Hearing of the Subcommittee on Energy and Resources: Energy Demand in the 21st Century: are Congress and the Executive Branch Meeting the Challenge?

HEARING OF THE SUBCOMMITTEE ON ENERGY AND RESOURCES: ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE BRANCH MEETING THE CHALLENGE?

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Mr. Westmoreland. Thank you, Mr. Chairman, and I want to thank you for having these hearings. When I was at home last
week and had a couple of Social Security meetings, all that people wanted to talk about was the price of gasoline. So I think these are very timely hearings.

Let me start out by asking you, I know that there are different formulas of gasoline that burn in different parts of the country, due to the Clean Air Act. Do any of you know how many types of reformulated gas are being used across the country today? Are they just used during certain times of the year, in certain parts of the country? What is the total number of reformulated fuels that we actually have?

Mr. Wells. Congressman, the Government Accountability Office has some ongoing work looking at the status of reformulated fuels in use in the country. We hope to have that worked out in several months. But the numbers are in the ballpark of starting at a number around a dozen fuels that are special fuels.

If you were to look at the seasonality of the fuels, you get into the neighborhood of a 30 range. I am talking about winter gasoline, summer gasoline. If you were to talk in terms of the multiple grades of octane, you are over 100.

The upcoming work that GAO will be publishing will address how difficult it has been for the industry to deal with these special formulations. It is not that the special formulations are bad. I mean, they are being driven by the Clean Air Act rules and requirements. But they do have price consequences, and they have cost and benefits, and that is in the ballpark range of what we are seeing in the gasoline marketplace.

Mr. Westmoreland. Could I have a followup question, please?

Mr. Issa. Of course.

Mr. Westmoreland. Has there been a cost benefit analysis of what it costs us to do this reformulating of gasoline, compared
to how clean it is actually making our air; and what is the end gain on clean air? I mean, I think if I asked in this room who all wants to have clean air, I think we would all raise our hands.

But I guess my question to the panel is, how clean is clean? Where are we trying to go with this, and how much further do you think that we are from being there? What price is it going to cost us, and is it going to cause us to have to develop more formulas of gas?

Mr. Wells. The quality of the type of studies you are asking, do they exist, are hard to find, particularly if you want to try to do a cost/benefit and if you try to include health impacts.

We hope to have a compilation of everything that exists. I think they will fall short of the answer that the American public is probably asking for. Perhaps some of the other panelists are aware of some of these studies.

Mr. Portney. If I could, very briefly, you have asked, I think, a very interesting and important question. In other words, I will rephrase it as, how many different recipes for gasoline are there?

The reason we began to get a proliferation of recipes that makes sense, is that we do not want to have one size fits all. In others words, we needed a type of gasoline that was low in certain additives to deal with the Denver problem. So you do not necessarily want to make everybody in the country use the same type of gasoline because you have a problem in one city.

But I do think that what has happened is, we have almost gotten to the point where we have now designer blends for almost every part of the country. The difficulty that it creates is that if a refinery that produces one of those designer blends goes own, you cannot easily ship gasoline from an adjacent city or State.

So while the basic motive of trying to tailor the gasoline to the local conditions originally, I think, made sense, I think we have probably gotten to a point now where it probably makes sense, from an overall national standpoint, to have fewer blends, so that if we have shortages in one area, we can ship gasoline from California or Nevada or something, and not be in a position where they go, well, I am sorry, that is not the recipe we use here. It think that is what you are driving at, and I think we have a problem on that count now.

Mr. Westmoreland. I have just one further question, and this will be my last one. I know that in some situations in Georgia, we had some pipeline issues of getting a certain amount of gasoline in the pipeline. They were actually having to lower it into tankers.

We were just putting a lot more trucks on the road than was necessary. If we had only been using one single formulation of
gas, you know, trying to save on the one hand was costing us dearly on the other hand.

Mr. Caruso. I have a couple comments. I agree with both of my colleagues. Clearly, the infrastructure problem that we have
in this country, particularly on oil, is related to the point you have made. That is, it has increased the inflexibility to deal with unexpected changes in supply or demand, which is exactly the point you are making about the pipeline.

But one thing to remember is, Georgia, for example, has the lowest priced gasoline in the country and California has the highest. Part of it is because of the different emission standards. Specifications in California were compared with Georgia. So that is another very sensitive issue. I agree with Paul, we need to do something to improve the flexibility to deal with unexpected changes. By there would be, of course, a cost to it.

Mr. Westmoreland. Well, is there an answer to it? Do you all have an answer of what that might be, that this committee could look at, so we could start working toward something?

Mr. Wells. I would suggest that there may be an issue to look at the proliferation of these specials fuels; and where in the Federal Government, and perhaps at the Environmental Protection level, that are granting approval for these special fuels, what type of approval process they use; what criteria do they use; and are they, in fact, factoring in the various infrastructure needs and consequences of approving these special fuels?

I mentioned 12, 30, 100 different fuels. If we continue to allow approvals for these multiple fuels, we are talking about multiplying the price impact and the infrastructure consequences of trying to deliver those fuels.

So one needs to look at, you know, are we perhaps better off regionalizing some of these special blends, as opposed to allowing every city in the country to design their own fuel?

The best example I can give is Kansas City. Right down the middle, you have a Missouri blend and you have a Kansas lend,
and it is the same city. A truck has to roll through the city to the other side of the city to deliver. That is an inefficient way to deliver gasoline products.

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Mr. Westmoreland. I am going to ask all three of these at one time. Getting back to the reformulated gas, what percentage
of the gas price would you say is caused by the different formulas, No. 1; and what effect on price do you think we could expect if we came to a conclusion to regionalize or cut down on the otique gases.

Mr. Wells. Otique.

Mr. Westmoreland. Yes, I mean, in the supply and demand part of it, is there more demand for some of these different types of gases in different cities than it is capable for these refineries to try to refine and still keep the supply going to other parts that they are responsible for supplying the fuel to?

Mr. Issa. If I could help perhaps, with the gentleman's approval, with the refinery question a little bit more? I might suggest that you simply look at California, where every air quality board is allowed to independently and has independently made decisions leading to the greatest single number of boutiques of similar cities. It is just a suggestion to look at what I believe is described as the worst case in any one State.

Mr. Westmoreland. Right.

Mr. Wells. Mr. Congressman, I have some constraints in that the information that is available to us, as we have ongoing study, is not published, yet. It is not final. I can tell you that there is a price differential that is being added because of these blends.

Our GAO report, when released, will talk to a range. That range will be from single digit pennies to double digit pennies per gallon. There is a consequence of doing special blends; and yes, there are refinery capacity issues in terms of price impact, in terms of the quantity that is being requested versus the quantity that can be delivered on a consistent basis on any given day.

Therefore, we talk to the consumer and give an explanation of the price volatility and why the pump is jumping 5 cents up 1 day, 10 cents up the next day, 5 cents down the next day. It does cause price volatility. It is a problem that someone is going to need to take a look at, in terms of, there are some efficiencies.

You know, I think that is the direction that the committee and the Congress and the people that are regulating boutique fuels need to be aware of when they approve future boutique fuels.

Mr. Westmoreland. How long have you been working on this report?

Mr. Wells. The actual audit work is completed. The report draft is being put together now. We are probably 30 days away from it being publicly released. That work belongs to the clients in the Congress that asked for that work. So that is why I am a little cagey with the actual numbers.

Mr. Issa. Is that the Energy and Commerce Committee?

Mr. Wells. I believe it is over on the Senate side that we are doing that work.

Mr. Westmoreland. But how long have you actually been working on this report?

Mr. Wells. We have about 4 months worth of audit work done in that area.

Mr. Westmoreland. OK, but this has been going on for a lot longer than 4 months.

Mr. Wells. Oh, absolutely.

Mr. Westmoreland. I mean, why did we just decide all of a sudden that it was time to do a report on it?

Mr. Wells. We work for the Congress, and the client came to us and asked for an investigation audit of this issue, and we agreed to accept that study. We are just about wrapping up that study and hope to have it published within the next 30 to 45 days.

Mr. Westmoreland. Thank you.

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Mr. Westmoreland. I do have a closing statement.

Mr. Issa. OK, then with your indulgence, we will have the closing statement, please.

Mr. Westmoreland. Well, I would just like to thank you again, Mr. Chairman, for doing this. I know I am a freshman, but I understand in the last two Congresses, there has been two or three attempts to get an energy bill passed.

I think, from all the testimony today, it is quite evident that we need an energy bill. It is something that we need to have as a road map to where we have to go with our energy policy, and also be able to put some of these guidelines in that we have talked about today.

So I hope that this committee will encourage the Energy Committee to pass that along. Because I think that is something that is very critical right now; not only to our economy, but to our national security, that we have a good energy policy in tact and on the laws of this land. So that is all I really had to say, Mr. Chairman; thank you.

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