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Federal Document Clearing House
Congressional Testimony
July 26, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 5294 words
COMMITTEE:
HOUSE APPROPRIATIONS
SUBCOMMITTEE:
INTERIOR
HEADLINE: TESTIMONY NATIONAL ENERGY STRATEGY
TESTIMONY-BY: F. WILLIAM VALENTINO , PRESIDENT
AFFILIATION: NEW YORK STATE ENERGY RESEARCH AND
DEVELOPMENT AUTHORITY
BODY:
Testimony of F. William
Valentino, President New York State Energy Research and Development Authority
July 26, 2000 Chairman Regula, distinguished committee members, on behalf of
Governor Pataki and the citizens of New York State, I would like to thank you
for the opportunity to testify today on the important energy issues before your
subcommittee. As we all know, a lot has happened in the energy world since I
last appeared before this subcommittee, two and one half years ago, to address
the need for better coordination between the states and the Department of Energy
on energy research. Over this time period: Over one- half of the states in the
Nation, including New York, have restructured their electricity industries; The
nation's and New York's economy has continued to expand, increasing the demand
for electricity and the need for new electric generating facilities; Last
winter, New York and the Northeast experienced spot shortages of heating oil and
diesel fuel, resulting in record setting prices for those fuels. More recently,
unprecedented gasoline price increases have occurred, hitting
both the Midwest and Northeast very hard. New York has also announced more
stringent environmental regulations to protect our citizens from the
health-related effect of ground-level ozone and smog, and to preserve our
irreplaceable Adirondack and Catskill Mountains from the ravages of acid rain In
light of these many changes in New York and around the nation, it is an
excellent time for this subcommittee to be examining the question of the need
for a National Energy Strategy. To assist you in this effort, I will describe
New York State's perspective on certain key areas that such a strategy must
include: 1. Electricity Industry Restructuring--Doing it Right 2. Improving
Energy Efficiency and Developing Renewable and Alternative Technologies 3.
Ensuring a Strong Domestic Energy Industry 4. Protecting the Environment
Overview--- The New York Approach Before discussing these specific areas of
national concern, it will be helpful to provide a brief overview of New York
State's energy strategy. Under Governor Pataki's leadership, New York has
implemented a multi-part program to lower energy costs to businesses and
individuals while promoting competition, energy efficiency and a cleaner
environment. A partial list of the steps taken under Governor Pataki, which are
part of this strategy, include: bringing competition to the state's electricity
and natural gas industries; eliminating or reducing energy taxes on utility
companies and petroleum products; making lower cost economic development power
available to retain and create jobs; providing tax incentives directed at
alternative fuel vehicles and infrastructure; providing incentives for the
construction of environmentally sound and energy efficient buildings; working
with industry to reduce harmful power plant emissions; and, delivering a
comprehensive public benefits program that promotes a market approach, while
providing continued funding for energy efficiency and research programs during
New York's transition to greater competition. Electric Industry
Restructuring-Doing It Right One of the most important undertakings both in New
York and nationally is restructuring of the electricity industry. In New York,
we believe that the States are in the best position to guide the transition to
greater competition and choice. And, we are proud to mention that an independent
monitoring group has determined that New York is one of two states that continue
to lead the entire country in establishing customer choice in a competitive
electric industry. State regulatory and energy agencies are putting the
safeguards in place to ensure that this transition ensures fairness, equity, and
system reliability to all classes of consumers, large and small, urban and
rural. In New York we have restructured our electric industry through regulatory
orders and agreements between the utilities, the PSC and other interested
parties. Utility companies have divested most of their electric generating
facilities and are actively negotiating to sell their remaining nuclear assets.
Additionally we have in place a fully functioning Independent System Operator in
New York that operates the state's electricity grid, where wholesale electricity
prices are established by region on a competitive basis by buyers and sellers in
the electricity marketplace. Electricity prices in this new competitive
environment have been volatile- reflecting rising fuel prices, strong demand for
electricity and the need to build new electric generating facilities. As for
federal legislation -- we have several major concerns. First, we believe, given
what we and the other states around us have done, federal legislation will NOT
be a major benefit. We have sufficient authority to see to it we have a thriving
marketplace, a high level of reliability and a rational set of consumer
protections. Certainly, other states may need more assistance, so any federal
legislation should grandfather the restructuring actions New York has already
taken. Second, while proposals to set up an organization to enforce mandatory
reliability standards for the bulk power system is laudable (we follow them
anyway), none of the proposals so far allow the states to set standards MORE
STRINGENT than the national ones. In New York -- particularly in the downstate
area -- we have numerous "local reliability rules" applied to the bulk power
system that we believe are absolutely critical to the provision of reliable
service (eg. the "double contingency" design and operation standard and the
"storm watch" procedure). Those critical programs are at great risk of being
declared "inconsistent" with the new, emerging national standards and could be
ordered (by the FERC) to be removed. Representative Fossella has a proposal to
fix this, but it has yet to be adopted. Third, some proposals (like the Barton
and Bliley bills) have provisions that GUARANTEE 100% recovery of all
PURPA-related stranded costs. While we have generally allowed utility recovery
of these costs, it comes with other things for ratepayers (like cooperation in
setting up retail access or commitments to sell power plants). Not having
recovery of stranded costs to bargain with could put ratepayers at a
disadvantage. As the restructuring process in New York continues to move
forward, we believe New York consumers will see more choices and will have the
ability to shop and make the best deal they can for the electricity services
they want, as consumers do now when buying a car, selecting their long distance
telephone carrier, or selecting an Internet provider. Improving Energy
Efficiency and Developing Renewable and Alternative Technologies Improving the
efficiency in the way we use energy and promoting the use of renewable resources
and new technologies have a significant role to play in meeting New York's and
the nation's energy requirements. As a result of our dense urban settlement
patterns and our commitment to energy efficiency, New York is the most energy
efficient State in the nation. Building on this commitment, NYSERDA was
designated by the New York Public Service Commission to be the independent third
party administrator of over $175 million in public benefit funds to continue
energy efficiency, low-income services, research and development, and
environmental protection programs during the transition to full retail
electricity competition in New York. What we call the New York Energy Smart(sm)
program is well underway. We believe that by using the ingenuity of the
marketplace and by partnering with private sector providers we can leverage
public benefit funds with private sector capital to make lasting and structural
improvements in the way energy efficiency is delivered in the marketplace. To
date our New York Energy Smart(sm) has successfully leveraged private sector
capital at a ratio of 3 to 1 to provide this broad range of benefits. Moreover,
responding to the electricity situation in New York this summer we have underway
the New York -Keep Cool campaign which is providing incentives to purchase new
energy efficient room air conditioners, while removing the least efficient ones
from service by offering a bounty on them. We are also working with commercial
customers to reduce their electricity load, remove demand spikes, and eliminate
unnecessary energy consumption. Improving efficiency can be a cost-effective way
to reduce energy costs as well as contribute to meeting the electricity needs of
a growing economy. Developing renewable resources and alternative technologies
also hold the promise to meeting a wide range of New York's and the nation's
energy requirements in terms of fuel diversity, economic growth and
environmental quality. In New York, NYSERDA is investing in the technologies of
tomorrow, today. For example, we have helped a small start up company outside of
Albany - Plug Power to develop a new generation fuel cell technology, which, if
successful, has the potential of transforming the electricity industry in almost
the same manner that the cell phone transformed the telecommunications industry.
Another example of state sponsored energy research involves investing in a small
company in the former Griffiss Air Force Base in central New York that won a
contract from the Postal Service to build over 6000 electric postal vehicles -
the largest contract for electric vehicles in the world. Finally, using public
benefits funds, and working with PG&E, an independent power producer, we are
helping to bring on line the largest merchant wind facility east of the
Mississippi River. The wind turbines are being installed as we speak and are
scheduled to begin producing electricity to be sold on the market later this
fall. Additionally, I want to underscore the testimony of my colleague from
California, Congress and the Administration needs to continue to provide funding
to the states for energy efficiency activities. The State Energy Conservation
Programs provide the backstop, to many of the activities we in the states
provide to our citizens. Continued and sustained funding is crucial. Also New
York relies heavily on the data and information compiled by the Energy
Information Administration (EIA). EIA's data proved invaluable last winter as
New York and the other states in the Northeast addressed the heating oil and
diesel fuel situation described below. Continued strong funding for EIA is
necessary to carry out this vital energy data collection and analysis function.
Ensuring a Strong Domestic Energy Industry From my perspective the root cause of
the nation's current energy situation was not when oil prices crossed the $30 a
barrel threshold, rather it was when oil fell to $9 a barrel and oil and gas
producers throughout the nation shut-in production and stopped exploration and
development of domestic energy resources. This same situation which hurt the
producing regions of this nation also had an effect in the consuming sections of
the country. This effect manifested itself last winter when New York and other
states in the Northeast experienced a supply shortfall in heating oil and diesel
fuel and saw unprecedented prices increases. This situation was a result of a
sudden burst of cold weather, low stocks and refineries running below average
which many analysts believe was directly related to low crude oil prices.
Average heating oil prices in New York topped $2.00 a gallon and in New York
City and on Long Island heating oil prices were over $2.25 a gallon - stretching
consumer's ability to pay for their heating needs. Governor Pataki responded to
this supply shortfall by taking immediate action to mobilize state government
agencies, including NYSERDA, to establish consumer hotlines, make shelters
available to those without heat, and temporarily waive regulations to allow for
the importation of heating oil and diesel fuel supplies. New York also worked
with the petroleum industry to identify supply bottlenecks and was in close
contact with United States Coast Guard ice-breaking mission to keep the Hudson
River, New York Harbor and Long Island Sound open for the movement of petroleum
supplies. NYSERDA was asked to testify before Congress on five different
occasions during that time period, to explain how New York, working with the
petroleum industry and other states in the region, and national and regional
organizations such as the National Association of State Energy officials and the
Coalition of Northeast Governors responded to this supply situation.
Unfortunately, nearly seven months after we experienced this supply shortfall we
are not seeing conditions improve. Stocks of heating oil and other distillate
petroleum products continue to lag below even last year's low stock levels.
Energy prices- particularly for gasoline continue to remain at
record levels in many parts of New York, and natural gas well-head prices are at
all time highs with no prospect in the short term of declining. As a nation, we
need to reduce our dependence on imported oil and diversify our sources of
supply. Along those lines, we believe that we need to take a closer look at
expanding natural gas pipeline capacity into New York and the Northeast. We also
need to increase domestic oil and natural gas exploration, development, and
production by applying new technologies and by examining and analyzing how we
can provide the right incentives to the oil patch to increase production.
Additionally we need to diversify our use of petroleum in the transportation
sector by promoting the use of alternative fuels such as compressed natural gas
and promoting new technologies such as hybrid-electric vehicles. We also need to
improve the efficiency of the way we use these fuels. For example, NYSERDA,
along with industry and federal government partners, invests more than $1
million annually in the next generation of highly efficient residential and
small commercial space heating equipment. Finally, much has been said about the
Clinton Administration's proposal for a heating oil reserve serving the
Northeast. While the idea has merit and should be explored further, we have
several concerns about the proposal. First and foremost, according to DOE, the
same rules that govern release of the Strategic Petroleum Reserve (SPR) will
control releases from this product reserve. If the Clinton Administration,
despite calls from Governor Pataki and other elected officials all over the
Northeast, would not release oil from the SPR last winter, what assurances do
New Yorkers have that the Federal government will act during a similar situation
in the future? Many other questions have to be answered about this reserve,
including what the sulfur content of the oil will be; how this
reserve will affect market prices; what the distribution formula will look like;
and where exactly the reserve will be located. Furthermore, Congress needs to
re-authorize the Energy Policy and Conservation Act (EPCA) which allows the use
of the Strategic Petroleum Reserve, as well as authorizing a variety of other
programs. Additionally re-authorizing EPCA will provide the firm statutory
authority necessary to use our strategic petroleum assets during an energy
supply disruption or crisis. Protecting the Environment We in New York believe
that greater competition in our energy industries can lead to a cleaner
environment. New York, under Governor Pataki is leading by example. On October
14, 1999, Governor Pataki announced a significant new clean air initiative that
will have important environmental and public health benefits, and which will
reaffirm New York's leadership in the fight against air pollution. This
announcement complements the many efforts which New York State has taken to
demonstrate our national leadership in the fight for reductions in the emissions
of air pollutants that cause acid rain and ozone (also known as smog) both
inside and outside of our borders. Through this announcement, Governor Pataki
required the New York State Department of Environmental Conservation to
establish new regulations which will require electric generators within New York
to significantly reduce emissions of sulfur dioxide and
nitrogen oxides. This proposal is a regulatory initiative. It will reduce
airborne emissions that result in acid rain from New York's electric generators.
It will require reductions in emissions of sulfur dioxide by 50
percent beyond what will be required by Phase 11 of Title IV of the federal
Clean Air Act Amendments of 1990. These additional reductions will be phased in
between 2003 and 2007. In taking this unprecedented step, Governor Pataki was
joined by environmental organizations across the State - including several
national environmental groups - in sending a strong message to the Clinton
Administration and other states: In New York, we will do all we can to clean up
our air while we continue to fight for stronger clean air requirements on the
national level. The League of Conservation Voters, the Natural Resources Defense
Council, and the National Audubon Society all have endorsed this initiative.
Governor Pataki's initiative is embodied in H.R. 25, introduced by
Representatives Boehlert and Sweeney, and by Senator Moynihan in the Senate. It
is intelligent and effective legislation that would require national reductions
in acid rain-causing emissions. The commitment made by New York State, which I
described above, will have the same effect in our State as the
Moynihan-Boehlert- Sweeney bill would have on the Nation. Most recently, in May,
2000, Governor Pataki signed a new State law to monitor and control the sale of
sulfur dioxide emission allowances to out-of-state power plants
and businesses. The legislation established penalties for the transfer of
credits to states which are the sources of acid rain. Through aggressive actions
such as these, the State of New York is demonstrating its unwavering commitment
to protect sensitive ecosystems in the State from the critical impacts of acid
rain. What he has asked the State's utilities to do is no different from what we
ask from the rest of the Nation through enactment of H.R. 25. We urge the
Federal governments and other upwind states to join with us in meeting our
common environmental objectives. Conclusion A National Energy Strategy should be
based on the principle that increased economic activity, improved environmental
quality and greater energy efficiency are complementary and can be achieved by
promoting competition and relying on markets to deliver energy services to
customers. This has been New York's approach under Governor Pataki, and we
believe it will work for the federal government as well. Specifically, a
National Energy Strategy should: - Recognize the important and pre-eminent role
that states play in implementing electricity industry restructuring while
ensuring the reliability of the electricity system, - Continue to provide
funding for energy efficiency, renewable resources and alternative technologies
- Provide incentives for environmentally clean domestic energy production -
Recognize the critical balance between research, development and deployment
programs - Continue the important dialogue on energy issues among the states and
the federal government. Thank you, I would be happy to answer any questions you
might have.
LOAD-DATE: August 9, 2000, Wednesday
