse auction process auctioning off 2.1 gigawatts
of wind energy in a number of different contracts, the average
price bid was $74.40 in U.S. dollar terms. That came in below
hydropower, which averages in Brazil about $80 a megawatt hour.
That is remarkable. Some have criticized the auction for
allowing too many speculative bids, but if you look at the list
of winners, you see some of the largest utility companies,
companies that have very substantial balance sheets and are
capable of transacting. So I do believe that the auction there
has worked.
And so the biggest difference between the Brazilian auction
and what is in this current program is that you sell the power
to the reverse auction agency rather than just one attribute,
and so in our proposal one way of solving the chicken and egg
problem associated with meeting a power purchase agreement to
establish credibility before participating in the reverse
auction to get the benefit payment that substitutes for tax
credits is to be able to sell all the revenue streams through
the reverse auction agency that would be administering the
purchase and sale of electricity.
So a renewable energy generator would have a price certain
for all of its attributes. The three income streams are to sell
the power itself, the sale of renewable energy credits, which
are a substantial portion of the revenue stream of a renewable
energy generator, and the benefit payment that comes from the
trust fund. And that would take some work to get that
innovation into the law and obviously we would need bipartisan
agreement, but I think it would actually streamline and
dramatically increase the clean energy generation in the United
States.
Mr. Terry. Does Brazil have a credit as well?
Mr. Auerbach. I don't think so, but I would tell you I
would like to do more homework. I have researched, but we don't
have facilities in Brazil today. So I may be missing a beat,
but I have studied it, and I don't believe so. I think it is
just one price.
Mr. Terry. So but in your testimony you mentioned multiple
revenue streams, one of which is the tax credit.
Mr. Auerbach. Right.
Mr. Terry. The philosophy I think that we are working under
is reverse auctions instead of credits.
Mr. Auerbach. Correct, and so what I mean, let me just make
this as simple as I can because there is a lot of complexity
here. If--I actually have companies that have several hundred
billion dollars invested in clean energy generation in the
United States in development. What we want to do is to know how
much money we are going to make for the sale of the electrons,
and the way you get paid is through the power purchase
agreement, through the tax credits today, and through renewable
energy credits.
And so that, the total of that revenue divided by the
capital costs and minus your funding costs is how much money we
made, and so if the clean energy generator knows how much money
they are going to make and they can have that price certain,
then you are going to have more clean energy generation because
the market is determining it.
The reverse auction mechanism is substituting a tax credit
for a benefit payment, which I believe is more efficient on its
own. So if the reverse auction only covered substitute tax
credit payments, we need to solve the chicken and egg problem.
There are other ways of solving it. Our recommendation is to
just--is to have a more organized sale of renewable power
through the reverse auction agency, which I believe can be used
for a broader purpose, including the diversion of royalty
payments into the trust fund and any allocations to renewable
energy generators.
Mr. Whitfield. Mr. McKinley, I will recognize you for 5
minutes for questions.
Mr. McKinley. Thank you, Mr. Chairman.
I am just curious to get a sense of where we are in this
with the--if the bill was presented, would you support it?
Mr. Auerbach. I would support it with modifications. If we
got the modifications that we asked for, I would support it. As
written it needs further work in order to have its intended
effect.
Mr. McKinley. Thank you. Mr. Spencer?
Mr. Spencer. I am not in a position to support or not
support legislation. I can say that I think that a lot of the
ideas and policies put forth certainly from a nuclear
standpoint really give us a new way to address some really
fundamental flaws in how we do nuclear energy and gives us a
future there.
Mr. McKinley. Mr. Bartis.
Mr. Bartis. I would rather not comment on that. I haven't
studied this.
Mr. McKinley. I am just--I was curious because I think at
least he is showing some imagination here and something that
reflects a little bit on the use of coal, and as I said to the
earlier panel, my--I have come pretty clearly to understand
there is quite an aversion in Washington and especially under
this administration to use coal.
Mr. Bartis. Well, there has been a long history of Congress
and the administration specifying how to do things as opposed
to what the goals are, and as we pointed out with coal
liquefaction, if we can do it with a small amount of biomass
and coal, gets you fantastic environmental benefits, and it
gets you very reasonable costs. And yet the way we have
structured some of our legislation, that option is not allowed
because as soon as it is coal involved, it doesn't meet the
renewable.
And so I think there is, you know, the goal of the Congress
should always be focused on, you know, what are you trying to
achieve. Are you trying to achieve energy security, are you
trying to achieve lower greenhouse gas emissions? Use those as
your goals, not specifying technologies.
Mr. McKinley. Do any of you know from the coal industry
whether the coal industry is subsidized? I hear that all the
time here. Panels, members of the other side of the aisle talk
about the subsidy on the coal industry. Do any of you have any
record at all of the subsidies on coal?
None? Again, I am just curious because it seems like we
just keep chasing things down the stream. I won't use that
clique, but, again, we just don't seem to solve anything. We
are about--we get close to solving something. There was the--
what was it, the Fischer-Tropsch process, it was--why aren't we
just back in the '30s, why aren't we just perfecting it instead
of taking on something new?
And maybe it is--maybe I am being naive about the whole
process. I am thinking as an engineer that we would complete
something instead of starting something new. It just seems like
this administration and the whole process that we don't have
the energy policy, we don't have any plan to have an energy
policy, everyone talks about it, but there is none. And we
are--we don't want to be held accountable. We seem to be so
much more filled here in Washington with symbolism that we want
to move symbolically to starting a new fuel process and new
energy when we have things that we could work.
I can imagine if this would have been back in the
automobile industry if we had quit making the first automobile
and went with something else, but they kept perfecting it until
it became the automobile, the vehicle that we use. Same thing
with airplanes when they started in the process. Why don't we
finish it? Why don't we just--what--is it the economics? Mr.
Bartis?
Mr. Bartis. No. Our discussions with organizations that are
interested in promoting and building plants is that there is a
residual concern regarding where the world oil prices are
heading, and we all, because they are high today, we think they
are going to stay high, and if you have got a large investment
to bet on that, you are going to be a little bit more cautious.
So there is downward potential that could last. It may not
be very long, but it could be downward potential, and that
would cause something like a coal-to-liquids plant to be a
disaster. And that is why we are talking about--in our analysis
we looked at incentives that the government could provide that
would be applicable to the first few plants. We don't like
subsidizing production. We do think that there is a government
role in promoting early commercial experience, and coal-to-
liquids is one of those, coal and biomass to liquids. That it
is environmentally clean is one of those applications.
Mr. McKinley. Thank you. Mr. Spencer, do you have something
you want to chime in?
Mr. Spencer. Yes, Congressman. I am here to talk primarily
about nuclear energy, but you have given me an opportunity that
I find hard to pass up. Given that when I am not working on
nuclear energy I work on energy subsidies broadly, and I think
the bigger issue here is what is the role of government, and
you talked about these projects that have started and stopped.
I would simply suggest that with all due respect to all of the
great men and women who have--who work in this building and the
one on the other side and all of the great men and women and
scientists who work down at the Forsaw Building at the
Department of Energy, that ultimately it is the marketplace
that is the best arbiter of which of these technologies go
forward and which ones don't.
And if coal to liquids is the way to go, then people will
invest in that and will do that. If energy prices are going to
stay high, then that creates a panoply of opportunity for
biofuels, ethanol, whatever the case may be, but we continue to
use Washington and centralized control in Washington to distort
the marketplace, so we never get any of these projects
finished, rather than allowing and trusting the marketplace.
And ultimately it is the marketplace that has given us all of
the goods and services that we enjoy today.
Mr. McKinley. Thank you very much. I think I have gone over
my time.
Mr. Whitfield. The gentleman from Kansas, Mr. Pompeo, is
recognized for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman.
Mr. Auerbach, you talked about the increase in capital
flows into renewable----
Mr. Auerbach. Yes.
Mr. Pompeo [continuing]. Energy. What drove that increase?
You said--I forgot the time period. The last couple of years?
Mr. Auerbach. Yes. In the solar industry--the last 6 years,
I am talking about--it was policies, government policies around
the world. Most of that actually was happening in Europe with
feed-in tariffs, the most notable of them is in Germany, which
despite its relatively poor solar insulation conditions is the
world's largest market for solar energy. And it also resulted
from improvements in technology, and several companies, many
companies have participated in that progress in the United
States, in Europe, and in China.
So the cost of installed solar has dropped roughly about 75
percent over the last 5 years. When prices drop and they are
going to continue to drop, it stimulates demand, and these
feed-in tariffs which started out very, very high have been
coming down extremely quickly. I am not a personal proponent of
feed-in tariffs as the way to go because it is another example
where the government is setting the price rather than the
market, which is why I like Congressman Nunes's reverse auction
approach.
But the combination of market stimulus, the price signal,
and technology progress has resulted in a transformation of the
solar industry unlike anything I have seen in the energy
industry over the course of my involvement, and this would be
for well over a decade.
Mr. Pompeo. I appreciate that, and I, too, I think the
reverse auction is a step forward from the way we have done
business. I can't imagine putting hundreds of millions of
dollars at risk depending on us to renew a tax credit every
couple of years.
Mr. Auerbach. It makes me nervous.
Mr. Pompeo. Yes. I can only imagine the increase in the
cost of capital that results from that.
Mr. Auerbach. The cost of capital has gone up much higher
in the United States than anywhere else in the world because of
it.
Mr. Pompeo. So with all of these improvements that you
described why not just say, hey, just go away? Why not just
tell us, go away, leave us alone, don't need a reverse auction,
we don't need a thing. Remove the regulatory barriers that are
in the way of all of these things whether that is wind or solar
or natural gas and coal, and we will raise the money, and we
will get it done, and we will make money doing it. And make
really happy consumers because they will have affordable energy
here in America.
Mr. Auerbach. OK. That is a great question, and there are
many who have suggested that. Let me--in answering that
question, and I am sure my other panelists here will have views
on it, I will also touch on Mr. McKinley's point. If you look
at the history of federal expenditures in this country, there
has been an analysis actually done for the Nuclear Energy
Institute a couple of years ago. The vast majority of federal
expenditures have gone actually to fossil fuels, something like
73 percent, including to the coal industry.
Now, I didn't do the study myself, so I can refer you to
it, and so you can look at the source material I quoted in my
testimony. And so the renewable power industry is catching up
and is catching up as the chart shows at a pace that gives us
enormous confidence in the future. If you simply stop the music
and then force everyone to find their seats, it may be that the
wrong folks will not find a seat, you know, in the room that
otherwise would be the winners in a few years from now.
So what we need is smarter policies that allow market
mechanisms to work more efficiently. Stopping the music right
now and pulling all subsidies or all expenditures of all sorts
I think would increase the cost in the short term rather than
reduce the costs.
So I think we need to do this in a more gradual way.
Mr. Pompeo. I don't understand that. I don't understand how
if the government got out of the way it would increase costs.
You would still--because it would still find the low-cost
alternative, and utilities would power their plants with the
low-cost alternative, and more people would go figure out how
to make those curves come down even faster.
Mr. Auerbach. Well, what the reverse auction does is it
actually allows the market, if the market doesn't need it, the
market will not be asking for it, and it will disappear on its
own, so it allows actually for a gradual move to full market
freedom to set prices.
So I think the reverse auction mechanism is the safer way
to get the same goal that I share.
Mr. Pompeo. Yes. Very good. I yield back the balance of my
time, Mr. Chairman.
Mr. Whitfield. Thank you. At this time I would recognize
the gentleman from Louisiana, Mr. Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman.
I would start with Mr. Auerbach. On the reverse auction, I
know one thing that you talk about a lot of us get frustrated
with is when you see some trying to pick winners and losers
where government is trying to pick who is going to win and who
is going to lose.
In a reverse auction can you maybe walk through some things
in that type of process that would prevent the Federal
Government from picking winners and losers?
Mr. Auerbach. OK. Yes. What the bill currently provides is
a division of regions and actually a division of technologies.
There, what we are trying to do on the region side is to allow
various resources in the country to be developed on their own.
See, if you actually have one national auction, a reverse
auction, you might have South Dakota taking all of the wind
resource, but because of the lack of transmission, you may
never be able to evacuate that power to California or New York
or Chicago where you need it.
And so a regional approach allows the realities of the
marketplace to work well, so I think it is a well-designed
piece of the legislation. What we also do is allow for--what
the legislation does it allow for technology limits, 60
percent, I think, to one technology, 90 percent for two, and
what that is doing there is saying that although wind today is
the cheapest form of renewable power generation, ultimately
because of these cost curves you want to induce more
competition and to see oil prices continue to come down.
So the allocation of the auction among technologies I think
helps to push the price down of all renewable power.
Mr. Scalise. Thanks. One of the things we have been hearing
when you talk about impediments to expanding renewable energy,
it seems like some of the same things we are hearing about
impediments to developing some of our own natural resources in
America in traditional energy are seeming to apply to renewable
energy, and that is overreach by the Environmental Protection
Agency.
Can you describe, especially as it relates to the long
process it takes for site selection, things like that, can you
describe what types of overreach you have seen?
Mr. Auerbach. Yes. Anecdotally, although I--we have a lot
of development sites in California, it is well known, for
example, that it takes 2 to 3 years to actually develop a wind
farm in Texas, and it takes 5 to 8 years to develop a wind farm
in California. I don't think it is the EPA that stands in the
way. It is a lot of State environmental red tape that delays
the pace of development in California in particular. But
California has actually--recently has been showing more
progress.
And so environmental red tape is actually a problem for the
renewable power industry, and so more accelerated permitting
would allow, both on federal lands and also on private lands,
would allow for faster deployment of renewables and cheaper
deployment of renewables.
Mr. Scalise. Thanks. Mr. Bartis, talking about more
opportunities for permitting for natural resources, I know one
of the frustrations that we have in the Gulf Coast area is the
inability to get clear guidelines from the Department of
Interior, BOEM, to move forward but also with the inability to
get more areas opened up. When you talk to other States, it
seems like there are a number of other States interested in
getting into the game and helping produce American energy, and
you know, it surely would be my goal to see us eliminate our
dependence on Middle Eastern oil.
Clearly, we have the capacity to do that with so many
reserves that are completely shut off by federal policy, but if
you can talk maybe about some incentives that could be provided
that you know of that would encourage States to participate
where maybe they are not right now.
Mr. Bartis. That is a tough question. There is a lot--from
what we know there is a lot of offshore oil that other States
have, and the challenge is to move forward successfully. We
know we have a tremendous amount of oil shale as addressed
today, literally three times the reserves of Saudi Arabia, that
look very attractive. We need to make some progress there. The
only way to get progress is to get some more experience, and
that means we have got to allow people, to give industry enough
incentive, a big enough reward so that if they go in there and
figure out how to do this, and thereby monetize this huge
resource that we have as a Nation and to our benefit, you know,
they will move.
Mr. Scalise. What is your take on increased revenue sharing
to States who want to participate?
Mr. Bartis. The revenue sharing, I mean, I can't comment on
the revenue, I mean, the revenue sharing. I don't want to
comment on that. I think there is already revenue sharing as
you are aware, and I don't--we have not looked at whether----
Mr. Scalise. Well, we don't--I know in Louisiana we don't
have any revenue sharing right now. It is not until 2017,
that----
Mr. Bartis. Right.
Mr. Scalise. But it seems like there are a number of other
States that have----
Mr. Bartis. It depends. Yes. Yes.
Mr. Scalise. If revenue sharing was involved where they can
provide a stream of revenue to their State, there would be a
big stream of revenue to the Federal Government as well, it
seems like kind of a win-win to encourage more----
Mr. Bartis. Yes. I--we haven't looked at that, and I
shouldn't be commenting on things that we have----
Mr. Scalise. I don't know if anybody else wants to comment
on that.
All right. I yield back. Thanks.
Mr. Whitfield. The gentleman from California, Mr. Bilbray,
is recognized for 5 minutes.
Mr. Bilbray. Thank you. Mr. Chairman, I apologize. I was
downstairs at my other committee looking at government
regulations that are obstructing economic growth, so I think we
are sort of in a lot of ways looking at the same problems from
different angles.
First of all, being a history major, I want to go back and
remind all of us that the oil industry was the environmental
option to the oil, I mean, from the previous oil was the
whaling industry that provided the energy to light our lights.
And the fact that the gasoline was just a waste product from
the manufacturing of the--and so the whole concept of driving a
car that was driven by gasoline was really just because we had
all this, you know, dangerous stuff around as a bi-product, a
waste product, and develop that.
So I think it kind of tells us how innovative Americans can
be and the human mind can be confronted with an opportunity and
a problem, and now it is this huge, precious resource rather
than trash from, you know, leftovers, and how do we move
forward with it.
The other assumption I want to point out is would everybody
here agree with the concept that we need a Manhattan Project
for our energy independence? We keep hearing that. You know, my
biggest frustration about it is somebody has been in a
regulatory agency one way or the other since 1976. Manhattan
Project wouldn't be legal today. Would not be legal to do it
today and every time I just ask anybody, anybody brings that
up, we need to confront that.
My question is when we look at these obstructions that the
government, one way or the other, is standing in the way of,
while we are talking about why aren't we doing innovative
things, the fact is we require people to stay in a box, and we
complain about them staying in a box.
You mentioned California. In fact, you may want to talk
about this. We talk about how wind generation is so efficient,
but do we talk about the fact that it needs transmission lines
that are usually three times farther than traditional power and
the obstructionism and let me give you the sun link. You know
that one. It is twice to three times as long as it would have
been if the Federal Government would have allowed the
transmission lines to go over federal jurisdiction. No Indian
reservation, no national park, but the freeways go through. Do
you want to comment on the fact that it is oK to put a freeway
through federal property but not a transmission line to get to
solar power?
Mr. Auerbach. Sure. I can't pass up that opportunity,
Congressman.
I am concerned obviously. I am in the clean energy
business. I am concerned with the environment, but ultimately
everything is cost benefit, and the amount of time and energy
and money that renewable energy development teams have to
expend on figuring out how to get transmission to load centers
from the wind resource basically it prevents a lot of renewable
energy from being built that could be both environmentally
beneficial and also cost effective.
Mr. Bilbray. Give me an example. California implemented AB
32, talked about saving the planet, thought it was so important
to be able to save the planet, but all those regulations and
all those mandates but did not exempt it from CGWA, the
California Environmental. Didn't think it was important enough
to exempt it from CGWA because, oh, they couldn't retreat on
that.
At the same time my colleague from California will remind
you they did exempt the football stadium in the City of
Industry from CGWA but not the implementation of AB 32.
Can we agree that we should get away from the term,
renewable, and go to clean technology or sustainable
technology? I mean, words matter, and one of the things that
frustrates me is to hear almost as if renewable is a catchy
catchword but really doesn't reflect the reality.
Can we talk about the changing of those terminologies?
Mr. Auerbach. Could I just----
Mr. Bilbray. Go ahead.
Mr. Auerbach [continuing]. Address that quickly? Well,
first of all, the name of my firm is Hudson Clean Energy
Partners. I had the choice to name it renewable, and so I
wanted a broader platform, and so I agree with the term clean.
I would like, however, to just note that renewable energy,
the resources themselves are also natural resources that are
part of our national treasure. So the sun that is shining in
Southern California and the wind that is blowing across the
Plain States are natural resources for this country that are
worth trillions of dollars.
Mr. Bilbray. OK, but here is the point. To get into that,
when somebody talks about electric fleets, when we talk about
developing efficient wind generation, we are talking about
permanent magnet DC motors and generators. OK? At that time we
talk about that, but we don't talk about the fact that if we
are going to go to electric system, if we are going to have
wind power, we are going to have efficient electricity, we have
got to have rare earth, 70 pounds for every Prius, and you know
what your wind generates, but we are not talking about that the
Federal Government will not allow private industry to go onto
public lands and mine the rare earth that is essential to do
all the things that everybody else--and we sit through these
committees and hear colleagues talk about all these great
plans, but they are not willing to allow the process to be
legal to reach those goals. Things like rare earth, which is 98
percent coming from China.
Mr. Auerbach. It is only 98 percent or 95 percent of the
production, not of the resource itself. The United States has
plenty of resources. I agree with what the Congressman is
saying. If we are going to develop more clean energy and use
technologies that are now commercially available and coming
down rapidly in cost like electric cars, we need to have a
resource strategy, and it has to be domesticated more than it
is today.
Mr. Bilbray. Mr. Chairman, I appreciate that, and just to
point out that the Prius are actually, the Toyota is actually
designing now an AC motor, which is a lot less efficient than
the permanent magnet DC motor, just because of the threat of
not being able to get the rare earth material, and we get into
it.
And I apologize. I didn't get a chance to get in nuclear
power. I think that we need to be looking at nuclear power and
moving it like we did on interstate freeways where the Federal
Government has engaged, and DOD should be looking at sighting
facilities so that we can get the private sector doing what we
do with freeways, not sighting, not permitting, but building
them after we go through the hoops, the regulatory hoops, and
if we are not brave enough to go through those regulatory
hoops, we should forget about the concept of being able to tap
into this clean and cost-effective energy.
Yield back, Mr. Chairman.
Mr. Whitfield. Mr. Bilbray, I think we are going to adopt a
policy of giving you 10 minutes for your questions.
Mr. Bilbray. I apologize.
Mr. Whitfield. Mr. Auerbach, I noticed in your testimony
you made the comment that a focused effort should be made on
making the U.S. a more welcome home for clean energy
manufacturing, and I was just wondering what specifically would
you be referring to?
Mr. Auerbach. Well, yes, thank you. If we would provide
longevity to the system incentivizing deployment, manufacturing
will come to roost in the United States. The problem with the
current system and my personal problem is having to approve
manufacturing facilities and generation facilities is that we
have to look at the clock, and when the clock runs out every
couple of years on the system for providing centers at the
federal level, which are still today a necessary component but
are--and through reverse auctions will become a decreasing part
of the calculus, it makes it hard to stimulate capital
deployment that needs a multi-year payback.
And so if we can have a reverse auction mechanism, that
longevity--and was taken out of an annual appropriations--then
capital committers around the world would look to how to
streamline the value chain to put in place in the United States
those parts of the value trade that are going to actually help
lower the cost of clean energy in the United States.
Mr. Whitfield. So you are primarily talking about
incentives and more certainty on those types of programs?
Mr. Auerbach. The best thing that we can do to get more
capital flowing because the private sector, we are now in our
portfolio companies building two manufacturing facilities in
the United States, and there are many other manufacturers that
would actually reopen plants for value trade components that
have actually been shuttered today----
Mr. Whitfield. Uh-huh.
Mr. Auerbach [continuing]. And build new ones if they knew
that this industry had a home for a multi-year period that was
more market based.
Mr. Whitfield. And what would be the impact if--Mr. Nunes
talked about the Ways and Means was looking at eliminating all
tax credits and incentives, and Mr. Pompeo made some reference
to that. If that actually happened, how would that affect your
company?
Mr. Auerbach. As I indicated to Mr. Pompeo in--because he
asked me that in a question, my preference as a policy matter
is to see this being done carefully. Billions and billions of
dollars of capital are already at work, and hundreds of
billions of dollars are also looking to be deployed, and so I
think Congress needs to move very, very carefully, and so by
making any radical move, by, for example, terminating tax
credits that have a statutory life and terminating them early,
I think that it would have a deleterious affect on capital. It
would cause the stock prices of public companies to fall, it
would strand capital investment, it would cause loss of jobs in
the United States.
If we do so in a thoughtful, gradual way, as I think is the
crux of the reverse auction mechanism in H.R. 909, I think that
we will have the opposite affect of actually encouraging more
capital to come into the United States to find it a more secure
home.
Mr. Whitfield. Do you invest in--does your venture capital
firm invest in nuclear energy?
Mr. Auerbach. We don't. We are not prohibited from doing
so, but for reasons that are--have been made pretty clear to
capital committers it is not a very easy place to commit
capital at least for 10-year time periods.
Mr. Whitfield. Mr. Spencer, you in your testimony talked
about Mr. Nunes's legislation providing a second permitting
mechanism for nuclear energy. Would you explain just briefly
what that is, how that would work----
Mr. Spencer. Sure.
Mr. Whitfield [continuing]. And why it is better?
Mr. Spencer. Yes. The current process allegedly takes 4
years. It has never happened yet, and each time we get close it
seems to not happen again, but what the roadmap does it sets up
a 2-year timeframe that if the applicant meets certain
conditions--they are building on or adjacent to an existing
site, if you are, if you have a reactor that is fully
certified, and there are a number of others--then you get to
enter into this separate track that gives a more efficient or
consolidated review of the environmental and technical aspects
of the application.
It is a tight time scale, but it is one that I think, a lot
of experts think is doable if we establish that path, and that
would give certainty, would allow us to get through more
applications, and quite frankly, I think provide competition
within the regulatory environment to demonstrate that you need
to start getting these things done. Otherwise we are going to
do it a different way.
Mr. Whitfield. Now, are you optimistic about these smaller-
type nuclear plants that sometimes people refer to as modular
or whatever?
Mr. Spencer. I think--I am optimistic that the technology
can be applied commercially in the future extraordinarily,
economically, and efficiently in all that. I am less optimistic
that the policies that have been proposed will get us there.
What we see is the administration and proponents of small
modular reactors, what they want is a Department of Energy
program where the DOE essentially chooses the one or two
technologies that go forward to be licensed.
I think that is the wrong approach, frankly. You have a lot
of entrepreneurs out there spinning off technology, spinning
off commercial enterprises. What if they are not one of the two
that are chosen? I would suggest that it is--the market is the
better arbiter of that.
Instead of going through the Department of Energy I would
suggest we get the Nuclear Regulatory Commission really geared
up to be able to support this sort of activity so that if
people want to go down that road, then, you know, we have the
Regulatory support to do that.
Mr. Whitfield. Yes, and Mr. Bartis, you mentioned Fischer-
Tropsch. Other than South Africa, where is the Fischer-Tropsch
technology being used today?
Mr. Bartis. It is--the Fischer-Tropsch technology is used
in--most recently it has been built up in Qatar in the Persian
Gulf. They are going to have about 170,000 barrels per day of
production online this year. The technology is very up to date,
but that is an application to natural gas. In our country the
only place that might make sense is in Alaska because that gas
in Alaska, no one is going to pipe back to this, to the
Continental--or the lower 48 anymore because of all the shale
gas. So we have got stranded gas up there.
Applying it to coal is not a big deal, and we have got one
for building, scheduled to build a plant and pretty far along
in Wyoming. They are not going to be using Fischer-Tropsch.
They are going to be using a variant of Fischer-Tropsch
called--that the Mobil Oil Company invented, and--but it is
very much the same.
But that is the only--and they are going to be producing
gasoline. They are not going to be producing fuels that would
be of interest to the military.
Mr. Whitfield. Thank you. Mr. Gardner, you are recognized
for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman. I just got back from
the hearing downstairs, so I will defer at this point.
Mr. Whitfield. Well, I guess that concludes today's
hearing. I want to thank the three of you for coming in and
giving us your views and opinions which we certainly will take
into consideration as we move forward, and we look forward to
working with you in the future. Thank you very much.
The record will remain open for 10 days for any additional
material or testimony that anyone would like to offer, and with
that this concludes today's hearing.
[Whereupon, at 11:39 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]

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