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Document 1 of 25.

September 26, 2000, Tuesday

SECTION: CAPITOL HILL HEARING

LENGTH: 18140 words

HEADLINE: PANEL ONE OF A HEARING OF THE SENATE ENERGY AND NATURAL RESOURCES COMMITTEE

SUBJECT: OUTLOOK FOR SUPPLY OF HEATING AND TRANSPORTATION FUELS THIS WINTER

CHAIRED BY: SENATOR FRANK MURKOWSKI (R-AK)

PANEL I LOCATION: 366 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: ENERGY SECRETARY BILL RICHARDSON

BODY:
SEN. MURKOWSKI: (Sounds gavel.) Good morning, ladies and gentlemen. I would encourage those of you who want to get in to go over in the corner on the other side, and I've asked the Capitol Police to escort you over, as long as you don't interfere with the television camera. And you've got a lot of room over there -- you can stand against the wall -- the press doesn't take that much space -- take a deep breath.

I am going to call the hearing to order at this time, and we anticipate members will be showing -- I think it's fair to say we're likely to have a vote around 10:15 or thereabouts. And we are likely to have an objection to the hearing going beyond 11:30. I don't know, Pete, but it's my opinion that these long votes shouldn't count as time for us to be charged against the hearing process. But, nevertheless, we complete our case at a later time.

SEN. PETE DOMENICI (R-NM): Besides, I don't why they want to cut this hearing short -- it's about the most important hearing you can have anywhere in the Congress -- right? SEN. MURKOWSKI: Well, maybe that's why.

SEN. DOMENICI: Maybe that's why.

SEN. MURKOWSKI: Well, anyway, before we get into that, let me call the committee meeting to order, the Committee on Energy and Natural Resources. This is an oversight hearing to consider the current outlook for the supply of heating and transportation fuels this winter. And we have been joined by the Honorable Bill Richardson, the secretary of the Department of Energy. And later we will have Mr. Mark Mazur, acting administrator, Energy Information Administration; Mr. Paul Vermylen, president of Meenan Oil Company, on behalf of the Independent Fuel Terminal Operators. We'll have Mr. John Huber, vice president, public relations, Petroleum Marketers Association; Dr. John C. Felmy, director, Policy Analysis; Mr. Lawrence M. Downs, chairman and CEO of New Jersey Resource Corporation. I might add also that Dr. Felmy is with the American Petroleum Institute. Finally, Mr. Lee Fuller, vice president, government relations, Independent Petroleum Producers (sic, means Association) of America.

I think one of the things that we hope to get out of this hearing is a recognition from the administration that indeed we have a problem. We are facing an energy crisis. I think the action taken by the president the other day in implementing the transfer from the Strategic Petroleum Reserve of 30 million barrels is clearly an acknowledgement of that problem. But the problem goes beyond that, and hopefully we will be able to delve into some of those areas today.

Now, as we look at the outlook for winter fuels, we are heading into the heating season -- it's my understanding that in Maine there is already a concern over the adequacy of firewood, which is pretty basic -- can't get enough firewood -- firewood supply is down low, so people I think are concerned -- they are getting the message.

Now, the secretary has certainly gotten more than his share of attention this year, whether it be forest fires or nuclear waste issues or on and on and on. And I recognize he can only do what can be done within the policies of the administration. But clearly in my opinion there is an energy supply train wreck in the happening. It's on the horizon, if it not already here. I think we've had acknowledgements from the administration that to some extent they've been asleep in the sense that they have failed to recognize the severity of the problem. And as we look at the mix we see vulnerability, not only in crude oil prices -- there had been a 10- year high. Last week we had $37 a barrel oil. We have seen gasoline prices higher than $1.56. Now we are seeing natural gas prices -- natural gas prices were $2.16 10 months ago; deliveries in October are in the area of $5.20 to $5.30. We have about 50 percent of American homes -- 50 percent of American homes are dependent on natural gas for heating. It's estimated in the Midwest that the heating oil bills for natural gas billing that is already in the pipeline will increase about 40 percent. Now, that's going to get the attention of the American people.

We are already seeing out in California a situation in the area of San Diego where electric prices have spiked. We have seen brown- outs, and the realization that we had no relief in sight because there are no new generating plants being built and coming on line to alleviate the shortage. Heating and fuel oil inventories are at their lowest level in decades, leaving us vulnerable certainly for the winter. And to complicate the problem, we haven't built a refinery in this country in the last 10 or 12 years. We have shut down 30-some refineries in the last decade. And that contributes to the problem, because if you put more oil available to the domestic refiners you don't have the capacity to refine it.

Now, the question is: Where is the energy policy and what is the administration going to do about it? Are consumers going to be hit this winter? Well, I think there is no question about it -- the vulnerability is there.

Now, when the president called for the release of 30 million barrels of oil from the Strategic Petroleum Reserve, or SPRO, clearly the message to the American people was that we are in trouble. We are now having to go into our savings account so to speak. Once you start depleting the savings account the question is when and how do you put it back and at what price. This will be the largest release from SPRO, wartime or otherwise, in the last 25 years. SPRO was created in '75, you'll remember, as a consequence of the Arab oil embargo. We were 37 percent dependent on imported oil at that time. Congress said we don't want to be over 50 percent -- we'll create this Strategic Petroleum Reserve. Well, now we are 58 percent, and the administration seems to look at greater production from OPEC. The administration has accused the oil companies of profiteering -- that's very convenient in an election year -- but they don't remind the public that a year ago oil was selling for $10 a barrel. Was the benevolence of the oil companies something that was seasonal, or did it have something to do with price and supply? Clearly the latter.

Now, who sets the price of oil? If you're 58 percent dependent on (imported) oil, and you are buying it from OPEC or Venezuela or Mexico, they are selling it and they are setting the price. So I think it's important to note it's very convenient and politically expedient maybe to suggest that big oil is profiteering. But I don't think the American public are simply going to buy that explanation.

All you have to do is look at what's happened in Europe. Tony Blair's government is shaking as a consequence of the price of energy. SPRO was set up to respond to severe energy supply interruptions, not to manipulate prices or for political effects. The vice president last Thursday asked for release of oil from SPRO to specifically what? Create an increased supply or lower prices? Well, maybe we'll find out today.

Greenspan and Treasury Secretary Summers think it's a bad idea -- a bad policy call -- because it sends a message of vulnerability to those that we are most dependent on, OPEC. Unfortunately in my opinion, the president's authorization to you, Mr. Secretary, to release oil from SPRO is to manipulate supply and subsequently manipulate consumer prices. But most of all, most significant, it puts our national security in jeopardy. Further, the release was done prior to Congress reauthorizing EPCA and SPRO authorities -- a matter being prevented currently by a hold by one Democratic senator. Now, we have had appeals from you, appeals from the administration, to reauthorize EPCA, and I am totally supportive of that. We have to do it. But you are going to have to help us break this hold.

Finally, I think it was done because the president found there was severe energy supply -- excuse me -- it was not done because the president found there was a severe energy supply interruption; indeed, there was no such finding. Thirty million barrels of national security released with no guarantees. You are talking about a swap that is not an instant swap -- it's a swap where they replace it later. At how much? Who is going to make up the difference? What are the mechanics?

Again, I would refer to the reality that this release of additional oil from SPRO will do little for consumers who face staggering heating oil bills this winter because our refineries are over 95 percent capacity since June of 1995. Nobody is building a new refinery. You can't get the permits. In refining SPRO, oil refiners will need to forgo necessary maintenance -- higher likelihood of unforeseen shutdowns -- to maintain this high level of refining capacity. That's what's wrong with releasing oil from SPRO. With the shortage of refining capacity, it's very hard to see you are going to get a net increase in product, particularly when reserves are so low -- not only heating oil, but gasoline.

And of course I continue to go back to Iraq, a threat to our national security as we increase our dependence on Iraqi oil -- 750,000 barrels a day, nearly 30 percent of all Iraq's exports, come to the United States. Many people forget we fought a war over there in '91-'92. We low 147 people, American soldiers. We had 427 wounded. Now we are looking to Iraq as the linchpin, because their production is threatened to a large degree by policies that the U.N. is mandating that they make reparations payments to Kuwait. It's kind of interesting Saddam Hussein said the other day, "I'm not ready to do that. If you make me do that, I'll decrease my oil production." So there are a lot of things here coming together that are lacking in the administration's effort to try and get a balanced approach.

We have not been able to address the nuclear waste issue, Mr. Secretary, so that the nuclear industry is standing still. We have not been able to resolve a new coal-fired plant, because we can't get a permit for a new coal-fired plant -- nobody's building them. They are looking to natural gas -- now the natural gas cost has gone up. We're talking about tearing dams out West. The complications of new energy policy are evident, and this train wreck is coming and we don't have much more time.

Finally, I think I've indicated the crisis in natural gas, which is part of the mix here that we are going to be discussing today. But, as I indicated, with 50 percent of American homes on natural gas for heating, 15 percent are utility-industry dependent on natural gas and growing -- because there is nowhere else they can turn -- and the industry's acknowledgement that we are using about 21, 22 trillion cubic feet now -- in another 10 years that's going to be over 30. And we are using now for the first time our gas reserves faster than we are finding new reserves. Now, that's the crux of the problem, Mr. President. OPEC has not cut production. The United States -- the United States has decreased production. That's the problem we have had -- no aggressive plan by the administration to increase domestic production in this mix of energy sources that we are going to have to come to grips with and get back on line -- as well as conservation and alternative energies. So we have got a problem here, it's going to get worse. And I just hope this comes to the forefront, and the American people realize it, and that the administration does something about it in a timely manner, because this effort to move 30 million barrels out of SPRO is not going to be a long-term or even an intermediate solution -- because by the time that oil is refined it's going to be November, and we both know it.

So we look forward to your testimony, Mr. Secretary. We appreciate the fact that you are here, and recognize the difficulty under which you have to work, because so much of America's policy has been dictated by environmental groups -- well meaning environmental groups that didn't have to bear the responsibility of where the energy was going to come from.

Senator Bingaman.

SEN. JEFF BINGAMAN (D-NM): Mr. Chairman, thanks for holding the hearing. Mr. Secretary, welcome. Congratulations on your recent activities, and sorry we didn't see you in Carlsbad Friday.

Let me mention a couple of facts that I just think need to be kept in mind as we get into this issue, which is a very serious issue facing the country. One is that while U.S. oil production overall has declined since 1970, the deep waters of the Gulf of Mexico have proven to be a very great source of production. The deep-water royalty incentives which were proposed by Senator Johnston, supported by the administration, have been a major contributor to the 65 percent increase in offshore oil production that has occurred under this administration. So I think that substantial increase in offshore production needs to be remembered.

Second, on natural gas production on federal lands, there has been an increase of 60 percent in natural gas production on federal lands under this administration. That's due in part to the development of coal bed methane. Of course, my home state of New Mexico has been a major contributor to that growth. We hope that continues in the future. So there are some successes in increased production. There are not as many as there should be. I support increased incentives for more production, and I hope we can do that before this Congress adjourns. But there are some successes to report.

I wanted to just put up this chart, which I've used at several of our previous hearings, on petroleum consumption by sector, to focus a little attention on the other side of the equation, and that is, what is driving the enormous demand that we are seeing for petroleum products in our country. It is not industrial use. It is not home heating. It is not a variety of things. It is not electric utilities. It is transportation. And that is the factor that is increasing at an enormous rate the amount of fuel being consumed in transportation, and this Congress has demonstrated time and again its unwillingness to seriously consider any action to deal with that very difficult issue.

I think if we're going to have a serious discussion about energy policy, which we clearly should have, we should be talking both about increased production and reduced consumption, or at least containing the growth in consumption. And I think that the transportation sector is the one which clearly needs attention.

The final thing I'd say, Mr. Chairman, is that we have a bipartisan agreement on a package of tax incentives which would increase energy efficiency for homeowners and businesses, which would ensure more diverse sources of power, provide protection for marginal natural gas and oil wells in the event of another downturn in prices. Those measures are, I believe, supported by most members of this committee, maybe all members of this committee. I believe those should be passed by this Congress before we adjourn. And I believe if we did pass them, the president would sign them. I hope very much we can move to those and persuade the majority leader to bring those up before we adjourn.

I also commend the president's decision to increase funding for the LIHA, the low-income heating assistance program. Clearly we have a very severe problem facing a lot of parts of this country this year. We see it in New Mexico, where the expectation is that home heating oil will be substantially higher, that the cost of heating a home will be substantially higher this winter than it has been in previous winters just because of the increased price of natural gas. And I hope that the secretary can give us some insights into additional actions that we could take or that the administration is able to take to help head that off.

Thank you, Mr. Chairman.

SEN. MURKOWSKI: Thank you, Senator Bingaman. Senator Campbell.

SEN. BEN NIGHTHORSE CAMPBELL (R-CO): Thank you, Mr. Chairman. I welcome my old friend Bill Richardson here. In the last year he's appeared three or four times, and it has not been the friendliest of meetings. But we served together on the House side, he from New Mexico and me from Colorado. We worked on a lot of issues together, and I consider him a personal friend. That, however, doesn't negate my disappointment in the Department of Energy for what I consider really a bunch of band-aids on a continual hemorrhaging we have. But I am glad you're here to testify.

We've had a number of hearings, a number of bills introduced. We've heard everybody make a lot of statements. But very frankly, from my view, the administration has simply sat on its hands, and now we see ourselves in a real dire situation. And it's interesting to note, as we get closer and closer to election, we're trying to make some last-minute changes that I think are really transparent.

I think people need remedies, not campaign promises. This committee has given a number of potential solutions and encouraging actions for months, but it seems the (need?) really fell on deaf ears. We tried two bills, as you remember, Mr. Chairman, to reduce the gas tax and the diesel tax, which is virtually driving some of the protests in Europe now, as you mentioned. They didn't go anywhere, as you remember.

And I also remember when the secretary was in once before, we asked him about the negotiations with OPEC, and we were pretty much assured that help and assistance was on the way. That didn't work very good either, and we find ourselves with more dependency almost each passing day with OPEC, and prices certainly haven't gotten better.

So now we have the vice president recommending that we release oil from the reserves. Most of the experts, as I read them, anyway, say that that, in fact, will drive prices down a few cents. But it will be temporary; it won't be lasting. But it might not help at all in the long run. I think the real problem with dependency isn't going to be helped at all with political ploys. I noted with interest this morning, reading the Washington Times, in fact, that the oil reserve was set up, as I remember, in 1975, two years before the vice president came to office, so he certainly had a great deal of foresight in helping set that up.

The winter months are approaching. The price of transportation fuel is crucial. And we still have a complete lack of energy policy that's caused the problem. I'm interested in hearing what the secretary has to say about this today.

Thank you, Mr. Chairman.

SEN. MURKOWSKI: Thank you very much, Senator Campbell. Senator Domenici.

SEN. PETE DOMENICI (R-NM): Thank you very much, Mr. Chairman. I have told the secretary that in addition to our vote, I have a markup of the energy and water appropriation bill at 11:00. So I will speak with you and about the energy crisis for about 10 minutes. And I'm not sure I'll be here, Mr. Secretary, when you testify, but I will read your testimony.

First of all, I would like to suggest, as much as I would like to make you, the secretary of Energy, one who is responsible for energy policy in the United States, I would like to suggest to the American people that you are not. As a matter of fact, the energy policy of the United States is made by the Interior Department of the United States, because they determine what lands can be entered for drilling for oil and gas, and there is no policy that I have read regarding the Interior Department's policies regarding development of oil and gas on public lands that is pro-development of oil and gas. It is pro something else, but not pro-development of oil and gas. It is either pro-environment or it's pro no roads in the public domain. To that end, as of this date, as compared with 1983, 60 percent more federal land is now off-limits than it was in 1983. Much of that land is predetermined to be good for oil and gas.

Now, as much as I would like to say the secretary of Energy is responsible for energy policy, I would like to suggest that the Environmental Protection Agency of the United States government is greatly involved in and significantly a part of our energy -- development of our energy and our dependence. And they act as if there is no energy crisis and no energy problems, for they pursue with an ideological vigor their rules with reference to anything that moves and anything that emits the slightest amount of pollutant.

Their rules and regulations are not just science-based. They are the result of an ideological pursuit of environmental protection that leaves America in a position where, number one, believe it or not, Americans, with all our ingenuity as engineers and scientists, it is more difficult to locate a power plant in the United States, unless it is natural gas, than any other country in the world, because our rules, our regulations and our costs prohibit it. In fact, there has not been a coal-burning power plant constructed in the United States in how long? Does one of my senators remember? I'm going to say more than 10 years, but it's probably more than 15. It may be 20 years.

But we are hell-bent to use natural gas, that very clean gas, so that we now use -- 18 percent of our electricity is generated by natural gas. My friend, Senator Bingaman, wonders why there is a new development of natural gas. The reason is the demand is enormous and the price is skyrocketing. And I predict today -- mark this hearing -- the next crisis for America unequivocally will be that we don't have enough natural gas to do the things we have challenged natural gas to do, because we don't want to challenge technology, push technology, so we can use coal to produce electricity for Americans. As a matter of fact, it may be this year that the crisis in natural gas occurs.

I would say to Americans who are sitting around, Americans reading about the energy crisis, hold on to your pocketbooks, because you ain't seen nothing yet when it comes to what the price of natural gas that you use in your natural gas for your stoves and to heat your water and for all the other appliances, till it goes through the roof. And then, if we're still in this campaign, I assume that Vice President Gore will blame big oil for the problem that natural gas has.

What's happened is we're limiting America to that kind of energy because we don't care about the conventional kinds. And we have departments of this government who clearly do not want us to pursue a broad base of American independence.

Now, I want to close. I have many more things to say, but I won't say them. I want to close -- I had a little talk with my fellow New Mexican in the back room before I started testifying here, and we were joking. So I am going to quote here -- on 9-21 of this year -- I want to make a quote -- guess who said it. "I will work toward the day when we are free forever from the dominance of big oil and foreign oil." Guess who made that statement just a few days ago? The vice president of the United States. He also said -- he also said that -- and that was 47 days before the election -- he claims that he wanted to forever free us from dependence on foreign oil. Now, I would like to know if you would like to be the secretary for this vice president and carry out that policy. And you might think for a couple of days and come back and tell us what you think we would do that we are not doing.

The truth of the matter is that is almost a hilarious statement for the vice president of the United States, who has been in office for eight years, had more to do with the policies that caused us to produce less fuel rather than more, to make it more difficult to produce a refinery rather than less -- to make it almost impossible -- almost impossible to build a power plant for electricity unless it was natural gas. It is most interesting that 47 days before an election he is telling Americans, "I would like to make sure we are no longer dependent on foreign oil." I wonder -- I wonder if he would just take a look at the last eight years, and perhaps ponder why the American people should believe such a statement.

I have some additional remarks. I'd ask that they be made a part of the record, and I yield at this time, Mr. Chairman.

SEN. MURKOWSKI: We have been joined by Senator Burns, Senator Dorgan, Senator Craig, Senator Nickles, Senator Thomas, Senator Johnson, in that order. And we have also been joined by Senator Kennedy, who I believe wants to make a statement. We have a vote supposedly in 10 minutes, and we have the secretary and a long, long list of witnesses.

Senator Burns.

SEN. CONRAD BURNS (R-MT): My -- thank you, Mr. Chairman. My statement will be very, very short, because I think everybody in the opening statements have pretty well laid out what our problem is.

It seems to me that we would not release any more. Oil out of SPRO isn't going to make any difference at all when our refineries are running 98, 97 percent of capacity now. It's not a supply problem; it is a demand problem. And the demand is not just as Senator Bingaman showed on the domestic level. It is we have a growing economy that we had five nations in the Pacific Rim, that their economies failed in 1997. And four of those economies are now on the rebound and growing very quickly at around 12 percent a year we are told, and their demand for energy now has skyrocketed. So oil is a world commodity. It is traded around the world. And therefore it is a world market and supply and demand is at work here.

I would also have to agree with my good friend from New Mexico, both of them in fact in some cases. We are overlooking our cheapest form of energy and that is coal. We have the technology to use coal in a very environmentally sensitive way. And I think all the Western states are involve din that.

When we take a look at natural gas, we are locked out of our greatest part of our gas fields in Montana by the stroke of a pen from the Department of Interior. And as a result of that, the majority of natural gas flowing into my state is coming from Canada. And so that doesn't help us either. So -- and I must run here. After the vote I'm going to attend -- Senator Mansfield's wife died, as you well know, and her funeral is this morning at 10:45, and I plan to attend that. And I thank the secretary for coming this morning.

SEN. MURKOWSKI: Thank you, senator.

We move over to the other side. Senator Dorgan -- Senator Kennedy wanted two minutes. I want to make sure that we try to accommodate everybody.

SEN. BYRON DORGAN (D-ND): Mr. Chairman, a couple of these statements have been most interesting. If I were to close my eyes I would probably think I were at a rally of some sort rather than a hearing.

I think it might be useful to put up the charts once again. This is a chart on petroleum production and consumption. I would like to call my colleagues' attention to the production line, and then ask them to evaluate on the production line whether there has been much change in the last 30 years. As you'll see, production in this country has been on a relative downward trend for almost 30 years, so it is not some circumstance where all of a sudden we have had some magic problem in production. We have known this for three decades.

Now, let me put up the consumption chart to show something that I think is very important. My colleague Senator Bingaman used this chart to show that the significant growth in consumption of energy has been transportation. And my colleagues who talk the most these days about this problem we have are the very ones who have said we don't even want to study the question of whether our automobile fleet should be more efficient. We have these issues of standards -- try to make our automobile fleet more efficient that would deal with that very line. Some of my colleagues who are most aggressive on this issue say we don't even want to study that. All I want to talk about his production, and we want to blame the current folks on the production side. We don't even want to worry about the issue of consumption.

Well, you know, if the OPEC countries flooded the market because they didn't anticipate the Asian slowdown and so on, the market got flooded and we got $10 a barrel oil. It's not rocket science to understand that people aren't going to be out looking for oil at $10 a barrel. When the OPEC countries cut production -- and they did -- when the OPEC countries cut production, neither is it rocket science to understand that if you have increased demand and cut production that we are going to have problems. And, you know, you can't blame OPEC on the first hand with respect to flooding the market, and then when they cut production say OPEC is not complicit here. Of course we have got problems on all sides of this.

What my hope is is that the administration and the Congress will work together to understand we have to increase production -- we understand that. We have got to provide significant new efforts for conservation. We have got to have significant new incentives for renewable resources -- I am a big believer in ethanol as everyone understands -- and wind energy and other things. But we need to do all of these things together. I mean, it's just not going to pay dividends for us to hang around talking about, Gee, now we have got this huge problem that so-and-so caused. Well, the fact is for 30 or 40 years all of us understand what has caused this -- sustained decreased production capability over a long period of time, over 30 years, and substantial increased consumption, especially from the transportation sector, at a time when almost no one wants to talk about conservation. So I think this is a useful opportunity, Mr. Chairman, to have this hearing, and I hope from this hearing we can have some sensible policy choices instead of using a couple of hours to spin blame.

SEN. MURKOWSKI: Thank you. I'd like to accommodate all members, Senator Kennedy, before the vote. So, Senator Craig?

SEN. LARRY CRAIG (R-ID): Mr. Chairman, thank you very much.

I am not going to use many statistics this morning. They have been used; they are all well known.

I have served on this committee, Mr. Secretary, since 1990. This committee, day after day, month after month, years after year, has examined energy -- that's our job. And all during that period of time we have seen an ever-growing chorus of attitudes and ultimate policy that said if it isn't green don't produce it. As a result, from 1992 to 1999, we have seen a 18 percent reduction in overall hydrochemicals in this country. That is a fact we will not walk away from.

Now, along with that came the reduction in refineries, as the chairman has talked about. No deal on nuclear. There isn't any additional capacity in our energy portfolio anywhere today that isn't going to cost three or four times what it should, because this country and our government and your administration have denied production. That's a fact. We can't walk away from it. And if we don't have five- and six- and eight-year lead time on all energy sectors of our country, you cannot expect an economy to grow. Point fingers at transportation. Why is transportation growing? Because we have got a growing economy. We have got an expanding people, expanding goods and services. It's called the American dream. We have invested a lot of money in new technologies, and this budget, your budget, has a lot more money in it, and we are going to okay it, and I'm going to support it. But we can't walk away from producing for the base. And we have. And we are in trouble today. It's a very solemn audience out there. I'm not quite sure why you are so solemn. Could we dump this great economy that our president and we take credit for? You darn bet you we could.

I've got fertilizer companies in my state -- big ones -- that are operating on energy contracts at 1.8 to 2 mills per kilowatt hour, and they are trying to negotiate, and their cheapest available base is 22 to 26 mills per kilowatt hour. You transfer that to the agricultural community of this country, and Senator Dorgan and I are going to come through the roof, along with Senator Johnson. We've got farmers out there that are seeing 25 and 30 percent increases in cost of production as a result of a declining energy policy in this country. It's called, "Don't produce it if it isn't green."

And I'm one who said, and others said, when you went over early this spring to the OPEC countries that it was a tin-cup policy of begging. Shame on us. But that's where we are today. And now of course we have tried to play the game by opening SPRO to influence -- and as I understand crude has bumped up a bit again this morning. Whether it's $35 a barrel or whether it's $5 or $6 dollars per thousand cubic feet of gas, we start factoring that into this economy and it's going to change the country significantly. And my guess is we will all wonder why we have been so silly for so long.

In my state and in your state of New Mexico we travel long distances. Our economies have been based on relatively inexpensive energy, and we fought to keep it that way. That's changing. Thank you, Mr. Chairman.

SEN. MURKOWSKI: Senator Nickles, Senator Thomas, Senator Johnson. And Senator Kennedy will be with us.

SEN. DON NICKLES (R-OK): Mr. Chairman, thank you very much. And this is an interesting area. I apologize to our colleagues and also Secretary Richardson -- we are going to have a vote momentarily. And just for the information of our colleagues, I think it is going to start in just a minute.

SEN. MURKOWSKI: I've already alerted them of that -- didn't scare them off.

SEN. NICKLES: I understand. I just -- maybe we can juggle and we can continue the hearing.

Mr. Chairman, I appreciate the hearing because it's timely. And I don't really want to politicize it so much, but I do think we have to talk about the facts, and the facts are the energy crisis, as it has now been defined by the vice president and others, is greatly of their own lack of action. And some people have said they've had no energy policy.

But I look at the Clinton-Gore administration, and their energy policy has basically been one -- let's increase taxes. They proposed a BTU tax that we barely defeated in 1993. They were successful with the vice president's help in passing a gasoline tax increase. That's the most significant tax policy or energy policy that they have had. They signed on to the Kyoto accord, which would have greatly limited production, but frankly it didn't apply to a lot of countries. It hasn't been ratified by the Senate. The net impact of the Clinton- Gore proposals is that crude oil production since 1992 is down 18 percent, and our petroleum product imports that the vice president recently said he wants to eliminate our dependency of, has increased 34 percent since 1992. Those are just the facts. We are now importing 56 percent. We are importing 56 percent today, when we had significant shortages -- I see my friend Senator Metzenbaum in '73 and '79, when we were importing 34 and 40-some percent. So now we are importing 56 percent. So we are much more dependent today than we were in years past when we had very significant energy shortages.

Today we have a refinery capacity shortage. Thirty-six refineries have closed during this administration. And so that is only going to exacerbate the problem.

I want to talk about the vice president's and the president's move on SPRO. I think they are violating the law. The Strategic Petroleum Reserve was created to supply energy sources during a severe shortage. Looking at the statute, it says, "No draw-down in distribution reserve or any storage may be used by the plan as required by a severe energy supply interruption." That's the statute. It doesn't say for price controls or to alleviate prices so candidates can gain an edge seven weeks before the election. SPRO was not created for price controls, period, and that's exactly what this administration is trying to do -- and it won't work. It's also kind of -- it won't work.

Oh, they're -- well, we're going to use the exchange. The exchange was really -- hey, we could have an exchange program with SPRO to help build SPRO -- not to help candidates right before the election. And so the administration is distorting the purpose of this act. The purpose of this act for the Strategic Petroleum Reserve was to help secure -- make sure we'd have supplies during a severe shortage, not to help candidates seven weeks before the election.

And then this game, "Well, we're going to have exchange. We're going to release so many million barrels of oil." We don't have a shortage of oil right now. That's not going to -- I think the likely impact on prices is going to be de minimis and its likely impact this winter is going to be de minimis. I'm just almost embarrassed for the administration to think that this is a solution. I'm embarrassed, too, that the administration of this program, the Strategic Petroleum Reserve, could be utilized for political purposes or supposed political gain is almost silly.

Let's go a little bit further. Mr. Secretary, again, I apologize, because I want to be here when you answer this question, but you're going to have oil released. How does that solve the problem? You've got an international problem, as alluded to by Senator Burns and Senator Murkowski. Releasing 5 million barrels, 30 million barrels at this particular time, this is a big, big problem.

And I think this manipulation for so-called price controls -- if you want to amend the statute and say, "Let's use SPRO for price control purposes; if the administration determines that prices are too high right before the election so we can release it, amend the law." It's not in the law today. I think you're grossly outside the purposes and intent of the statute of the Strategic Petroleum Reserve, and I would like to hear your response to that.

Thank you, Mr. Chairman.

SEN. MURKOWSKI: Senator Thomas.

SEN. CRAIG THOMAS (R-WY): Thank you, Mr. Chairman.

SEN. MURKOWSKI: Senator Kennedy, do you want to join us up here? I want to expedite your schedule.

SEN. EDWARD KENNEDY (D-MA): Thank you, Mr. Chairman.

SEN. THOMAS: I'll seek to help expedite, too. Thank you very much, Mr. Secretary, for being here. Again, we worked together in the House.

I'm very concerned about it, of course. I come not only because of the impact it has on all of us, but I come from a state of mineral production, oil and gas, coal; we're the largest coal producer in the United States. So we really do need -- and I'll just -- everything we've said here today, I would have said if I had the chance.

But we need to evaluate our policy. We certainly have had problems. Interior has restricted access to public lands. Much of that is for multiple use, and should be. EPA has made it much more difficult. I'm on the Environment & Public Works Committee. We talk about the sulfur content, all those kinds of things. The White House environmental group -- environmental quality has done nothing but obstruct movement ahead; endangered species, all of those things.

It's interesting that I hear from the president, I hear from you, Mr. Secretary, I hear from the vice president, "Well, it's the Republican Congress has stopped what we've tried to do." Here's Gore's comment on October the 22nd: "I will do everything in my power to make sure there's no new drilling." And this has been the concept. So I really think we have to take a look at really where we are. And instead of making statements like "The Congress has been the obstacle," we ought to be able to move forward.

Thank you, Mr. Chairman.

SEN. MURKOWSKI: Thank you very much. Senator Johnson, you're the cleanup hitter.

SEN. TIM JOHNSON (D-SD): Well, thank you, Mr. Chairman. And I'm submitting a full statement for the record. But let me just observe very quickly, I'm a Democrat elected from a Republican state, and I have to tell you, I'm appalled at the kind of rhetoric that I hear in this hearing this morning. It is the kind of harsh partisan attack rhetoric that I think the American public has little patience for as we come down the stretch of this political campaign.

Everybody knows there's a presidential election going on, and every time I come by here I see elbows being thrown for partisan political gain. I'm sick and tired of this. Now, I, one, don't believe that either political party has particularly distinguished itself on energy strategy for a long, long time, going back literally decades.

I would observe in the CQ Daily Monitor this morning there's an observation on the front page. "Senate Republicans gave a lackluster greeting to the comprehensive energy policy on Monday and never decided whether to proceed with the bill itself. It offers a springboard for the GOP's criticism of the Clinton administration, but no senator spoke about the measure during two hours of scheduled debate." And it goes on to say that there's Republican opposition to drilling in the ANWAR.

It seems to me that with Republican control of both houses of Congress for six years and they can't come up with the legislation even now, that there's a little bit of finger-pointing that can go in both directions. I don't think the Democrats have distinguished themselves. I don't think the Republicans have either. And if we'd spend a little more time focusing on constructive policy, energy policy in this country, I think the American public would be better for it than the kind of partisan elbow-throwing that I've seen going on around here now for too long.

So, Mr. Chairman, I submit my statement for the record. But I am hopeful that before this is out over these coming five weeks that, in fact, we can reach some bipartisan accord on some steps that would be constructive and move this country in the right direction on long-term energy strategy. We need to do that. The American public deserves that. But that certainly is not what they're getting from the kind of rhetoric that I've been hearing in this Congress for the last several months.

SEN. MURKOWSKI: Thank you, Senator Johnson. Senator Kennedy --

SEN. KENNEDY: First of all --

SEN. MURKOWSKI: Before you start, I'd like to remind Senator Johnson that this Congress did pass ANWAR in 1995. It was vetoed by our current president. We'd be well along to knowing whether we have another Strategic Petroleum Reserve in ANWAR now. But nevertheless, what happened happened. Senator Kennedy --

SEN. KENNEDY: Thank you very much.

SEN. MURKOWSKI: -- we appreciate your being with us today.

SEN. KENNEDY: Well, you're very, very kind and gracious.

SEN. MURKOWSKI: You've already got the time, but go ahead. You've got all the time you need.

SEN. KENNEDY: We never have these kind of disputes in our committees. (Laughter.) Mr. Chairman -- and I'll just take two moments -- and I'd like to have my full statement in the record --

SEN. MURKOWSKI: Without objection.

SEN. KENNEDY: I've supplied to the members of the committee this chart here, which is the (distillate?) stocks are low, especially in the East Coast. This chart shows, going back from December '98, June '99, December '99, June and December of this year. And basically what it has shown -- and you could go back in other years -- is where the normal range is in terms of storage. And what we have seen, Mr. Chairman, is now, in terms of available storage, in terms of the Northeast, it's about 40 percent of what it was a year ago. And last winter was milder than was generally projected, and we saw the prices rise from 80 cents a barrel to $2 a barrel. And it is considerably low this year. So it really amounts to an emergency.

Now, I want to just say that this hasn't been a partisan issue in our part of the country. I was rather surprised at the amount of partisanship, because Senator Collins, Olympia Snowe, Senator Jeffords, all Republicans, have joined with us in the New England position with Republican members of the Senate and Republican members of the House, all urging the president to take this action. So it has no ring in terms of the region being a Republican or Democratic initiative. I believe that those senators have indicated support for the president's position.

Without this kind of action, Mr. Chairman, there is going to be a real emergency for families, particularly elderly families on fixed incomes. There's been a modest increase, which we welcome; the release of LIHEAP. That is important. We favor replenishing that fund, particularly for this year, with the kind of notice that we had.

If the action -- as the chairman knows, if the action hadn't been taken now, the release of the SPRO wouldn't have had any impact in terms of home heating oil, because it wouldn't be able to get to refinery. I know that there's a dispute about how much refinery capacity is left. The Department of Energy's information to us is that there's still enough to make a difference in terms of home heating oil. I believe that there is.

So, Mr. Chairman, I just want to thank you for letting us appear here. And secondly, I want to thank the secretary and the president and the vice president for this action. Without this kind of action, we would be extremely hard-pressed and there'd be enormous emergency.

Secondly, as the chairman well knows, buying into the futures markets now at $24 a barrel, we can easily replace these funds, the amount that is being called on to be used in this. And so we'll be protecting the security interests for which the SPRO was set up.

I thank the chair very much, and I thank the secretary for --

SEN. MURKOWSKI: Thank you, Senator Kennedy. Let me share with you an observation, because I think it's relative to the particular case in point in the Northeast with regard to heating oil; that traditionally, about 90 percent of the heating oil, once the refineries are switched over to heating oil, goes directly from the refineries into the distribution system. There is not a major storage, if you will. So when we have a limited refining capacity and we have the refineries switching over from gasoline to heating oils, we kind of got this bottleneck that, you know, doesn't address what you need. And that is a reserve, because if it gets cold -- and I know something about cold weather, Ted --

SEN. KENNEDY: Yes.

SEN. MURKOWSKI: You know, it gets very real. And I think that's part of the problem, and hopefully the secretary will have an answer on it.

SEN. KENNEDY: Well, there is some storage. And as the chairman knows, if we paid for the storage and got enough storage, it's best estimated it'd be about five cents more a gallon in storage. And that's clearly in the interest, in terms of the consumer, to pay that additional kind of a fee in order to avoid these kinds of spikes; but I'll let the secretary.

Let me just mention, just finally, Senator Roth supported our proposal; Senator Specter, Congressman Ben Gilman. So we have almost as many Republicans urging this action by the president as we did Democrats. And I thank the chair very much for his courtesy.

SEN. MURKOWSKI: I thank you, Senator Kennedy. We appreciate your statement. And I don't think it's a matter of partisan support on the objective. It's whether there's going to be a real net increase in your heating oil. That's what you need.

Thank you. I'm going to adjourn, because we have to. We'll come back, Mr. Secretary. We've got a new cup of coffee back there for you. It hasn't got any hickory in it.

(Recess.)

SEN. MURKOWSKI: Senator Bayh has joined us, and in the deference of all senators, we have had opening statements, and they went on and on and on, and we have been joined by Senator Howard Metzenbaum, who may have an opening statement, but we'll let him pass today. But Senator Bayh, in deference to the importance of this issue, if you want to summarize --

SEN. EVAN BAYH (D-IN): Well, thank you, Mr. Chairman. I hate to break with precedents, but I will be brief. I want to welcome the secretary. We look forward to hearing from you, Mr. Secretary. You have been, it seems to me, between a rock and a hard place, and are doing an excellent job balancing these responsibilities. So I look forward to your testimony.

SEN. MURKOWSKI: How lucky can we get? Thank you, Senator Bayh. Please proceed, Mr. Secretary, you have kind of got a flavor for the concerns of the committee, so we can go on from there.

SEC. RICHARDSON: Mr. Chairman, Senator Bingaman, other members of the committee, over the past year we have seen considerable volatility in our energy markets. We have endured supply and price problems in heating oil, in diesel fuel, gasoline, natural gas and electricity. The year has not seen a season go by without a new energy challenge. Every region of the country has experienced significant price increases for petroleum products and more recently natural gas. And several specific regions have suffered through more dramatic spikes in prices for specific fuels or electricity.

Many factors have contributed to these energy price increases and supply problems, but one of the most important is the dramatic economic growth experienced by the United States and much of the world in recent years. This growth has spurred increasing demand for energy that has in turn strained the capacity of energy suppliers to boost production and to maintain adequate inventories.

Mr. Chairman, I would like to begin by bringing you up to date on the administration's most recent actions regarding our energy markets. As you know, on Friday the president asked that I exchange 30 million barrels of crude oil from the Strategic Petroleum Reserve over a period of 30 days -- a swap, an exchange. The president's reasons for taking this action are very clear: We need to make sure that American families can keep warm this winter.

Today, distillate inventories across the country, which include heating oil, are 19 percent lower than they were a year ago. On the East Coast, where over a third of families using heating oil to stay warm, distillate inventories are lower still -- 40 percent less than last year's level. And in New England that figure is around 65 percent lower than last year. The underlying cause of these low inventories is an imbalance between supply and demand. Increased world demand has sent oil prices skyrocketing.

We have worked to get supply up, and this temporary infusion of 30 million barrels of oil into the market will likely add an additional 3 to 5 million barrels of heating oil this winter if refineries are able to match higher runs and yields seen in the past. An exchange will ultimately result in more oil in the reserve. As our exchange contractors will be returning a SPRO oil plus a premium. In other words, the reserve is replenished. This will further increase the nation's protection against potential or actual energy supply disruptions. And that's good energy policy.

We will assess the supply impacts of this exchange on an ongoing basis, and we are prepared to take further action if necessary. Again, we are taking this step to reduce the risk of heating oil shortages this winter. The president has already established a Northeast Home Heating Oil Reserve to provide heating oil in the event of an energy emergency. Still, more has been done.

On Saturday, President Clinton announced other new actions to ensure that heating oil is available and affordable for American families throughout the country. First, he is directing the Department of Health and Human Service to release $400 million in low- income home energy assistance program funds -- the largest ever emergency funding release of its kind -- to help families who can least bear the burden of high energy prices this winter.

Second, he has asked the Environmental Protection Agency to help states identify ways to use different kinds of home heating oil while minimizing environmental consequences. This could help to further build home heating oil inventories.

The president is also directing federal agencies to make early contractual commitments to push this heating oil this winter so the wholesalers will have the confidence to build inventories in advance. He is requesting the state public utility commissioners ensure that factories and businesses that use heating oil as a back-up fuel keep adequate reserves.

And, finally, the president has directed me to meet with the National Petroleum Council to discuss heating oil production this fall and winter. This meeting will be held this week.

These actions strengthen our energy security as they follow on other initiatives created to temper volatility in the oil markets. To deal with the effects of this volatility on consumers, this administration had already released nearly a third of a billion dollars to help low-income families pay their bills for heating oil, natural gas and electricity. The president asked for $600 million more in low-income housing energy assistance funds, which were finally approved in July. The president requested an additional $19 million from Congress for low-income home weatherization which weren't included in the supplemental appropriations act. The House and Senate have also underfunded our FY 2001 request for weatherization assistance, as they have very year since FY 1994.

Mr. Chairman, we found this program to be a very effective way for families to lessen their demand for heating oil, natural gas and electricity, and in turn lessen their winter energy bills. We need to have this critical source of release increase in confidence.

Beyond these actions, the Clinton administration also took a new step creating a two million barrel Northeast Heating Oil Reserve to be used to augment supplies if they are needed. Sites have already been chosen, and contracts for the oil were let last month, and oil is coming into the reserve ahead of schedule. We need the Congress to approve a reasonable trigger for releasing the heating oil in the reserve, as well as the funding to continue the reserve beyond this winter.

We have renegotiated oil delivery schedules for the Strategic Petroleum Reserves royalty fill program, so that millions of barrels of oil go into the market instead.

Mr. Chairman, let me remind you that Congress has delayed action to extend the Energy Policy and Conservation Act which authorizes two central components of our nation's energy security, the Strategic Petroleum Reserve and our participation in the International Energy Agency.

We have also addressed the issue of supply to increase Coast Guard support for tanker movements during the freezing weather, small business loans for distributors and other small businesses impacted by high prices, and encourage refiners to increase production.

Recognizing the growing demand for natural gas in the United States, particularly for power generation, the National Petroleum Council was asked to undertake a study of the capability of industry to meet potentially significant increases in future natural gas demand. The resulting December 1999 study listed seven major recommendations. Acting on these recommendations, the administration established an interagency task force on natural gas to review and implement certain recommendations of the National Petroleum Council on natural gas supply and infrastructure needs. Rising natural gas prices are already resulting in increased exploration and drilling activities by industry. Increased supplies resulting from this domestic activity, however, are not expected until late this year.

We are working with the Department of Interior and other agencies in improving access to public lands for natural gas development as part of our follow-up to the National Petroleum Council natural gas study. And even more the formation of the working group, the administration was working on several issues of interest to the industry, including streamlining environmental review processes, regional assessments of oil and gas resources, and the development of technologies that are particularly applicable to oil and gas production on federal lands. And, as you know, as part of the administration's efforts to address market imbalances while holding to our core principles of free markets, we have talked extensively with oil-producing nations.

I have also initiated efforts to reduce volatility in world oil markets through international cooperation and better oil market data. OPEC and other producers have heard our concerns and have boosted their output three times, with the most recent increases to come on line in October. Our latest data shows that there are almost four million barrels per day more oil in the market than at this time last year. And according to the Energy Department's Energy Information Administration, the latest addition of 800,000 barrels per day along with boosted production from non-OPEC producers, like Mexico and Norway, should enable the oil industry to finally begin rebuilding global stocks.

This has taken so long because demand has grown much faster than anticipated, increasing by 14 percent over recent years. The only downside of a booming economy: energy demand increasing by 14 percent. And as demand has absorbed additional supply from the market, the oil industry has been unable to aggressively refurbish stocks. This has resulted in a number of price increases across the range of petroleum products. We are seeing this at the gas pump, where drivers are paying an average of $1.55 a gallon -- still up over 30 cents over last year, but down 13 cents from this past June, and I believe down again based on data we have received on Monday.

Indeed, our Energy Information Administration's latest short-term energy outlook predicts that retail motor gasoline prices will recede in October and continue to decline through the end of the year. This is typical of gasoline prices as we pass into fall and winter. By year's end, the monthly average retail price of regular unleaded gasoline is projected to be about $1.41 per gallon.

For 2001 we expect an annual average dip of about 10 cents a gallon at the pump again, assuming that our base crude oil price path holds.

We have also seen supply constraints and price volatility in the electricity sector this year. With that in mind, I would like to tell you how discouraged I am that it appears that Congress will adjourn without acting on electricity legislation, despite your best efforts.

The president submitted comprehensive electricity restructuring legislation to Congress two years ago. Unfortunately, the 106th Congress has failed to act on this, or any other comprehensive piece of electricity legislation. Congress's inability to adopt restructuring legislation has helped produce some of the difficulties seen in markets in electricity in some parts of the country. Over the last several summers some utilities struggled to meet demand. They were forced to cut off interruptible customers, and plead customers and businesses to conserve energy. In some instances they were forced to implement rolling black-outs to avoid complete collapse.

As in our oil markets, unparalleled economic growth has spawned burgeoning demand that outstrips supply. We have seen the price spikes in California, the Pacific Northwest, and parts of New York. Enactment of federal electricity restructuring legislation, as proposed by the administration, would go a long way toward resolving this problem. It would also help by establishing a federal rules of the road, where generating companies have the certainty they need on whether to invest in new power plants and transmission facilities. Moreover, our bill would help to produce a more efficient interstate transmission system to enable the free flow of power to where it is needed the most. The legislation also provides a funding source to make up for utility cutbacks in energy efficiency programs. In light of the problems we face, I would urge this Congress to reconsider its inaction on electricity restructuring.

In conclusion, Mr. Chairman, let me be clear that we have taken a number of actions to temper the short-term volatility in our energy markets. Still, to ensure that America enjoys the best energy security, we must do more over the long term. To help do so, we need to move on our fossil fuel markets. The administration is developing ways to, one, increase domestic oil production through targeted tax incentives and technology investments. We have a package before the Congress on marginal well producers. Secondly, reduce overall demand for oil in transportation industry, buildings, and power generation, especially through increased efficiency and use; promote international investment in developing the world's oil resources, and meet the needs for increased refining and production capacity.

Looking to the long term in our electricity markets, the administration has proposed a significant energy infrastructure initiative to meet the technology needs of the 21st century electricity-natural gas inter-grid, and propose ways to eliminate key barriers to distributed generation, paving the way for the entry of these new technologies and systems into the electricity market. The administration has pursued tax incentives and investments in energy efficiency and renewable energy, increased funding for the nuclear energy research initiative, and expanded work with several foreign governments towards the next generation of advanced nuclear reactor technology.

Finally, we need to work with our universities and the private sector to provide those diverse energy technologies that will form the foundation for our future energy markets. The pace of energy research and development needs to increase in line with the administration's proposals submitted to the Congress over the last several years.

The energy policies of this administration have helped ensure the nation's successful transition from the 20th to the 21st century, from the industrial to the information age. Still, we have much work to do to bring our 20th century energy infrastructures apace with 21st century energy needs and demands.

Finally, Mr. Chairman, I would urge this Congress, in summation, to deal with the president's tax credits for energy efficiency, the president's tax credits for marginal well and oil and gas production, the president's research budget for alternative fuels, for renewable energy, solar, wind, biomass, bio-energy. We would also urge the passage of the Strategic Petroleum Reserve legislation. We would urge, too, the trigger language in the Northeast home heating oil reserve.

We need to take these actions together, Mr. Chairman, to have a bipartisan energy policy that deals with short-term needs in energy as well as long-term. And I thank you for your indulgence.

SEN. MURKOWSKI: Thank you very much, Senator Richardson. We appreciate your statement. With regard to SPRO and the reauthorization of EPCA, as you know, it's been cleared on the Republican side. There's one Democratic senator from California who has a hold on the legislation. I hope you can help us convince her that we should move this legislation. So I think it's important to identify specifics as to where these things are hung up to see if we can't get moving, because we're running out of time.

Mr. Secretary, there's a lot of room for finger-pointing. I noted that you had very little specific to say about new energy sources. You've generalized relative to EPA being more sensitive to certain things, such as limiting sulfur concerns and emissions. We're going to need EPA's cooperation on specific things. You didn't mention much about coal, which is still the major generating source of energy and the clean coal technology. We haven't built new coal-fired plants.

You didn't mention anything about the nuclear industry and the inability of this administration to address its responsibility to the issue of what to do with the high-level nuclear waste. As you know, Mr. Secretary, you have been sued by the court -- or, excuse me, by the industry, the utility industry. Recently a ruling came down holding the department liable for breach of contract.

The rate-payers in the last two decades have paid something in the area of $11 billion to the federal government to take the waste. In 1998 the federal government was required to take that waste. You weren't ready, through no fault of your own, but the inability to address the sanctity of a contractual commitment to take the waste and the realization that Nevada doesn't want the waste. In the meantime, the nuclear industry contributes 20 percent of our power-generating capability.

You didn't mention what you were going to do about that, because we're hung up on that and the taxpayer is going to take it on the bottom line, relative to this recent court ruling, which suggests that it can go straight to the court of claims now. Now, you can litigate that beyond your service to the country, but it's still an obligation of the taxpayer. So there are a lot of things that the administration hasn't done.

The first thing I want to ask you is who sets the price of oil today?

SEC. RICHARDSON: The markets.

SEN. MURKOWSKI: And the market is whom? Who controls this market?

SEC. RICHARDSON: Well, there's a lot of entities, Mr. Chairman. Our policy is to let the market dictate prices. We think that artificial price limits don't work, that the market should dictate these prices.

SEN. MURKOWSKI: So when we had $10 oil a year ago, $11 oil, it was the market that was making that determination.

SEC. RICHARDSON: And I spoke out, Mr. Chairman, at that time that I felt the $10 per barrel was not healthy. It was not healthy for American producers. It was not healthy for producer nations, for consumer countries. And our view has been that a stable price, within the range of $20 to $25, is best for the international economy, for producer countries, consuming countries, and certainly for our country.

SEN. MURKOWSKI: Well, we certainly have to recognize that to blame big oil on profiteering is a little misleading, because, you know, where was the big oil a year ago or why were they selling it at $10 a barrel when they could have gotten more? Clearly it was the market working. We're all aware of that. Now the market has changed dramatically and we're 56 or 58 percent dependent on OPEC, Saudi Arabia, Venezuela, Mexico, Iraq at 750,000 barrels a day. That market is setting the price, not U.S. big oil. Would you agree with that statement?

SEC. RICHARDSON: Mr. Chairman, what has happened -- and I'm not into blaming anybody --

SEN. MURKOWSKI: No, I just want to know who to blame for --

SEC. RICHARDSON: I think what has happened --

SEN. MURKOWSKI: -- the price of oil.

SEC. RICHARDSON: What has happened is dramatic increases in demand. I mentioned the statistics in this country, in our economy, our booming economy; 14 percent increase in demand. Asian economies have recovered more extensively than predicted. I think Senator Burns mentioned an economic growth figure of close to 10 percent. I think you've also seen very clearly that the world needs more oil.

And what we believe, Mr. Chairman, is that the market should dictate these prices. And I will point out that the tightness in the market is of concern to us. When oil hits $38 a barrel, as it did some days ago, this is potentially inflationary for some countries, recessionary for some countries. But I think what we need to do, Mr. Chairman, is deal with policies that effectively target supply and demand. And this is what we're trying to do, and I know this is what you're trying to do, too.

SEN. MURKOWSKI: Well, I just want the record to reflect clearly, you know, who sets the price of oil. And it's OPEC, because they control, if you will, a significant supply of the world's oil. And when you control that volume, you dictate it as a consequence of supply and demand. And clearly there was an oversupply a year ago. That has tightened. So, you know, I was kind of amused at the vice president -- this is a political season, so we have to take it with a grain of salt -- but to suggest the profiteering by big oil, we're going to stop that by releasing SPRO, is unrealistic.

Now, the other thing I want to get into a little bit is your statement -- and I think it's important to read it, because you're talking about getting the supply up -- and you say, "This temporary infusion of 30 million barrels of oil in the market will likely add" -- you use the word "likely" -- "an additional 3 million to 5 million barrels of heating oil this winter if refineries are able to match higher runs and yields."

Now, I think you and I, certainly, and hopefully the American public, are beginning to understand that since we haven't built a new refinery in this country in the last decade or two and that we've had 30-some-odd refineries closed, our regional refineries have closed, we have a question of capacity. And if we are maximizing, if you will, at 90-some percent or better, our refining capacity, and you take oil out of SPRO and get it refined, are you displacing other oil that would normally go into SPRO?

I mean, this is crucial, and this administration hasn't done a thing to encourage construction of new refineries. EPA has -- the industry will tell you that EPA's requirements are so stringent, nobody will invest in a refinery today. And we've seen big oil move out of the refining business, spin off their refineries to the smaller independents who don't have the deep pockets. Isn't this part of the problem?

SEC. RICHARDSON: Mr. Chairman, my analysts tell me that there will be an ability for our refiners to refine this 30 million that we're putting in, because they're at about 96 percent capacity right now. But historically in October, refineries go down to about 91 to 92. So what my people are telling me is that refineries have produced at higher runs toward peak winter demand seasons, and we think that they will have sufficient ability to refine the additional SPRO oil. I'm going to meet with them this week to see how we can help on maintenance, transportation.

I would also point out, Mr. Chairman, that some of the oil coming out of the reserve -- and again, it's a swap and it will be replaced -- is sweet crude. And this sweet crude is much easier to refine than sour or heavy crude.

SEN. MURKOWSKI: I understand that.

SEC. RICHARDSON: And we also think the exchange would help in this regard. We are concerned with refiner capacity.

SEN. MURKOWSKI: What we're concerned with is, by this action, we really get a net increase identifiable in heating oil; that we're just not offsetting, if you will, the existing supply that's in there now by adding the SPRO to it, because, you know, these refineries have been behind all year. They've been behind in heating oil last year. They were behind in building up a gasoline stock. They're still doing gasoline. They need maintenance, and the realization that you can only put so much in that funnel at any time. And you've got to consider the mechanics.

Now, let me wander into another area that's of concern: The government is basically going in and establishing a heating oil reserve. Now, what does that do to the private sector that would ordinarily go to the bank, borrow money, acquire, if you will, heating oils, put them in storage, pay interest on the money until they could sell it? Now, is the government going in competition, or are you going to use the private sector? There's so much that we don't know. Where are you going to store it? Are you going to inventory it?

The mechanics of this are conveniently kind of left out. "Well, we're going to add 3 million to 5 million barrels of heating oil this winter," which sounds pretty good. But if you're going to displace the private sector and their ability to build up reserves, you've got a problem. And traditionally, you've gone directly from refineries to distributors on heating oil. That's been the traditional mode of distribution.

SEC. RICHARDSON: Mr. Chairman, let me just say that on the Northeast home heating oil reserve, what we've created is 2 million barrels. It's simply for a supply emergency. It is not based on anything related to market manipulation. You know, last year, another few days, we would have had some shortages in New England.

SEN. MURKOWSKI: Right.

SEC. RICHARDSON: And we work with you on the trigger language on the Northeast home heating oil reserve; in other words, the ability for me to use this. And I have no problem basing it on supply disruptions and not price. We do want home heating oil operators -- and we've met with them extensively -- to store more, to store more product reserve. The reason they haven't is because of the high prices.

We believe that this action on the Strategic Petroleum Reserve, with the swap, if we are at full refining capacity -- and we think we will be -- could add 3 (million) to 5 million extra in distillate, which will get us through the winter. I might add, too, there's a prediction by Salomon Smith Barney, a very distinguished analyst by the name of Paul King, who says that the SPRO release may alleviate 25 percent of the U.S. distillate shortfall and would accelerate the timing of inventory reaching normal in the second quarter of 2001, and basically agrees with our maintenance shutdown (piece?) on U.S. refinery occurring in October. SPRO oil would reach refiners by late October, early November.

In addition to that, the 30 million barrels of SPRO alleviates global inventory shortfall by 15 percent. As I said, SPRO would alleviate 25 percent of our distillate shortfall. That's what we are trying to do. We are looking at other options to help on home heating oil, and we've urged refiners to move product as rapidly as possible. You know, we have not -- we've worked very closely with them. I'm going to be meeting with them soon.

I think what is important, Mr. Chairman, is that we find ways to target this SPRO initiative to home heating oil. That's what we are trying to do.

SEN. MURKOWSKI: I agree with you, Mr. Secretary. I just want to caution you that we don't want a situation where suddenly the government goes in competition with the private sector and the private sector says, "Well, heavens, if the government's got this oil, why should I build up an inventory and pay interest on it and floor it myself?" And, you know, that could happen, because I've heard from some of the jobbers up there that, "Well, good heavens, if the government's going to take the responsibility, we're not." So there you go again with that kind of exposure.

What percentage of oil do we get every time you get 800,000 barrels of oil increase from OPEC?

SEC. RICHARDSON: Well, Mr. Chairman --

SEN. MURKOWSKI: What percentage comes to the United States?

(Secretary Richardson consults with staff.)

SEN. MURKOWSKI: We don't get all 800,000 barrels.

SEC. RICHARDSON: This is a --

RICHARDSON'S STAFF: (Off mike) -- haven't been getting very much of it at all.

SEN. MURKOWSKI: What? We haven't been getting very much of it at all, I am hearing. That doesn't make me feel any better. But when OPEC increases its supply, everybody gets more. How much does the U.S. get?

SEC. RICHARDSON: Well, John had earlier mentioned 25 percent, but there has been -- Mr. Chairman, you know, we expect that run of 800,000 to be pretty visible coming October 1. Now, as you know, it takes four to six weeks. That decision was announced --

SEN. MURKOWSKI: Well, I'm a little disappointed you don't know, because the presumption is every time you negotiate more oil from OPEC it goes to us. But it doesn't. It goes to Japan, it goes to the free world. And I'm told, reliably, that it's 16 percent. Now, you ought to know, and if I'm wrong you ought to be able to tell me.

SEC. RICHARDSON: Mr. Chairman, our objective here is to get more oil on the market. And we have since the start of this year gotten nearly four million barrels per day more. Now, the action that OPEC has taken has been welcomed, but obviously it has not been enough.

SEN. MURKOWSKI: I understand.

SEC. RICHARDSON: And we recognize that. We want it targeted to us, but these are world market functions, and --

SEN. MURKOWSKI: And the world market sets the price.

My last question, because my colleagues have been very, very patient with me. You kind of fingered Congress. You know, we did pass reliability out of this committee. I don't see the administration lobbying that reliability bill. We should have it, Mr. Secretary. But remember what it does: it simply makes fair the shortage. It recognizes the shortage and tries to make sure that we allocate fairly. You indicated that we hadn't passed comprehensive legislation on electric restructuring. You and I worked very hard on it. You said you would take care of the concerns of the governors.

We have a letter which we sent to you July 10th that you never answered outlining our concerns. The president vetoed the nuclear waste bill. The Environmental Protection Agency has taken action against seven utilities -- Bonneville Power recently testified it will need to add as much as 3,000 megawatts on the Snake River. The National Marine Fisheries has imposed a water flow regime on the Columbia and Snake. The Federal Energy Regulatory Committee has delayed making crucial determinations of the rate return for transmission for more than three years. Now, that's the gas line that's supposed to take care of the Northeast. Three years in FERC.

New generation -- even extremely clean fired natural gas is delayed -- possibly even prevented -- by the stringent requirements of the Clean Air Act to obtain emission offsets in places like California. Last summer the action of a single utility taking power from the grid without authorization jeopardized the entire eastern interconnect; yet neither FERC or DOE took any action. Significant amounts of coal-fired generation in the Southeast and Midwest have yet -- will have to be taken out of service over the next three years to be retrofitted with expensive new equipment in order to meet EPA's new stringent NOx emissions. And they are holding the management criminally liable -- thousands of megawatts of clean hydroelectric power have been lost through conditions imposed by FERC licensing. We haven't gotten an answer to the three-page letter. So I think as we point our fingers both ways on electric restructuring -- you wanted it, I want it. You came up with a 7 percent mandate on renewables. We would love to look to renewables for 7 -- we don't have 2 percent.

So, you know, let's be realistic: this administration has not been very aggressive in addressing new sources of energy, other than renewability, which we don't have the technology for, and the realization that the demand has increased.

Senator Campbell --

SEN. CAMPBELL: Thanks, Mr. Chairman --

SEN. MURKOWSKI: Do you want to answer that?

SEC. RICHARDSON: Just reading the regs, Mr. Chairman, our initiatives with respect to fossil fuels, with respect to clean coal technology, the funding issue, the nuclear energy -- as I mentioned, we increased funds for nuclear energy research. We worked with you on nuclear waste legislation. Unfortunately it was stymied. The clean coal technology program, as I mentioned -- I just would like to -- and, finally, on reliability --

SEN. MURKOWSKI: It was a little short of a veto override, as you know, on the issue of nuke waste.

SEC. RICHARDSON: On reliability, Mr. Chairman, there is nobody that has fought harder than ourselves in trying to get a bill, a comprehensive bill -- you passed it here -- reliability only -- we would welcome that action just as a minimal action, but a constructive action that passed the Congress. It's tied up in the other body. We think that that would save consumers money, would improve our energy posture. And we are concerned it looks like it's going to die.

And I don't want to just be pointing fingers, but there has to be a collaborative effort that deals with both supply and demand. The energy efficient initiative -- domestic oil and gas -- I mean, everybody here, my good friends from the West, for years we have been fighting for tax credits for marginal well producers -- domestic oil and gas. The president's proposal -- there -- hopefully they'll make it through a final package -- but they are languishing. The funding for alternative energy -- the president has only gotten 7 percent of that budget -- 7 percent over the last 7 years. So I think we need to collaborate a little more.

SEN. MURKOWSKI: Senator Campbell.

SEN. CAMPBELL: Thanks, Mr. Chairman. I listened to your testimony as closely as I could, Mr. Secretary, and I have to tell you that I am somewhat pessimistic when you say that the release of the oil at SPRO is designed to get us through the winter. I think it's designed to get us through the election, myself.

But let me ask you a couple of questions. You said that you do not support artificial price limits. Maybe it's a question of semantics, but I don't know how you define them as opposed to price controls. When Senator Nickles was here he read from the statute dealing with the release of SPRO, and he read in that, if you remember, that this was not supposed to be released, under the intent of the law, to be -- to control prices. And I believe his view is mine, is if it didn't violate the letter of the law it certainly violated the intent of the law. Would you like to tell us how you arrived at the conclusion it's okay to release it when the statute seems to be perfectly clear?

SEC. RICHARDSON: I would first point out, Senator Campbell, we are fully in compliance with the law through the appropriations act that gives me the authority to engage in the swap, the Interior appropriations act which funds the Strategic Petroleum Reserve.

I would also --

SEN. CAMPBELL: Well, that means that you -- to define that then, you consider it a swap, not a release?

SEC. RICHARDSON: That's right. The EPCA act authorizes me to obtain oil through the SPRO by purchase or exchange. The Department of Justice confirmed that the current appropriations, as I said, the Strategic Petroleum Reserve authorizes SPRO-related activities.

I do want to point out, Senator Campbell, we really need the SPRO authorization, because other activities involving our participation in the International Energy Agency, and other countries participating in exercises with us, is needed. American companies have not participated in these exercises because of some concerns over antitrust, where they are protected once EPCA is authorized. Again, we fully believe that the president's actions were authorized in the appropriations act by the Interior 2000 act on SPRO appropriations. So we feel we are fully in compliance of the law, the act, by purchase or exchange.

SEN. CAMPBELL: Okay, thank you.

You also did mention that you are working with Interior to improve access to public lands for energy. But, as you probably know, the Interior Department has been recommending to the president just wholesale tracts of public land being locked up in the West -- in fact, just recently 162,000 acres was locked up under the antiquity act down around Cortes, Colorado, and there have been a number of other places in Arizona and other parts of the country. Could you tell the committee what is it you are doing with Interior to promote more energy on public lands?

SEC. RICHARDSON: Well, I think that chart can show, Senator Campbell. Certainly in the natural gas area, I think offshore, on federal lands, natural gas under this administration drilling has increased. In the Gulf of Mexico, we supported efforts to increase oil and gas recovery in the deep waters of the Gulf, as you can see there. In the U.S. onshore rig count, I am pleased to say we are over 1,000 -- a 44 percent increase in the last year -- about 200 gas and 200 oil. The increase is about the same for U.S. offshore rigs. And I think -- I see Chairman Murkowski here -- we did open with him, with his help, a portion of the National Petroleum Reserve in Alaska for oil and gas development. Oil production on federal and Indian lands accounted for 25 percent domestic production in '99, up from --

SEN. CAMPBELL: So you are saying actually they have increased drilling on public lands then?

SEC. RICHARDSON: Yeah, and --

SEN. CAMPBELL: Okay --

SEC. RICHARDSON: -- I think we have worked with Interior to improve that access.

SEN. CAMPBELL: Well, you better tell your vice president that, because as I understand it on September 22nd of this year, in Orion, New Hampshire, he said, quote, "I will do everything in my power to make sure there is no new drilling." And that worries us in the West, as you might guess.

SEC. RICHARDSON: I think he meant in certain offshore areas -- Florida and California. But --

SEN. CAMPBELL: Got to ask him.

SEC. RICHARDSON: Okay -- (laughs).

SEN. CAMPBELL: Maybe one last question too. You talked about alternative fuels. The ones you mentioned -- wind, solar and so on -- in one of the energy crunches in the past, coming from the West, you remember the great big crunch of the '70s in which Shell, Unical and other companies got some tax credits to encourage them to do some research with oil shale. And in fact they found a way that they can squeeze that oil right out of rocks. It's amazing -- I've been out there and visited them and the peons based in Western Colorado. But they can't do it cheap. They can do it for about $42 a barrel or something of that nature. But they are just literally at a standstill now. Do you see any future for oil shale in the scenario of alternative fuels? Because it is a fossil fuel. And it has, by the way, it has some off -- some side benefits of creating revenue that is as hard as asphalt too, I might tell you.

SEC. RICHARDSON: Well, senator, I think you and I came in in '82, and we had -- in the '80s we had that --

SEN. CAMPBELL: Before it collapsed. (Laughter.) We didn't have anything to do with that.

SEC. RICHARDSON: You know, I'd rather concentrate on some of the more I think established renewables, senator. I think, you know, if oil went up substantially I think we ought to consider it. But I think we are doing well in focusing -- on our existing fossil fuels, on solar, wind, biomass, bioenergy.

SEN. CAMPBELL: Well, I'm not opposed to that. I think I support Senator Bingaman's comments about looking at alternative energy. But I can tell you most of our heavy use -- whether it's to drive ships or planes or diesel trucks or what -- they are not going to be driven by wind power. It has got to come from fossil fuels till -- I mean, certainly for the foreseeable future. And if we don't put emphasis towards that, it would seem to me all of these alternatives simply are not going to get the BTU that we need. But I did want to ask you about oil shale. But I appreciate your being here, and --

SEC. RICHARDSON: Senator, I would appreciate just my ability to put in the record the positive statements that have been made about the president's decision on the reserve -- the American Federation Association and Consumer Federation of America, the government of Great Britain, the G-7 industrial nations, the Central Bank Governors, which included Chairman Greenspan. I would also like to put in the record several OPEC countries that have basically said that they understand the internal decision of the United States. And I would appreciate that --

SEN. CAMPBELL: Well, the chairman's not here, but I think without objection that those can be included in the record. And with that, I thank you, Mr. Secretary, and I'll just turn it over to my colleague from Wyoming.

SEN. THOMAS: I'm not going to be very long. Most of the questions I think have been asked. There's a difference in view about the withdrawal of course, but really the issue is what do we do long term. When we take a look at what's happened to production in the United States, domestic production as opposed to consumption, and as opposed to our continued increased use of overseas dependency, that's really the issue. We can play with that other one for a while, but -- For instance coal. I think at Kyoto all the things, EPA and others, coal now, what -- sells for about $4 a ton, low-sulfur coal -- because there's not the demand. We have had to reduce production in our coal mines. And here's something that can contribute a great deal to the overall use. But how do you -- and most of that has been because of the kinds of regulations that have been put on by agencies in the federal government. How do you deal with that? Here's a resource that's available.

SEC. RICHARDSON: Well, yo u know, senator, we are well disposed towards coal. Besides our clean-coal technology programs, we have had coal and power programs that led to lower cost, more effective low NOX controls. Three-fourths of all coal-fires plants have low NOX burners. We have had a breakthrough gas turbine. I unveiled it in South Carolina, lower cost scrubbers, R&D coal. We -- you know, we are bullish about clean coal and coal, and it's essential. We would like to get the clean coal budget through the Congress. Our fossil fuels budget has not done as well as it should -- I know not because of you, because you are a strong supporter.

I would, senator, since I have stressed the importance of why we did this release, which is to deal with the home heating oil supply potential problem, I would like to simply say that our objective was not market manipulation, was not market prices, but we do -- we have been concerned about the tightness in the market. I would like to point out that crude oil in the last week since Wednesday is close to $6 less a barrel -- $37.22 last week, $31.52 this week. Home heating oil is down 7 cents per gallon; retail gasoline prices down 1.4 cents per gallon. You know, these we see as favorable, positive trends that hopefully because of more crude oil on the market -- and we are going to be monitoring the effect of the 800 --

SEN. THOMAS: Let me get back -- and I agree -- the price is back up again some today, as a matter of fact, isn't it?

SEC. RICHARDSON: I haven't seen the --

SEN. THOMAS: At any rate, the long -- the real issue is the long-term effect, and the real issue is whether or not the energy secretary and the administration has anything to do with MMS. Been working for three years to try and get something resolved there in terms of encouraging oil production -- anything to do with the White House Council on Environmental Quality, which has made it more difficult, has refused to do anything in terms of making NIPA more useful. You talk about access to public lands, my friend -- I tell you what, everybody that I know in the West would not agree that that's more likely than it has been -- it's more difficult than it's been, and it's clear that that's the case. I mean, this administration has made it clear, particularly Gore, that they don't want fossil fuels -- they want to do other things. So, you know, you have to take a look at some of those things in the long term. Now, you've resisted any notion that that's been the effort in terms of this administration, but it's pretty clear that it has been. Do you have any influence over Interior, and EPA and the environmental council and some of those others?

SEC. RICHARDSON: Well, in many of these discussions we're at the table, and we have had some positive influence. Eventually the administration makes a collective decision. But I do think, Senator Thomas, on access to public lands it has increased on our watch. It has increased in our last two years.

SEN. THOMAS: That just can't be true. It can't be true.

SEC. RICHARDSON: Well, I'll get my maps out --

SEN. THOMAS: Well, you just got through saying that what he was talking about what no drilling was offshore, and then you showed this map showing how wonderful it is.

SEC. RICHARDSON: Well, see, I -- I didn't see Alaska on that map, and that did happen under our watch. Maybe that yellow --

SEN. THOMAS: I see Wyoming there -- I'm fairly familiar with that -- and you can't tell me that there is more access to public lands.

SEC. RICHARDSON: But there are other parts of -- I'd like to show you our maps.

SEN. THOMAS: Or there are other places --

SEC. RICHARDSON: Our objective is we want to increase access to public lands. I think there are environmentally safe ways to do it. The industry has improved dramatically in terms of environmentally handling drilling. We have invested in new technologies to improve drilling with universities. I think we are very good at it -- offshore also.

I'd point out in the offshore area natural gas increases offshore and onshore. Now, we still have a capacity problem with natural gas, but I think if we work together, senator, we can deal with a lot of these regulations that perhaps need to be revised.

SEN. THOMAS: Well, I agree with that. I -- certainly you and I both want to respect taking care of the environment and so on, but you can do -- that's what multiple use is all about. And the same is true with refineries. I'm on the Environment and Public Works Committee. We have been going on and on about sulfur and all those problems that go with it. That's one of the reasons we have on that. We have difficulty with having enough facilities there to do that.

So I won't take more time. I know there are lots of other persons to testify. So thank you for being here. But let's see if we can't get aside from defending what we have been doing and take a little look at how we increase our ability to produce domestically. Thank you.

SEN. MURKOWSKI: Thank you, Senator Thomas.

Let me just wind this up. You have been very gracious with your time -- I am sure you want to get out of here. But my understanding from your statement is that you want to add by this process three to five million barrels of heating oil this winter?

SEC. RICHARDSON: Assuming we get the refining capacity that we expect.

SEN. MURKOWSKI: Yes. And we obviously want to help you make that happen.

Now, my understanding is the average daily heating oil consumption is about 4 million barrels per day, per day, in each of the winter months. Now, you tell me, how much of an additional supply will this be? Because it appears to be about a one-day supply.

SEC. RICHARDSON: I have my -- Mr. Mazur is testifying a little later, Mr. Chairman.

SEN. MURKOWSKI: Now, this is heating oil and distillate; I understand that. But we're talking about a pretty significant contribution. From your point of view, I'm talking about numbers, and I don't see a significant contribution.

SEC. RICHARDSON: Can he --

SEN. MURKOWSKI: Sure, sure, sure. I don't expect you to have all the answers. I don't have them either if I hadn't done the research.

MR. MAZUR: First of all, the U.S. consumption of heating oil is about 1 million barrels a day. I think the 4 million barrel figure you talked about was total distillate production.

SEN. MURKOWSKI: No, it's heating oil and distillate.

MR. MAZUR: Right, heating oil and distillate --

SEN. MURKOWSKI: That's consumption.

MR. MAZUR: Right. Total distillate is about 4 million barrels a day. Heating oil is about a million barrels a day during the winter season. The 3 (million) to 5 million barrels additional supply that the secretary talked about would be additional marginal supply on top of what is already there. So you'd be increasing the --

SEN. MURKOWSKI: So that's a three-day supply, then.

MR. MAZUR: You're not -- I think that's an inappropriate comparison.

SEN. MURKOWSKI: Well, you tell me what it consists of in days.

MR. MAZUR: The appropriate comparison is to look at the total amount that's still going to be produced. The three-day supply or three- or five-day basically assumes that nothing else is produced in the United States. That's not going to happen. So really what you want to focus on is the addition to the total amount of supply.

SEN. MURKOWSKI: Well, that's like saying ANWAR isn't -- you know, they say ANWAR is only a 60-day supply; never put in the realization that that's assuming you don't produce any oil any place else.

MR. MAZUR: Now, you've used that, I think.

SEN. MURKOWSKI: Huh? I don't use it.

MR. MAZUR: No, the other side.

SEN. MURKOWSKI: The other side uses it. Okay. So you're saying it is significant as a balance. (Laughter.)

MR. MAZUR: I'm saying the 3 (million) to 5 million barrels is on top of the total supply that's there. That should be in addition to inventories into supply that's available to customers who use home heating oil.

SEN. MURKOWSKI: Yeah, but over the winter, what percent addition is this?

SEN. THOMAS (?): Three days.

MR. MAZUR: Probably about 3 to 5 percent over the winter.

SEN. MURKOWSKI: How many days?

MR. MAZUR: The day supply is not the appropriate comparison.

SEN. MURKOWSKI: Well, it's like saying we don't know how cold the winter is going to be. But you folks are in the business of saying this is significant. You're saying it's 5 percent. How many days is that?

MR. MAZUR: When you have tight markets, sir, 5 percent, 3 to 5 percent increase in supply can have a disproportionate effect on price, just like --

SEN. MURKOWSKI: Well, obviously the folks better get their axes out or their chainsaws and --

SEC. RICHARDSON: Mr. Chairman, I just simply want to say that this SPRO swap, it's a precautionary measure. It's temporary.

SEN. MURKOWSKI: I (buy?) your efforts. But to suggest that this is going to solve the heating oil problem in the Northeast --

SEC. RICHARDSON: No.

SEN. MURKOWSKI: I think people in the Northeast are smarter than that.

SEC. RICHARDSON: No.

SEN. MURKOWSKI: I think they can figure that this is a drop in the oil bucket.

SEC. RICHARDSON: We want to be judicious, as you have been, in the use of the SPRO. You know, I have resisted using it in the past.

SEN. MURKOWSKI: I'm with you.

SEC. RICHARDSON: We're dealing with a short-term potential emergency supply problem. That's the rationale for the president's action.

SEN. MURKOWSKI: Yeah, but you and I both know you've got refinery capacity to address, and there's no immediate relief there. You're playing with the margin. You have a refinery fire, an accident or whatever in this country; that's a severe risk that can occur. It reoccurs. You don't have any margin here. You're tight. You're playing -- you know, you're playing against a game that has been going on all year, and now you're addressing some relief.

Now, the other point that I think is fair to make, recognizing that this isn't very significant, it's 5 percent. We don't know how many days. Seventeen percent is what the United States gets from OPEC. Seventeen percent of OPEC oil is imported into the U.S. Now, if you get 800,000 barrels increase in OPEC through your persuasion -- and you've been very persuasive -- that's 138,00 barrels a day that's going to come to the U.S.

The American public should understand that we don't get all that OPEC increases their production rate. And, you know, it's a process of price. We talked about renewables, and you talked about the president's request. The record should note that in the past five years, Congress has appropriated $1.5 billion in direct R&D, $500 million for solar, $330 million for biomass, $150 million for wind, $100 million for hydro, $4.9 billion in tax benefits, $2.6 billion in reduced excise taxes for alcohol fuels; a total of $6.4 billion for the last five years.

So, Mr. Secretary, we haven't been asleep. We've been appropriating a lot. The problem, as you and I both know, is the reality that it's not easy to come up with alternatives, and it's certainly not cheap. But don't say we haven't done anything.

SEC. RICHARDSON: Well, I would just point out, Mr. Chairman, you mentioned your billion. I am going to say that there's $1.3 billion that you've not appropriated that we asked for -- $867 (million) in conservation, $425 (million) in renewable and solar -- between '96 and 2000. And this year, when I think we need the most, energy efficiency has been cut dramatically; the House, $66 million, the Senate by $12 million. I mean, this is the time when we should really be investing. So --

SEN. MURKOWSKI: Well, you and I could solve the problem if we were together. You know, in the president's budget they cut $60 million for fossil fuels. Okay, why? Well, obviously it's not a priority. Yet that's where most of our power comes from. Might we get a commitment from you to respond to this letter of July 10th?

SEC. RICHARDSON: Is that the nuclear waste letter?

SEN. MURKOWSKI: No, sir.

SEC. RICHARDSON: Is that the --

SEN. MURKOWSKI: This is the three pages that we have --

SEC. RICHARDSON: Okay.

SEN. MURKOWSKI: -- mentioned earlier. And I'm not going to repeat it, but clearly it's our laundry list of what the president vetoed, Environmental Protection Agency, on and on and on. And it deals with electricity supply. And it was an alert to you last July 10th that we were facing a crisis in the supply of our electricity. We've seen that develop dramatically; California, in San Diego, you know what's happened down there -- no new supplies. Nobody will invest. You can't get any permits. They're having brownouts.

But, Mr. Secretary, we've got problems in California, a lack of generation, lack of transmission. FERC has jurisdiction over transmission, over wholesale generation. FERC has not really provided the incentives that are needed, so nobody's investing. And, you know, we've got a crisis on our hands. We can point the finger at each other to blame, but that isn't going to make it go away.

The last thing I want to remind you, Mr. Secretary, is you and this administration have called on SPRO to bail you out of the presumption that somehow this is going to have a significant effect on price. It's not going to have a significant effect on increasing domestic supply. We know that. We're still going to be dependent on OPEC to set the price of oil.

So, Mr. Secretary, I just want to remind you of one thing. There's no SPRO for natural gas. You're not going to get a convenient arm's length for natural gas. And that has happened now. We're already too late. You know it and I know it. And the reason we are, Mr. Secretary, is there's absolutely no place under your administration's structure for the utility industry to go where they can get new generating capability other than natural gas.

So the pressure is going to be on natural gas. The price is going to go up. Fifty percent of our homeowners depend on natural gas for heating. Fifteen percent of our utilities depend on natural gas, and that's going to grow dramatically. So, Mr. Secretary, that's where the next train wreck is coming from. And I hope you have an answer, because it's there in the price today. We know it's coming, and it's inevitable.

SEC. RICHARDSON: Mr. Chairman, I would just want -- a couple of things in the hearing that I'd like to just point out. First, Secretary Summers supported the decision on the 30 million barrels, the swap. He is on record.

SEN. MURKOWSKI: Well, that's the second request of him. I mean, his first remark was that this is poor policy, and he invoked the name of, you know, Greenspan.

SEC. RICHARDSON: And while you were away -- and I'm not going to speak for Chairman Greenspan -- but the central bank governors put out a statement -- they met with the G-7 group in Czechoslovakia, the G-7 countries -- welcoming the swap. These are the central bank governors, Canada, Japan, the United States, Germany.

I also -- I think, Mr. Chairman, and you would agree, that we don't want the American people, especially the people of the East Coast, to cut back on medicine and food to pay for oil. I think that's something that was very much on the president's mind. We're talking about hundreds of thousands of dollars of cost for low- and moderate-income Americans here. And we are not trying to manipulate the price. We are dealing with a potential supply problem of home heating oil.

I think the American people have a president that was concerned about that, about Americans having to make a choice between food and medicine and oil. And that's what's fundamental here. These are serious supply issues. I mentioned to you 65 percent less home heating oil in a year. That is, I think, a good reason for the use of the Strategic Petroleum Reserve. And it affected the whole country.

We're not interested in the price manipulation. We didn't do it for price. The price issue is not a factor in the deliberations, although when you're concerned about the tightness in the market and you see since Wednesday a reduction of close to $6 per barrel and you see that lower crude oil prices are going to account for more home heating oil, are going to account for more of the ability, not just in this country but for producer and consuming countries to reduce the volatility in the markets and address a stable price, I think that is constructive.

SEN. MURKOWSKI: Well, Mr. Secretary, you brought it up. I didn't. I've got a copy of Lawrence Summers' memorandum for the president dated September 13th, the year 2000. Subject: Strategic Petroleum Reserve. Page two, first paragraph. Quote: "Using the SPRO at this time would be seen as a radical departure from past practice and an attempt to manipulate prices. The SPRO was created to respond to supply disruptions and has never been used simply to respond to high prices or a tight market."

SEC. RICHARDSON: I would also, Mr. Chairman, look at page two where he says, in that same memo, a use for supplies or a use for tight -- he is supportive of a targeted use. If you look at page two in home heating oil, I think he used 5 million. So --

SEN. MURKOWSKI: Well, I'll share my memorandum with you if you'll share yours with me. How's that?

SEC. RICHARDSON: Well, the point is on Thursday night, in a telephone conference call before the president made the decision on Friday, all of his economic advisers, myself as Energy secretary, we agreed on the 30 million for 30 days. That's --

SEN. MURKOWSKI: I would be surprised if he didn't agree under those circumstances. I wonder, is it possible, as a result of SPRO releases, that we could see prices go down, but at the same time see no additional heating oil come onto the market? Could that happen maybe?

SEC. RICHARDSON: Maybe.

SEN. MURKOWSKI: Well, I'm going to conclude this with the last word, which goes with the chairmanship. Is that fair enough? It's an article that appeared in the New York Times today, September 26th, 2000. I'll read the first paragraph. It's from Thomas L. Friedman (sp) called "Candidate in the Balance."

Tokyo. "It's interesting watching the American oil crisis debate from here in Tokyo. The Japanese are as cool as cucumbers today -- no oil protests, no gas lines, no politicians making crazy promises. That's because Japan has been preparing for this day since the 1973 oil crisis by steadily introducing natural gas, nuclear power, high- speed mass transit and conservation, and thereby steadily reducing its dependence on foreign oil. And unlike the U.S., the Japanese never wavered from that goal by failing" -- or falling, I should say -- "off the wagon and becoming addicted to the sports utility vehicles, those they just make for the Americans." (Laughter.)

Okay, Mr. Secretary. Charity begins at home. Thanks for being with us. Have a good day.

SEC. RICHARDSON: Thank you, Mr. Chairman.

(End of Panel I; Panel II to be send under a different heading.)

END

LOAD-DATE: September 28, 2000

Document 1 of 25.


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