Keynote address
by
Robert S. Kripowicz
Acting Assistant Secretary for Fossil Energy
U.S. Department of Energy
to the
NARUC Summer Committee Meetings
in
Seattle, Washington
Monday, July 16, 2001

Distinguished Commissioners, Ladies and Gentlemen, I'd like to thank President Bill Nugent, and the Chairmen of NARUC's Committees for inviting me to be with you today and to speak to you about our energy situation and the Administration's National Energy Policy. This is not one of the Administration's town hall meetings. I appreciate the importance of the work you're tackling here over these next several days, and I'm honored to be part of your program.

So let me say something first about the U. S. Department of Energy/NARUC relationship. NARUC has historically assisted DOE to deploy efficient and clean energy technologies, to develop innovative practices to meet our nation's energy needs, to enhance our environment, and to strengthen our national competitiveness. NARUC is a valuable partner for DOE. Without State regulatory participation in key energy and environmental areas, many of DOE's research and development activities would not reach fruition. Through assistance from DOE, NARUC is able to educate energy consumers and energy decision-makers on key issues that affect environmentally sustainable energy production and use --while helping to protect the interest of energy consumers.

To this end, we support NARUC in developing and expanding regulatory programs designed:

• To reduce financial and regulatory barriers to the development and deployment of cleaner distributed generation;

• To enhance natural gas pipeline safety, particularly the prevention of third party damage;

• To examine the establishment of voluntary regional bodies to address regional transmission system issues, including siting;

• To examine the establishment of an "Energy Industry Standards Board" to create uniformity in the business rules, practices, and standards for the wholesale and retail gas and electric marketplaces.

• AND, as I mentioned earlier, to continue your valuable role of educating regulators, legislators, and other stakeholders.Just yesterday, DOE and NARUC formally established the Energy Partnership Board consisting of 24 national leaders, including State utility commissioners, DOE officials, industry executives, small energy business entrepreneurs, and other individuals from the public and private sectors. By bringing together high-profile energy decision-makers, the Energy Partnership Board will be in a unique position to influence local, State, and Federal energy policy and catalyze and accelerate broader, more diverse marketplace participation by small energy businesses. Yesterday's initial meeting was very productive and I look forward to the results that I'm sure this enthusiastic and talented partnership will bring.

Recently, NARUC has been working with DOE to develop a number of innovative regulatory outreach programs.

1. To augment the understanding of issues relating to the accelerated deployment of clean coal technologies, DOE will finance NARUC's Partnership for Advanced Clean Coal Technology Regulatory Outreach Program. We are near agreement on that action.

2. DOE's Golden Field Office has invited NARUC to prepare a proposal focusing on accelerating the development and deployment of CHP technologies.

3. DOE's National Energy Technology Laboratory is working with NARUC to develop a series of forums that will assist regional and local utility regulators from selected countries to deploy cutting-edge technologies and develop innovative local approaches to address Global Climate Change.

4. The DOE, coupled with the Gas Industry Standards Board, will host an "Energy Industry Standards Board" forum on August 14 and 15 in Washington designed to review the organizational model necessary for a new standards organization to address natural gas and electric market standards.

So in summary, state utility regulators are instrumental in moving clean energy policies and technologies forward. I thank you for your past good work and I encourage you to become more involved in collaborative DOE/ NARUC programs.

National Energy Plan

Now, I know I'm not the first to address the President's National Energy Plan. We all know that we have an energy supply problem. It's serious. It's not going to cure itself. It's going to affect everybody in this country. And it could get much worse if we don't act now to meet the challenge.

Demand for oil, natural gas, and electricity is increasing, but our interest in adding to supply has for too long been missing in action.

Everyone likes power, but no one likes power generation or delivery. No one wants it near them. NIMBY (Not in my backyard). But we can't have it both ways. One set of views would have us believe that there is an easy way out. When prices soar, apply price caps. When demand exceeds supply, beg OPEC for more oil. When energy supplies drop, claim conservation, and the promise of renewable power will alone save the day. This simple course of action will be popular - until the lights go out. Then a real solution will be needed. A long-term, balanced, and comprehensive solution, touching on every aspect of our problem, from environmental protection to new sources in the Caspian Sea, from conservation to nuclear energy. We need it before the lights go out. That's what the President's National Energy Plan is about.

The Administration has set out a new course for America, one that is balanced and comprehensive. Our National Energy Plan balances concerns for environmental protection with our need to increase domestic supplies of energy. It balances the need to look to the future and new sources of energy with today's pressing requirements for additional power. It balances the need for an increased focus on conservation with greater attention to enhancing our own domestic supplies. And finally, the President's Plan looks to a balanced source of supply from wind to nuclear, from natural gas to solar, and from coal to biomass -- because diversity of energy supply is the best way to insure energy security.

America's Energy Challenges

Twenty-two summers ago, a national survey of service stations by the American Automobile Association found that over half were shut down on Saturday, June 23, and 70 percent had their gas pumps shut off on Sunday. So on the first weekend of summer, 1979, there simply was very little gasoline to be found - at any price - to fuel holiday travel.

At the same time, independent truckers were staging strikes to protest fuel shortages, snarling traffic and adding to the sense of crisis.

Today's energy situation has not yet resulted in national shortages, or gas lines, or worker strikes, but it is as deeply serious in its own way as the one our nation faced nearly a quarter century ago. The price instability and regional electricity shortages of the past year are having an economic effect.

Let's consider what the data is telling us about America's energy future:

• In the next 20 years we expect overall U.S. energy consumption to increase by more than 30 percent.

• We expect oil demand to increase by a third.

• We expect consumption of natural gas to increase by 52 percent.

• We expect electricity demand to increase by 45 percent, owing at least in part to the growth of power hungry information technology.

BUT --

• We now produce 39 percent less oil than we did in 1970.

• More than 40 percent of our domestic gas resources are now off limits or subject to restrictions than make it virtually impossible to develop.

• Hydroelectric power generation is expected to fall,

• There have been no nuclear power permits granted since 1979,

• And there are many people who want to see coal - - which now supplies over half our electricity -- go the way of whale oil.

Our energy supply network is also in trouble.

• 37 U.S. refineries have closed since 1992 and none have been built in 25 years AND

• An aging power grid prevents power rich regions of the nation from selling power to areas that need it most.

America now consumes 98 quads a year of energy. If we assume normal economic growth and continued significant improvements in efficiency, we will consume 127 quads by the year 2020.

That's 25 percent more energy - - even after we make all expected efficiency gains - - to keep our homes warm and our factories running.

Previous policies ignored this reality, and the potential gap in supply. They "lived off the fat of the land" from previous investments in infrastructure and technology brought about by our problems in the 70's and 80's.

So let's look at the specific ways we propose to meet America's new 21st century energy challenge.

First, there is conservation. Critics attacked our plan well before it was even issued, saying it paid too little attention to conservation.

But energy efficiency not only stands by itself as a central feature in our pursuit of energy security; it is an idea woven into every facet of our strategy. It surprises me that virtually no one gives the President credit for this.

Since 1973 we have become increasingly more energy efficient. We are determined to build on this impressive record.

We'll consider higher appliance standards, efficiency-based tax credits, doubled funding for our Weatherization Assistance Program, combined heat and power technologies, and many other energy efficient efforts.

But, I think we all know that there is no "silver bullet" answer to the sources we must use for our future energy needs. We need a balanced effort.

Why? Consider this.

Electricity demand is expected to jump 45% over the next twenty years, meaning we'll need between 1,300 and 1,900 new power plants in this country. That amounts to something like 60 to 90 plants a year.

Even if we meet the construction challenge with all the permits required, the transmission lines to be connected and with frequent local political opposition, virtually all of these plants would be fired by natural gas in the near term. That puts a tremendous strain on our ability to meet the gas demand.

But natural gas is just one of our power options.

Hydropower must also remain a key electricity source so we propose streamlining the current cumbersome and costly relicensing process. We must continue to enhance the performance of our nuclear fleet, and look to develop new technology for future plants.

Finally, coal supplies half our nation's electricity. But it presents environmental challenges. Through the President's clean coal technology initiative we are going to invest $2 billion over the next ten years to help make coal a cleaner burning fuel, so it can continue to be a major contributor to the electric supply system.

Coal critics shudder at the very thought of "clean" coal, arguing that it can never be made acceptable from an environmental standpoint. I disagree. Since 1980, coal use has increased by 60 percent. At the same time, we have seen a 23 percent decline in sulfur dioxide emissions and a 12 percent decrease in nitrogen emissions. Technology advances by DOE and its industry partners are the major factor in these reductions and more gains are on the horizon.

Coal-fired plants must use all the technological gains that our scientists achieve to keep them operating and we must bring new plants online to ensure a cleaner environment and maintain our economy. That is why the President has said it is in the national interest to increase the investment in clean coal technology.

Last year Congress took $95 million of funding from the previous Clean Coal program and directed the Department to run a new demonstration competition. Called the Power Plant Improvement Initiative, it has drawn 24 proposals valued at $535 million for coal-based demonstration projects aimed toward assuring the reliability of our nation's energy supply from existing and new electric generating facilities. The Department plans to announce selections in September. The President's program expands on that concept.

Just as urgently, we need to add some regulatory certainty to coal fired electricity generation and those discussions are underway.

Along with ensuring that we meet the growing demand for electricity, we've also got to meet the growing demand for oil (and gas). For gas, demand is expected to surge - increasing to almost 35 tcf by 2020, a 52 percent increase from current levels. Back in 1973 - - at the height of the oil crisis - - America imported just 36 percent of its oil from abroad. Today, we import 54 percent.

That figure is not going to drop, in fact, it's likely to rise even if we do everything we can to boost our domestic sources.

Here again, technology has forged ahead and changed the exploration industry much as it changed everything else.

We've come a long way from the time wildcatters punched holes in the ground based on the hunch they might hit a gusher.

From an environmental standpoint, oil exploration has changed significantly since the time when Jed Clampett struck "black gold" and split for Beverly Hills.

The marriage of oil exploration with cutting-edge technology means fewer rigs and roads . . . and more successes.

Drilling operations that required 65 acres in the 1970s, need only 10 acres today.

So anyone who believes our plans to expand domestic production of oil and natural gas presents a threat to the environment, just hasn't kept up with the times. But we have to have places to drill.

So, additionally, our energy policy calls for a review of public lands' restrictions with full public consultation to explore impediments to environmentally sound recovery of natural gas and oil resources.

Along with the challenge of boosting domestic supply we must continue to work with foreign suppliers like OPEC. But we must look at this question realistically. OPEC has demonstrated that they will act in their own self-interest. So, along with a continued honest discussion with OPEC, we need to concentrate on getting our own energy house in order.

This means finding new international energy sources as well as enhancing energy production here at home.

Returning to the federal lands front, the National Energy Policy has several recommendations to increase access and ease the process of leasing and permitting, both onshore and offshore. These recommendations include:

• Examining land status and impediments to leasing and modifying them where possible,

• Considering economic incentives for offshore oil and gas development;

• Examining the legal and policy regime to determine if changes are needed with respect to the siting of energy facilities in the coastal zone or OCS;

• Continuing OCS leasing and development on a predictable schedule;

• Conducting further lease sales in the National Petroleum Reserve in Alaska;

• Authorizing exploration and development in the 1002 area of ANWR;

• Expediting the renewal process for the Trans Alaska Pipeline System rights-of-way;

DOE will be working with the Departments of the Interior, Commerce, and other agencies to help implement these recommendations. Work is already well underway on reviewing and cataloging access restrictions on Federal lands.

Even if we can find the supplies, moving energy to market requires an expanded and efficient delivery system. Ours is aging and in need of an overhaul.

America is going to need an additional 38,000 miles of transmission pipelines and 263,000 miles of distribution lines to bring natural gas to homes and businesses.

Today's system is old and is stressed. We need to develop and deploy advanced R&D technology to enhance system integrity and reliability, we need a new pipeline to deliver natural gas from Alaska to the rest of the nation and we need to improve pipeline safety.

Each of these issues is addressed in our Policy.

We also need greater refinery capacity. Limited refinery capacity is one of the major causes of gasoline price spikes in the Midwest and elsewhere in the last few summers.

Unless we take action, that problem will simply continue.

Our policy recommends streamlining permitting and providing greater regulatory certainty to give the industry confidence to expand.

Americans love energy, but many oppose energy production.

It has become an effort worthy of the Manhattan project to site a new power plant or build a transmission line in some parts of this nation.

Earlier this year, for example, plans to build a 550-megawatt gas- fired generator in a Los Angeles suburb were scrapped after residents voted 2:1 against the project, despite California's power problems.

And yet there are areas in this nation - - that welcome power generation, and would readily add new plants to their economic base if they could only reach beyond their regional isolation to find a large market for their electricity.

Today, that's not possible.

But a truly national energy grid would provide those communities with the broad base of costumers they need to create their own hubs of power. Our policy will address these electric grid issues.

Conclusion

So we believe our energy policy aims to modernize our complex energy delivery systems, to enhance energy efficiency, to increase domestic production of all sources of energy and looks ahead to the next generation of fuels. We believe this is the kind of comprehensive and balanced approach America is seeking.

A competitive energy market where all sources - coal, nuclear, solar, wind, biomass, natural gas and oil - are a real choice, and where the delivery of energy is open to truly national competition. That is the goal of our energy policy.

We can surmount this energy problem by using 21st century technology, creating markets, and looking to the next generation of energy production and use.

This is the road to lasting energy security in the United States. The crisis that overwhelmed us 22 summers ago can be avoided. We can avoid gas lines and blackouts and power alerts. But only if we move forward and not vacilate like a pendulum from side-to-side and establish a balanced and comprehensive policy - one that will secure a healthy energy future for generations to come.

Thank you.