CONTENTS S. 341 (Sections 6003 and 6004 of Title VI and Title X) Scherman, William S., General Counsel, Federal Energy Regulatory Commis- sion, accompanied by Kevin P. Madden, Office of Pipeline and Producer Shelby, Hon. Richard C., U.S. Senator from Alabama Steward, H. Leighton, chairman and chief executive officer, Louisiana Land and Exploration Co.............. Wakefield, Stephen A., General Counsel, Department of Energy 28 Wallop, Hon. Malcolm, U.S. Senator from Wyoming.... 113 27 NATIONAL ENERGY SECURITY ACT OF 1991 (Sections 6003 and 6004 of Title VI and Title X) THURSDAY, MARCH 7, 1991 U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. The committee met, pursuant to notice, at 9:36 a.m. in room SD366, Dirksen Senate Office Building, Hon. J. Bennett Johnston, chairman, presiding. OPENING STATEMENT OF HON. J. BENNETT JOHNSTON, U.S. SENATOR FROM LOUISIANA The CHAIRMAN. The committee will come to order. This is a hearing on the Natural Gas Provisions of the National Energy Security Act of 1991, S. 341. The committee will receive testimony on title X, The Natural Gas Regulatory Provisions of the bill, as well as the sections regarding the demonstration and commercialization of new natural gas technologies. The committee will also receive testimony on the natural gas provisions in title II of the President's National Energy Strategy Act. Because the NES bill was received by the Congress only 2 days ago, the hearing record will remain open for an additional week to receive supplementary testimony on the natural gas provisions of the President's NES. The staff will provide details regarding the requirements for filing such testimony. Natural gas is one of the bright spots on the energy horizon. The enormity of the natural gas resource base is impressive. According to the Department of Energy, even after the exclusion of Federal lands that are off limits to expiration and production, the lower 48 natural gas resource base is economically recoverable, using conventional technology, represents 38 years of supply at the current rate of consumption. When the additions attributable to advanced exploration and production technology are included, the economically recoverable lower 48 resource base grows to 57 years of supply at current consumption rates. Even if natural gas demand grows significantly, the bottom line is that our Nation is blessed with abundant natural gas resources that we can count on far into the future. Natural gas should be one of the cornerstones of our national energy policy. It can make a big contribution in displacing import ed oil. Natural gas can fuel much of the electric generating capacity that the Nation will need in the near future. It can help us achieve compliance with the Clean Air Act Amendments. The challenge is how to get natural gas to the market more efficiently and how to develop the markets where natural gas can make a contribution. Title X of S. 341 addresses this challenge in the following ways. First, it would expedite pipeline construction by providing a range of regulatory options. The level of regulatory oversight would vary according to the financial risk assumed by the pipeline and the effect that the new pipeline might have on existing ratepayers. Title X would streamline the regulatory process at FERC. This would be done by making the FERC the lead agency for the NEPA process and permitting third-party contractors to prepare environmental impact assessments. Title X also addresses the delays caused by tolling orders on rehearing. Third, title X would remove regulatory obstacles to greater use of natural gas as an automotive fuel. This would be done by clarifying and limiting the FERC's jurisdiction over local distribution companies selling vehicular natural gas. Title II of the NES bill goes much in the same direction. The NES bill, however, goes much further in permitting parties to construct and operate pipelines facilities with minimal and in some cases, virtually nonexistent regulatory oversight. You might say that S. 341 stops at the Euphrates River on regulation, while the NES goes all the way to Baghdad. At present, I am reluctant to go as far as the NES bill suggests. My concern is that we not create a new problem in the process of solving old problems. Our experience with the NGPA is instructive in this respect. We solved the problem of natural gas shortages on the interstate market, but we created the problem of take or pay. It would be unfortunate if in solving the need for additional pipeline capacity we created the conditions for the take or pay problem of the 1990's in terms of overbuilt, underutilized pipeline capacity. We need to find a way to eliminate unnecessary and costly regulatory delay in the construction of new pipelines, while at the same time protecting the public from anti-competitive or unduly discriminatory conduct. Title II of the NES bill includes a proposal to reorganize the FERC. The FERC would no longer be an independent regulatory agency under the NES proposal. It would be replaced by a new Natural Gas and Electric Administration within the Department of Energy. The new administration would be headed by a single administrator instead of a five-member commission. We ought to explore whether changes are needed in the way the Federal Government makes and administers natural gas and electric policy. But we ought to not rush into irrevocable changes without fully comprehending their consequences. Today's hearing is about the law governing the natural gas industry, not the agency that administers that law. The issue of FERC, whether it is the best agency to administer Federal natural gas and electric policy, and what changes may be needed, is best left for another day and another legislative vehicle, if at all. In conclusion, we have a unique opportunity to make some significant improvements in the substantive law that governs the natural gas industry. We may be able to accomplish these things in short order. I will look forward to working with the Department of Energy, the FERC, the natural gas industry, and the interested public in accomplishing this goal. My colleagues have statements. [Prepared statement of Senators Conrad and Shelby and the texts of sections 6003 and 6004 of title VI and title X follow:] PREPARED STATEMENT OF HON. KENT CONRAD, U.S. SENATOR FROM NORTH DAKOTA Mr. Chairman, I wanted to thank you and Senator Wallop for holding this hearing on issues related to natural gas. Natural gas must play a larger role in meeting this nation's energy needs. What is clear is that the current regulatory logjam has inhibited the development of natural gas, and that has had a profoundly negative effect on this nation's energy mix. Today, we use less natural gas than we did in 1970. The imperative to promote natural gas production is strong—it is an abundant domestic resource that is environmentally clean. In my own state of North Dakota, there are ten natural gas processing plants and last year, 60.6 billion cubic feet of natural gas was processed. Natural gas is a tremendous resource that we must develop. The Persian Gulf crisis has once again turned our attention to this country's excessive dependence on insecure sources of foreign crude. We must use this reawakened awareness of the dangers of dependence to jump start development of the resources we have at home-natural gas, coal, alcohol fuels and other renewable sources of energy. Mr. Chairman, I look forward to the hearing today. I believe that the proposals contained in the National Energy Security Act are very promising. PREPARED STATEMENT OF HON. RICHARD C. SHELBY, U.S. SENATOR FROM ALABAMA Mr. Chairman, I am pleased to have the opportunity to participate in this hearing this morning on title X of S. 341. This committee has a full agenda and a rather ambitious schedule for this session of Congress. I believe that we all agree that perhaps the greatest task confronting us is the formulation and passage of bipartisan legislation for an energy policy that will aid in securing our nation's future. We are fortunate to have had two proposals laid before the committee. I welcome the administration's proposal as a useful contribution to the creation of a comprehensive, national energy policy. Also, the distinguished chairman and ranking member, have introduced S. 341, the National Energy Security Act. I was pleased to see that there are areas of the administration's proposal and S. 341 that complement each other. However, I believe that the Johnston/Wallop bill is far more reaching in its emphasis on conservation and renewable energy sources, which must be a key component of any energy policy in the national interest. I also am glad to see that both proposals have taken into consideration the important role of the natural gas industry in shaping the future energy policy for our nation. The enactment of the Natural Gas Act of 1938 began governments involvement in the natural gas markets, starting with a utility type regulation of interstate pipelines. That regulatory system has not always been as conducive to productivity as might be desired. Recent events in the Persian Gulf have made it abundantly clear that we must utilize all of the energy resources at our disposal to the fullest event possible. Natural gas and the pipeline industry will play a vital role in carrying out this mandate. Consequently, we have come to a time when we must recognize the need to remove the regulatory barriers to the construction of natural gas pipelines. The intent of the NES and S. 341 to simply the FERC certification process and expedite the construction of natural gas pipelines is clear. However, the NES proposes a more radical and extensive restructuring of the natural gas industry that could negatively impact pipeline interests, which are still feeling the effects of "take |