Copyright 2000 Federal News Service, Inc.
Federal News Service
December 12, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 2990 words
HEADLINE:
PREPARED TESTIMONY OF DEBORAH SCHACHTER DIRECTOR, GOVERNOR'S OFFICE OF ENERGY
AND COMMUNITY SERVICES ON BEHALF OF THE NATIONAL ASSOCIATION OF STATE ENERGY
OFFICIALS
BEFORE THE SENATE COMMITTEE ON ENERGY
AND NATURAL RESOURCES
BODY:
My name is Deborah
Schachter, and I am the Director of the New Hampshire Governor's Office of
Energy and Community Services. I am testifying today on behalf of the National
Association of State Energy Officials (NASEO). NASEO represents the energy
offices in virtually all the states, territories and the District of Columbia.
These energy offices serve as the Governors' energy policy advisors. In
addition, NASEO members generally support a balanced state and national energy
policy, and implement energy-related programs and initiatives at the state
level.
We applaud the Committee for calling this hearing to discuss
natural gas price and supply issues. The country is in an energy crisis at this
time. We need to respond assertively, but in so doing need to take care that any
policy judgments or political actions recognize the necessity for a balanced
approach. This means a combination of both short and long term solutions, both
supply-side and demand-side strategies.
Further, we cannot speak of
natural gas markets in isolation, for this market is ever more closely linked to
both heating oil and electricity markets. Certainly rising electricity rates for
many customers in both regulated and newly deregulated markets based on fuel
cost adjustments, the growing prevalence of gas-fired electric generation, and
the impact of interruptible gas customers on heating oil prices are obvious
among such linkages. A balanced approach to our current energy price and supply
situation is needed, and there are a number of aspects of the challenge that
merit our attention. A balanced approach should include:
1) promoting
environmentally sound supply-side options, such as clean, diverse generation
sources;
2) encouraging increased infrastructure capacity, including
increased development of gas and oil pipelines as appropriate;
3)
targeted tax incentives for both supply- and demand-side initiatives, including
energy efficiency credits along the lines of those proposed during this past
year;
4) strategies for addressing problems created by "just-in-time"
inventories, including promotion of summer-fill for heating oil and inventory
build-up for natural gas;
5) a partnership between state and federal
governments to increase funding for cost-effective energy efficiency
investments;
6) streamlined siting requirements (where appropriate);
7) increased drilling in environmentally-acceptable locations; and
8) increased funding for the Low Income Home Energy Assistance Program.
There is no singular solution to our present energy problems. They will
not be solved overnight.
With this in mind, as we attend to long term
energy policy strategies, I must stress the immediate and dire need for
increased Low Income Home Energy Assistance Program (LIHEAP) appropriations for
the current program year, from $1.1 billion to a minimum of
$1.65 billion, as well as release of the remaining (roughly
$155 million) LIHEAP contingency funds. Skyrocketing
prices for natural gas, combined with
rising heating oil, kerosene, and propane costs, and attendant
electricity price increases for many households, leave the most
vulnerable households at serious risk. Simply put, my state is facing the need
within days to cease taking LIHEAP applications due to lack of funds, leaving
thousands of vulnerable low income families, many with young children, elderly
or disabled members, without the means to remain safe and warm this winter.
In NH, for example, the most recent HHS LIHEAP Income Eligibility
Estimates (FY 1998) project that 114,000 households are income eligible for
LIHEAP at the federal maximum standard. Yet, faced with the worst energy crisis
in 20 years, we project an ability to serve less than 12% of the eligible
population at current funding levels. With many households still in line to
apply, increased prices and rising demand for assistance have put my state in
the position of being within days of shutting down the program for all but
emergencies, due to.having completely obligated our available LIHEAP funds. This
is truly a crisis. As of yesterday, the average household in New Hampshire
heating with oil can expect to pay $1.59 per gallon, a 47%
increase over last year at the same time. When increased usage over last year's
warmer-than-average winter weather is factored in, the average household in my
state using oil will spend 67% more to heat this year than last winter.
Ensuring increased funding for this program, one which enjoys strong
bipartisan support, is the most urgent and necessary short-term response we can
have as a nation to the energy situation that confronts us. Prior to the
election appropriations negotiators had resolved to increase the Low Income Home
Energy Assistance Program (LIHEAP) from $1.1 billion to
$1.4 billion in FY 2001. With the continuing appropriations
uncertainty, this increase is in question. In fact, with natural gas and other
energy prices soaring the necessary figure is actually much higher than
$1.4 billion. A broad bi-partisan group has supported higher
funding levels.
You have seen the NYMEX price of gas increase to over
$9/MCF, up from slightly over $2/MCF in the
recent past. The prices in California and at the British Columbia-Washington
State border are unbelievable. The Congress should increase LIHEAP to equal the
FY 1985 funding levels of $2.1 billion, which would not even
account for inflation since that time. This program is critical to help the
poor, elderly and disabled stay in their homes. It is a critical program for
cold weather states like my own, but also for warm states, where air
conditioning also saves lives. We urge Congress to act this week to increase
LIHEAP funding.
"JUST-IN-TIME" INVENTORIES
Heating oil, other
distillates, and natural gas inventories are at extremely low levels. Certainly,
with oil prices just two seasons ago at $11/barrel and gas at
$2/MCF, and attendant decreases in natural gas drilling,
supplies have declined. It is widely recognized that such low inventories make
us more reliant on seamless delivery infrastructure, and make us more vulnerable
to potential supply disruptions and price spikes if weather events, surging
demand, or other eventualities threaten supply sufficiency.
Just last
week, at a Northeast Winter Fuels Emergency Workshop and Simulation Exercise in
Manchester, New Hampshire sponsored by the Coalition of Northeastern Governors
(CONEG) along with my office, NASEO, and the Department of Energy, a
representative of the United States Coast Guard underscored his concern about
the risks of extremely low inventories and reliance on uninterrupted supply
chains, given the limited and reduced number of ice cutters and other assets
available to respond to weather emergencies. There is a need to revisit funding
for the Coast Guard to ensure adequate means to perform this vital function.
Reduced inventories are a normal economic response to high carrying
charges and the risks to those holding high-priced stocks in markets where
futures prices may be much lower. On the other hand, over-tight supplies result
in potentially disruptive and even dangerous situations for businesses and
consumers. These low inventories also tend to have a telescoping effect on price
as we get close to supply limits. California and the Pacific Northwest are
experiencing that now in natural gas markets; the Northeast saw this last winter
in oil price spikes in February, and we may be headed again in that direction
this season.
Somehow we must develop incentives, either financial or
otherwise, to encourage inventory build-up of both heating oil and natural gas,
as well as other distillate products. A number of years ago, some in Congress
suggested minimum inventory levels. While not endorsing such a plan today, we
recognize that minimums may need to be explored if incentive approaches are not
sufficient. For example, the Division of Energy Resources in Massachusetts has
designed an innovative incentive program to increase inventories of heating oil
in that state. This small $5 million program in Massachusetts
appears to have added to very low inventory figures. We would like to work with
the Committee to examine the full range of options for enhancing inventories.
As noted, in the last few years with increased use of natural gas for
electric generation and increased use of interruptible contracts we are at
greater risk, especially at times of emergency or near- emergency situations.
The states are endeavoring to respond. We note, for example, that New York has
moved to require interruptible gas customers to have 7-10 days of alternative
fuel supplies available either in on-site storage or via a contractual
relationship with a supplier, in order to better ensure dependable supply. Other
states are reviewing their interruptible tariffs and enforcement policies. We
applaud the decision by the National Association of Regulatory Utility
Commissioners and the Interstate Oil and Gas Compact Commission to join forces
to review existing pipeline certification procedures and to expedite such
actions. We look forward to working with them in this important effort.
Rehabilitation of existing infrastructure and the dramatic increases in new
construction required to meet demand calls for increased coordination and
cooperation, including federal cooperation. Rational pipeline safety legislation
should also be passed as soon as possible.
ELECTRIC RELIABILITY AND
DEMAND RESPONSIVENESS
Obviously, the electricity reliability situation
is connected to our natural gas problems. The bill the Senate passed last year
on electricity reliability is a step in the right direction, and should be
passed by Congress. A more comprehensive approach should also be assessed, which
requires infrastructure upgrades and federal-state cooperation. The Energy
Information Administration should be called upon to look comprehensively at the
potential effect of newly sited and soon-to-be-sited electric power production
with oil back-up capacity on the heating oil marketplace. Further, while we have
long maintained a one-day-in-ten-year contingency approach to ensuring electric
reliability, it is not clear that we have any similar process for the more
dispersed natural gas network, despite increasing relevance of this market to
electricity production. We need to explore this more fully.
Demand
responsiveness is also an important part of any long-term energy strategy. We
cannot ignore supply-side approaches; but neither can we ignore the need to
empower customers and markets to lower costs and enhance reliability with
demand-side solutions. In the context of electricity and gas restructuring,
funding for energy efficiency programs has been cut. A state and federal
partnership could produce real results in funding cost-effective measures to
seize energy efficiency opportunities which would otherwise be lost due to
market barriers.
The Independent System Operator (ISO) response to
electricity problems has traditionally been focused on load -curtailment -
shutting large customers off to achieve quick demand reductions - rather than
more predictable and ultimately less intrusive demand responsiveness mechanisms
and energy efficiency measures, which could produce reduced usage without
lifestyle changes. We need to examine these options together and quickly. A
series of regional energy summits with interested parties might afford a
focused, non-partisan approach to tackling these issues.
Two federal
programs which foster essential reliability and demand- side capabilities at the
state level are the Low Income Weatherization Assistance Program (WAP) and the
State Energy Program (SEP). WAP received $153 million in
federal funding in FY 2001, an increase of $18 million over FY
2000 levels, but still far below the $226 million appropriated
in FY 1995. Weatherization was slashed in FY 1995. This program helps the poor,
disabled and elderly by improving their housing stock and reducing their energy
bills.through energy conservation measures. A recent Oak Ridge National
Laboratory study showed that the average energy savings after these measures
were installed totaled 23%. This is the type of long-term program that we as a
nation and this Congress should support.. Weatherization also receives enormous
leveraging of state, private and local funds.
The State Energy Program
(SEP) received $38 million in federal funding in FY 2001, down
from the $53 million level in FY 1995. This program allows the
energy offices to match private, state and local funding to conduct important
energy projects, which helps all sectors of the economy become more efficient.
Matching funds total as much as 20:1. Again, we urge the Congress to increase
funding for this program.
As we explore reliability options and energy
policy strategies, we must also be mindful of environmental requirements.
Cleaner-burning gas produces positive environmental results, but is not a
panacea. At NASEO we have begun the process of working with the state
environmental commissioners and air officials, in conjunction with our public
service commissions, to begin to look at our energy and environmental issues
together, rather than independently. There are a number of models in different
states that we could utilize to meet our energy and environmental challenges.
Public education in the energy area has long received insufficient
attention. We need to expand efforts in this area to encourage changes in
consumer behavior and to assist customers in all sectors to recognize that
energy has a dramatic effect on our everyday lives all the time, not just when
gas is curtailed or when the lights go out.
EMERGENCY PREPAREDNESS
In periods of low natural gas and oil prices we as a nation tend to
forget about energy emergency preparedness. This is a mistake. In 1995, over our
objections, the Interior Appropriations and Energy and Water Development
Appropriations Subcommittees, in both the Senate and House, with the tacit
support of the Administration, virtually eliminated funding for non-nuclear
energy emergency preparedness at the Department of Energy. While the Energy
Information Administration provides critical data, and they made huge strides
under the former Administrator Jay Hakes, more is needed to be ready and respond
to an emergency.
There are very capable career employees at DOE, who
know how to work with the states, industry, etc., in responding to an emergency.
The re-creation of the energy emergency office within the Office of Policy is a
very positive step. Supplemental appropriations are necessary to permit this
energy emergency office to operate in a continuing and effective manner. As
noted, on December 4-5, state and federal energy representatives, public service
commission staff, industry representatives, and others met in Manchester, New
Hampshire for a regional energy emergency simulation and preparedness exercise.
Another exercise was held earlier this year in Nevada. We had presentations by
DOE, EIA, FEMA, the Small Business Administration, the United States Coast
Guard, the U.S. Maritime Administration, as well as NASEO and individual states,
followed by an emergency simulation on day two. We also reviewed state emergency
statutes, and appropriate response mechanisms, such as set- aside authority (the
ability in some states for a Governor to set- aside up to 5% of supplies within
a state for high priority uses during an emergency). In an emergency, the
relationships forged during these types of meetings are critical to responding
quickly and appropriately. Interstate coordination and state federal
coordination also needs to be fostered. These exercises are absolutely necessary
and should be supported financially at the federal level so that we can be
prepared. This is not just a state problem, nor just a federal problem.
EPCA REAUTHORIZATION
Elements of a national energy policy are in
place. The Strategic Petroleum Reserve is a critical response mechanism, and the
incentive structured in the EPCA reauthorization bill to permit purchases for
the Strategic Petroleum Reserve when prices drop below
$15/barrel is a good idea. NASEO always supported a Reserve of
up to 1 billion barrels, In periods of low prices we should still aspire to
increase the fill for the Reserve.
Chairman Murkowski and Senator
Bingaman are to be congratulated for joining with the Administration in finally
passing a reauthorization of the Energy Policy and Conservation Act (EPCA). In
addition to reauthorizing the Strategic Petroleum Reserve, it formally
established a Regional Petroleum Product Reserve. We are hopeful that this
Regional Reserve will help us deal with this winter and coming winters.
The recently passed EPCA bill also authorized a new 'summer-fill"
encouragement program. We hope that we can work with this Committee and the
Appropriations Committees to fund this effort. In most years, it would be
advantageous for businesses and consumers to purchase heating oil in the less
expensive summer months. We need to encourage that.
In addition, the
EPCA bill also provided some important revisions to the Low-Income
Weatherization Assistance Program, and repealed the ill-advised state match
requirement, which had been put into place by the Interior Appropriations Bill.
CONCLUSION We look forward very much to working with the Committee as
you continue to tackle our nation's energy challenges. We agree with you that we
as a nation cannot just focus on energy this week or this month, in this gas
crisis or that oil price spike. Instead, we need to agree to a sustained
commitment to addressing our energy needs and problems with a combination of
supply and demand-side solutions, strong energy emergency preparedness, and
increased funding for a variety of measures of the type I have discussed.
END
LOAD-DATE: December 16, 2000
