Full Committee Field Hearing

The purpose of the hearing is to receive testimony regarding the legislative, economic, and environmental issues associated with the growth and development of the Wyoming Coal industry.

Witness Panel 1

Mr. Thomas Shope

Chief of Staff

Office of Fossil Energy, Department of Energy

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Witness Panel 1

Mr. Thomas Shope

Statement of Thomas D. Shope Chief of Staff
Office of Fossil Energy
U.S. Department of Energy to the
Wyoming Field Hearing
Energy and Natural Resources Committee
U.S. Senate
April 12, 2006
Mr. Chairman, members of the Committee, it is a pleasure to join you here in Wyoming today to discuss the promise of technology to allow coal to remain the bedrock of the American and the world power generation industry. The Department appreciates the support of the Chairman and the Members of the Committee over the past years and we look forward to working with you as we move forward with Fossil Energy’s research and development programs.
It is a fact that coal is our most abundant domestic energy resource – we have a 250-year domestic supply at current consumption rates, and the entire world has a nearly 200-year supply. Coal is a critically important contributor to both America’s and the world’s energy security: a potentially clean, affordable and key source of energy for the indefinite future.
I’d like to begin by laying out a few facts about fossil fuels and energy in general.
The first fact I want to highlight is that fossil fuels – coal, oil and natural gas – today supply about 85 percent of the total energy consumed in the United States. Oil accounts for 40 percent of that total – most of it for transportation fuels – while coal and natural gas account for about 23 percent each. Nuclear energy,
large hydroelectric facilities and other renewable energy account for the remaining 14 percent. Coal accounts for well over half of our total electricity generation.
Interestingly, roughly the same numbers apply for total world energy consumption.
If we do not change the way we produce and consume energy, the U.S. will remain reliant on imported sources of oil. Current forecasts suggest that in 20 years the U.S. and the rest of the world would need even more energy than we now consume to serve more people in improved economic circumstances. Total U.S. energy consumption is forecast to increase by about 27 percent and world consumption by 64 percent. The use of our domestic resources, especially coal, will continue to be important in meeting our energy needs and ensuring our energy security.
Consumption of oil in the U.S. is projected to increase by 25 percent; of natural gas by 21 percent and of coal by 37 percent. Wyoming and neighboring states will play a critical role in satisfying that demand growth. Consumption of nuclear, and renewable energy is also projected to increase.
We will need energy from every available source and, for that reason, we cannot be for one source of energy and against another. We need them all and we must be for them all.
How are we going to meet this growing demand for energy? The answer, as it always has been, is through human ingenuity -- advances in technology.

Intelligence and imagination have allowed us to tap oil and natural gas resources deeper in the ground, deeper underwater and in more inhospitable places than ever before.
That will continue as new technologies allow us to develop oil and gas resources in parts of the Rocky Mountain region, on the Outer Continental Shelf, and in Alaska.
Enhanced oil recovery technology using carbon dioxide injection could significantly increase our domestic recoverable oil reserves by allowing more oil to be recovered from mature oil fields.
At the same time, technology is allowing us to take greater advantage of “unconventional” domestic resources. Perhaps the most prominent example is coal-bed methane, which now accounts for nine percent of all gas produced in the U.S. Our coal-bed methane resources are centered in Wyoming, Colorado and New Mexico.
Other unconventional resources, while not yet proven to be economic, hold significant potential for the future if certain technological hurdles can be overcome. As you know, our oil shale resource is concentrated in Wyoming, Colorado and Utah. In addition, an estimated 200,000 trillion cubic feet of gas resource exist in methane hydrate formations in the U.S. Worldwide, methane hydrates are estimated to contain 400 million trillion cubic feet of gas.
Technology has made solar and wind power sensible technology choices in certain circumstances today, and further R&D breakthroughs will continue to

drive down costs and encourage more widespread applications of these technologies.
Technology has made nuclear power plants safer, more secure and more efficient. It has transformed the transportation sector, providing far cleaner fuels and, increasingly, more efficient vehicles. And it has made industry and society overall much more energy efficient, producing more goods and services while using less energy and emitting less pollution for an ever-expanding economy. Our economy grew by over 125 percent from 1972 to 2000, yet energy use increased by only 30 percent. The EIA projects a further 32 percent improvement in energy intensity – energy consumption per dollar of Gross Domestic Product – by 2025.
Technology has made coal and other fuels far cleaner today than they were a generation ago. While our economy and population have been growing, pollution has been declining. Electricity generated from coal has risen 177 percent since 1970, yet emissions of small particulate matter have decreased by 87 percent, along with a 38 percent decrease in SO2 emissions and a 24 percent reduction in nitrogen oxide emissions,
Our ultimate goal is energy security, which can be defined concisely as reliable, affordable, and environmentally sound energy for the future. That goal can be reached with the help of scientists and engineers working to research and develop new, cost-effective technologies that take us beyond current performance.

Based on what we have accomplished to date, anyone with knowledge of the energy and environmental field should be an optimist about our future prospects.
President Bush is an optimist, and his energy plan has from day one been founded on technology. The President’s new Advanced Energy Initiative which he unveiled in his State of the Union Address is founded on accelerating research in technologies that hold great promise. As the President has said, we are on the verge of spectacular technological advances that will redraw the energy and environmental landscape beginning in our lifetimes.
We can and will provide the energy we need and we need to have short, medium and long term approaches to this challenge. We must also continue to make incremental but impressive gains in environmental performance. There is no one immediate solution to our energy challenge. We must face this challenge with a long term view to change fundamentally the way we produce and consume energy. There are things we can accomplish in the short term that change the way we power our homes and businesses and vehicles. Energy efficiency measures will play an important role. But many of the big changes are still some way off. It will be perhaps 10 to 20 years before we see the transformational technologies we are researching and developing today begin to have real-world, beneficial effects on our lives.
The wait will be worth it. The benefits will be enormous, changing our lives and addressing the energy and environmental concerns that preoccupy us today.

There are great things coming in the energy and environmental world and many of them have to do with clean coal’s promise and the role we envision for it in helping to meet our overall energy challenge. The Office of Fossil Energy has taken and is taking a lead role, in partnership with industry, university researchers, state governments, independent energy organizations, foreign governments and others in researching and developing technological advances that are making coal a cleaner, more efficient source of energy every day. Our clean coal programs are driven by: President Bush’s energy policy goal of energy security; by the Clear Skies Initiative to reduce polluting emissions to the air by 70 percent by 2018, and recent complementary Environmental Protection Agency regulations; by the climate change goal to reduce the greenhouse gas intensity of the economy by 18 percent by 2012; and by the President’s 10-year, $2 billion Coal Research Initiative to develop near-zero atmospheric emissions, coal-based power generation and hydrogen production.
Perhaps the best way to survey the goals and activities of the coal and power generation sector is to take a brief tour of the Department of Energy’s clean coal program. If a technology is important, we’re working on it, often leading cooperative international R&D efforts. And in all cases we are partnering with industry and scientific and technology leaders.
The various R&D projects currently underway are mutually supportive; while each project and program is aimed at a specific technological goal with a specific energy/environmental benefit to be met according to a specific timetable, all the projects are designed to contribute in one way or another to our ultimate

vision: a completely clean – that is, emissions free – coal-based plant that maintains coal’s favorable cost advantage over competing fuels.
Coal plants have a useful life of at least 40 years, which means that there are coal plants currently operating that were built as far back as the 1960s, just about the time we as a nation began to take the phenomenon of pollution emissions seriously. The federal government and state governments have passed pollution control legislation and the coal power industry has met the challenge by retrofitting technological improvements to older plants and incorporating new technology in each new plant as it was built, with impressive results, as mentioned earlier.
That’s good, but in order for coal to continue to account for more than half of America’s electricity supply, and nearly a quarter of our – and the world’s -- total energy output, the coal research program is proceeding along three interwoven, complementary tracks: a Clean Coal Power Initiative for the commercial demonstration of new technology; design, construction and operation of the coal-based power plant of the future called FutureGen, a 275-Megawatt, fully integrated, near-zero emissions, coal-fired power plant and research facility that will produce both electricity and hydrogen while sequestering carbon emissions; and a coal research effort that is concentrated on clean coal’s key technology needs.
Our coal research extends from innovations for existing plants to needed technologies of the future in the areas of gasification, turbines, carbon

sequestration, hydrogen from coal, fuel cells, and associated advanced technologies.
In about six years, we expect our work to result in an up-and-running FutureGen plant: a working, large-scale power plant and hydrogen production facility that emits almost no polluting or greenhouse gases to the atmosphere. Think about: virtually no nitrogen oxides, no sulfur dioxides, no mercury, no particulate matter, no carbon dioxide. Nothing but energy.
The goal is for FutureGen to prove out the new technologies we’re working on today and serve as a model for the coal-based power plants of the future. FutureGen holds the potential to not only assure coal’s future as the dominant source of electric power, but to also be an important early source of the hydrogen that will fuel a hydrogen-based economy of the future.
That is transformational technology – and it’s within our reach.
Clean coal is set to continue its enormous contribution to America’s energy security and as you will see, to world energy security.
While FutureGen is our promise for the future, let me turn to some of the more immediate advances being brought about by the Clean Coal Power Initiative, or CCPI.
CCPI has progressed steadily since it was initiated by the President in 2002, providing Government co-financing with utility partners for new coal technologies that can help utilities meet the President's Clear Skies Initiative and other energy goals. Some of the early projects are also showing ways to reduce

greenhouse gases from coal plants by boosting coal combustion and power plant efficiency.
To take one example from the 10 CCPI projects that have been selected after two rounds of competitive solicitations, the “Mustang” project in New Mexico will demonstrate a multi-pollutant control process that can remove virtually all sulfur dioxide and nitrogen oxide emissions and 90 percent of mercury emissions.
While CCPI demonstrates existing new technology, our core coal research program is developing the technologies of the future that will eventually be essential components of FutureGen.
We can break the program elements down in general terms, beginning with our Innovations for Existing Plants program, which is aimed at short- and medium-term goals.
We aim by next year to develop cost-effective technologies ready for commercial demonstration that reduce mercury emissions by 50 to 70 percent, and eliminate microscopic particle emissions.
By 2010, we plan to test technologies for cutting mercury emissions by an average of 70 percent.
For the long-term, our coal research goals are ambitious but achievable.
We are far along in research, development and demonstration of advanced Integrated Gasification Combined Cycle, or IGCC, technology. IGCC, in essence, converts coal to its constituent gases and then burns the gas. The IGCC process is inherently clean, highly efficient and versatile. It is potentially

capable of generating electricity, steam, and a broad range of chemicals including synthetic natural gas, and virtually eliminating atmospheric emissions of nitrogen oxides, sulfur dioxides, mercury and other pollutants.
With IGCC, carbon dioxide emissions may eventually be reduced by half compared to conventional coal technology, with the majority of the remaining carbon dioxide emissions ready for capture and permanent underground storage.
As we move along our R&D path for coal gasification, we have specific technological hurdles to leap. We have to improve new gasifier and turbine performance and reliability while steadily bringing down costs. We will have to develop new gas-related technologies and integrate them with fuel cells and fuel cell/turbine hybrids.
Fuel cells are usually thought of as a feature of automotive vehicles of the future. Often overlooked is their potential to be a very important part of our power generation future, both as an integral part of future power plants and as a “distributed generation” supplement to the electricity grid -- a local power source for commercial and public buildings, hospitals and residences, for energy-intensive telecommunications facilities, and other uses.
Because fuel cells rely on electrochemical reactions rather than combustion, they are inherently efficient, quiet, and virtually pollution-free.
Combined with the kind of IGCC system described earlier, fuel cells will make possible near-zero emissions, coal-based power with nearly double the efficiency of today’s coal-fired plants. Fuel cells are a key option for the FutureGen concept.

Our Solid State Energy Conversion Alliance program, known as SECA, is working today to develop fuel cell modules that can operate at one-tenth the capital cost of today’s systems, and hybrid fuel cell-turbine systems that operate at up to 60% efficiency on coal. Compare that to the average 33 percent efficiency rate at today’s coal power plants.
Another of our research projects is aimed at a new and potentially transformational market, given the right price environment, for hydrogen derived from coal. Transition to hydrogen from coal as a transportation fuel could help reduce our dependence on imported oil.
Finally, our carbon sequestration program has immense potential for reducing greenhouse gas intensity.
Carbon sequestration is the capture and permanent storage of carbon dioxide. Our ability to eliminate CO2 emissions from coal-based power plants by permanently capturing and storing them underground will have a significant, beneficial effect on greenhouse gas intensity. That’s why carbon capture and storage, as well as measurement, monitoring and verification are at the heart of our efforts to meet the goals President Bush set out in his Global Climate Change Initiative.
We plan to demonstrate a portfolio of safe, cost-effective greenhouse gas capture, storage and mitigation technologies at the commercial scale by 2012, with the potential for substantial deployment and market penetration beyond 2012.

By 2018 we should have developed commercial systems for the direct capture and sequestration of greenhouse gases and pollutant emissions that results in near-zero emissions with less than 10% increase in the cost of produced energy.
To accomplish this ambitious program, we have formed seven Regional Carbon Sequestration Partnerships in the United States and Canada. Wyoming, it should be noted, is an active participant in two of the regional partnerships: Big Sky, led by Montana State University, and the Southwest Partnership led by the University of New Mexico. We have also formed the international Carbon Sequestration Leadership Forum (CSLF) to share scientific and technological information and participate in joint projects. The CSLF has drawn the enthusiastic attention of many of the world’s largest coal consumers and now comprises 21 member nations and the European Commission.
Just last week we conducted a meeting of the CSLF in New Delhi, at which we reached another, closely related milestone in international energy/environmental cooperation when India become the first country to join the government steering committee for FutureGen. As a partner, the Indian government will contribute $10 million to the FutureGen Initiative and Indian companies will be invited to participate in the private sector segment. India is the first of what we hope will be many international government partners to join with us in the FutureGen project.
I don’t need to point out that Carbon Sequestration technology is integral to the design and operation of FutureGen.

But I do want to emphasize a couple of additional potential benefits of carbon capture. First, carbon dioxide derived from power plants will be increasingly in demand as a commercial product for injection into mature oil fields, adding to our domestic oil reserves and production and providing revenue to power generators. And second, research projects currently underway are testing the strong possibility that CO2 injected into active oil fields can be sequestered there, providing a very attractive energy and environmental double benefit: reduced greenhouse gas emissions and increased oil production.
The successful development and deployment of clean coal technology will undoubtedly be important to America’s energy future. It will also be important to Wyoming. Here are a few numbers to illustrate just how important:
• Substantial new coal fired power plants are being prospected nearly every week. More than 140 new coal-fired power plants have been proposed representing 85 GW of electricity, over $119 billion investment, and enough power to electrify over 85 million homes. At least 6 new coal fired plants have been proposed for Wyoming.
• Market shares for western coals continue to rise, with production growing at about 20 million tons per year. More eastern power plants are expected to use western coals, with western coal supply to eastern power plants expected to increase by more than 50 percent through 2030.
• Wyoming continues to lead the Nation in coal production. Your mines account for more than one-third of the approximately one billion tons of

domestic coal produced each year, and nearly 70 percent of western coal production.
• Wyoming coal production is increasing, thanks in large part to your world class coal seams and desirable low sulfur composition.
• The Powder River Basin is a tremendous coal producing region with over 65 trains filled with coal leaving the basin each day destined for various end uses throughout the country.
• The coal industry continues to be an important source of employment for Wyoming.
• Coal industry jobs here are among the highest paying, with the Department of Commerce reporting Wyoming’s labor earnings from coal mining at more than $300 million. That breaks down to wages of more than $64,000 per year (excluding benefits), more than twice the state average.
• Each coal mining job supports an estimated three related jobs, leading to a total payroll effect of more than $600 million to the state of Wyoming.
Coal is at the heart and soul of Wyoming, both now and for the foreseeable future.
I will conclude by emphasizing how deeply committed we are to the research underway today.
The President’s energy policy, his new Advanced Energy Initiative, his goals for climate change, his Coal Research Initiative and the other activities I

outlined propose nothing less than to rewrite the future of the energy and environmental challenges that preoccupy our country and the world today.
We must invest today to reach the day when combined energy from all sources will be reliable and affordable; when energy-related emissions from stationary sources will be minor to non-existent; when a large segment of the transportation sector will be converted to fuel-cell vehicles running on hydrogen; when our efforts to control emissions and increase efficiency will be complemented by less-developed, faster-growing countries with far larger populations having the benefit of the technologies we have taken the lead in developing.
Imagine, for example, the beneficial effect on global emissions and energy resource consumption if China, which is building new coal-based power plants at the rate of one a week, were to adopt some of these new power generation and energy efficiency technologies and processes. We’re working with them on it.
The combination of sensible energy policy, scientific and engineering ingenuity, the genius of American business and the rich energy resources of Wyoming and other states will allow us to continue to grow our economy and enjoy our way of life for centuries to come.
Mr. Chairman, that concludes my testimony. I will be happy to answer any questions the Committee may have.
END

Witness Panel 2

Mr. Joe Coyne

Executive Director

Converse Area New Development Organization

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Witness Panel 2

Mr. Joe Coyne

Testimony of
Joe Coyne*

Executive Director
Converse Area New Development Organization, Inc. (“CANDO”)
130 South Third Street
Douglas, WY 82633
(307) 358-2000
jcoyne@candowyoming.com

Before the

United States Senate Committee On
Energy & Natural Resources

Casper, Wyoming
April 12, 2006

Mr. Chairman, welcome to Wyoming! I thank you and the committee members for your time this afternoon.

I work for the Converse Area New Development Organization, a local economic development agency known by the acronym “CANDO”. We work hard with our Congressional staff, state legislature, Governor, local elected officials and other organizations to help grow our local economy.

I understand that today you are receive testimony regarding the legislative, economic, and environmental issues associated with the growth and development of the Wyoming coal industry. I would like to address those issues from my perspective as a local economic developer in Douglas and Converse County, Wyoming.

First, we should take a moment to make some general observations about the rural nature of Wyoming. Some have called Wyoming a small city with very long streets. Our total population is less than 500,000 residents. Douglas has grown to 5,200 citizens, and Converse County is only about 12,000 people. By contrast, the population of Albuquerque, your hometown, Mr. Chairman, is about 800,000. However, even Albuquerque is small compared to the size of the metropolitan areas back East or out on the Pacific Coast. Wyoming’s rural – even frontier - nature has cultivated a strong independence in her residents. Traditionally, the State has taken pride in its ability to survive.

The wind here can be astonishing. When similarly strong winds blow back East, folks get all excited, give the wind a formal Name and call it a Tropical Storm! Yet here, we just brace ourselves and get on with our day.

Our “long streets” and open spaces intimidate many. I drove 50 miles to be here this afternoon – a distance that might take you across three state lines as you drive around Washington, DC – but I only spent a fraction of the time (about 45 minutes) you would spend driving the same distance. In Wyoming, we relish our “windshield time,” taking in the open space, wildlife and scenery every day.

Wyoming is, by far, the nation’s largest coal producer, shipping 400 million tons of low sulphur coal annually to 35 states to generate electricity. Wyoming’s coal industry has established an incredible record of safety with its mining operations, and has repeatedly proven itself to be a good steward of our environment.

My point is this: As you examine the issues surrounding Wyoming’s energy growth, you simply cannot do so with the same perspective as you might in other areas of the United States.

Yet, I have also witnessed a shift in the traditional thinking of Wyoming. Folks want more than survival. We want to move away from the historic third world economy of mineral extraction. Moreover, we want to keep more of our youth in Wyoming. To do that, we must diversify our economy. One opportunity that is before us today is to add value to our coal by gasifying it, and then export electricity and ultra clean diesel fuel instead of trainload after trainload of raw coal. The coal gasification industry could significantly enhance Wyoming’s and the nation’s economy, while greatly strengthening our national security by minimizing the amount of petroleum we import to meet our country’s transportation needs.

There are significant risks to development of a coal gasification facility or a coal-to-liquids plant. The cost alone is staggering, easily in excess of $1 billion dollars. While there is a great opportunity for making serious money while oil is selling for $65-70 per barrel, who can guarantee that the price will stay that high for 20 years? And who is willing to prove up the Fischer-Tropsch process with Wyoming coal, at Wyoming altitude? Moreover, who is willing to build the electrical transmission lines that would be necessary for carrying any additional power generated in Wyoming?

We in Wyoming are very thankful for the efforts of Senator Craig Thomas and his colleagues, who have addressed some of these concerns in the Energy Bill of 2005. Likewise, the Wyoming Infrastructure Authority is working hard to stimulate development of much needed transmission lines, while the Wyoming Pipeline Authority pushes for the development of more oil and gas pipeline capacity.

It may be that the Wyoming coal gasification industry gets started not by generating electricity, nor by producing ultra clean diesel fuel, but instead can simply produce synthetic gas. Existing gas pipelines can easily move synthetic gas to market right now, thereby minimizing the fiscal risk of coal gasification. However, that limited use of coal does not come close to the full potential of Wyoming coal. It does not significantly diversify Wyoming’s economy. And it would not go very far to reduce foreign oil imports. Eventually, we must do those things.

Political and business decisions to be made in the immediate future will address the inherent financial risks of coal gasification. I thank you for taking the lead on addressing some of those issues in the Energy Bill of 2005. Much more work remains to be done.

Currently, Wyoming is preparing a bid for the U.S. Department of Energy regarding FutureGen. If the government’s goal is to place this federal facility in the one place that it can truly change our future, it needs to be built in Wyoming. Other states may be able to gasify coal, but I urge you to think larger. The gasification of coal allows you to capture virtually all of the carbon dioxide from coal – preventing its release to the atmosphere – and then to make beneficial use of that gas. In Wyoming, carbon dioxide is already being re-injected into the ground, revitalizing our vast oil and gas fields. Further, the Fischer-Tropsch process that can be combined with coal gasification creates a fantastically ultra clean diesel fuel. While there is a national market for that fuel, Wyoming can offer the federal government a much more compelling “test” for coal gasification.

Our efforts at CANDO have led us to conclude that coal gasification can best succeed if it is also matched up with wind and bio-fuel production. For instance, the Fischer-Tropsch process creates a high-energy byproduct called naphtha. Refineries commonly use naphtha to increase the octane of gasoline and other products. But is also makes an excellent companion to wind energy. As you know, even in Wyoming, sometimes the wind does not blow. In fact, the intermittent power supply of wind is often seen as a significant drawback to its development. However, if wind energy were partnered with coal gasification, the excess naphtha could be burned (and it burns quite cleanly) in generators to provide a relatively constant source of electrical power. Likewise, there are synergistic opportunities for bio-fuels, fertilizers, and other industries wherever this process is followed.

If our nation is to truly become more energy independent, we will need to look at every resource available. Wyoming’s vast fossil fuel resources can be perfectly balanced with alternative energy production, particularly wind. Too often, we have looked only to export raw materials, such as coal, oil, gas and uranium. We must not ignore the opportunities that are before us just because they may seem complicated, complex or expensive. We can do this thing if we are patient, wise, and visionary.

Wyoming has unique attributes that would allow a project like FutureGen to succeed beyond your imagination. Please do what you can to appropriately encourage the decision-makers to put FutureGen in Wyoming. In Wyoming, you will find support at the grassroots and leadership level. You will also find all the building blocks to effectively and economically prove that coal gasification is a viable energy alternative to imports.

Overall, there is one major deterrent to development of any kind of coal plants in Wyoming: The Inadequacy of electrical transmission lines. Without transmission, Wyoming cannot build another significant power plant of any sort. The experts in this area are the folks at the Wyoming Infrastructure Authority, and I urge you to listen carefully to their comments.

Finally, I ask you to consider another time in history, when the Congress created, essentially, a “bounty” to be paid to any company that could create an energy efficient appliances. You created an industrial race to develop energy efficiency, environmentally friendly refrigerators. As a result, consumers quickly got the appliances they needed. An adequate incentive was offered to industry, who immediately responded, and the entire appliance market was positively impacted. I would suggest that a similar bounty might whet the appropriate appetites to motive industry to build the first commercially viable, full scale, coal gasification plant.

Thank you for studying this issue. Working together, I know that Wyoming can help meet America’s growing energy appetite, and at the same time strengthen our country’s independence.

It has been a privilege to speak today and, if time permits, I will try to answer any questions.

*Joe Coyne is the Executive Director of the Converse Area New Development Organization, Inc., (“CANDO”), which is the local economic development agency for the City of Douglas and Converse County, Wyoming. Prior to joining CANDO in January 2000, Joe served as the Research Director at the Wyoming Business Council; managed the State of Wyoming’s Tourism Information Center program; and participated as legal counsel in numerous residential and commercial real estate development projects.

Joe is currently the President of the Wyoming Economic Development Association (“WEDA”). He holds a BA from Beloit College (Wisconsin) and a JD from the University of Michigan Law School. Joe and his wife Patty live in Douglas, Wyoming with their six children.
Dr. William Gern

Vice President for Research, Chairman of the Board

Western Research Institute

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Witness Panel 2

Dr. William Gern

Mr. Chairman, I am William A. Gern, Vice President for Research and Economic Development for the University of Wyoming; I will also speak on behalf of the University of Wyoming Research Corporation which is better known as the Western Research Institute where I serve as the Chairman of the Board of Directors.
Wyoming leads the Nation in net energy production. The Wyoming Geological Survey developed a report placing all forms of energy production, by each state, into the common accounting system of quadrillion (1.0 x 1015) British Thermal Units (Btu’s). The survey used DoE EIA data (2003) for this report (the report may be viewed at http://www.wsgs.uwyo.edu/Coal/DNR_RE_Study.pdf). The Geological Survey also used the DoE EIA data to estimate energy consumption by state. The result of subtracting consumption from production is estimated net energy production. In terms of gross energy production Texas led the Nation, with 9.08 quads Btu, Wyoming was second with 8.80 quad Btu. It is estimated that Texas consumed 12 quad Btu however, meaning that as a state they were a net energy importer. At the same time, Wyoming was estimated to have consumed 0.4 quad Btu, thereby exporting approximately 8.4 quad Btu to the nation. This is why Wyoming is the Nation’s leader in net energy production. Alaska was estimated to rank second in net energy production with approximately 4.77 quad Btu.
Wyoming’s energy portfolio is multifaceted, it produced 6.65 quad Btu of coal (ranks #1), 1.52 quad Btu of natural gas (ranks #4) and 0.29 quad Btu of crude oil (ranks #7). Wyoming has led the nation in coal production for the past two decades, with Wyoming coals responsible for an estimated 35 percent of the nation’s electrical power. While nuclear power generation was examined in this report, it did not attempt to attribute the source of the nuclear fuel; Wyoming ranks #1 in uranium production.
Recognizing Wyoming’s status in energy production, the University of Wyoming has just completed a successful initiative to develop a School for Energy Resources. This initiative recognizes UW’s existing strength in energy-related education andresearch, most of which is fundamental, and will add important new components. The school has three elements, all of which also meet Energy Act of 2005 goals. UW will enhance existing research capabilities. We will hire permanent research staff and provide state-funded operating budget to elements of our existing Institute for Energy Research. Incentives will be provided to UW departments in the form of support funding for three-year faculty appointments into various energy related centers on the campus as well as support for graduate students. A large annual pool of funding is available for grant matching (this will be very helpful in winning competitive awards from the DoE). Finally an interdisciplinary technical advisory board will help steer the scientific work conducted under the aegis of the Institute for Energy Research.
The second element is academic. Funding for 12 distinguished professorships is available. This will help attract faculty who have achieved international recognition for their research and teaching in fields related to energy. Our curriculum will be broadened in interdisciplinary directions to support the state’s economic health and strengthen UW’s graduates’ preparation for careers in energy-related fields.
The third element is statewide outreach and service. Here a permanently funded Energy Outreach Center will provide technical consulting, hold statewide workshops, and produce technical reports supporting energy project design, scientifically-based analysis of energy resources and effective long-term energy planning. The Outreach Center will serve as an important link between the School for Energy Resources, industry and government agencies.
The Wyoming Legislature passed legislation, providing funding to create the School for Energy Resources in March, 2006. Governor Freudenthal recently signed this legislation into existence with the authorization to immediately commence the work of establishing this important new chapter in the University’s role for the state of Wyoming. The school is slated to receive $12 million for the first two years of a three yea-year ramp-up period, after which it will be sustained with approximately $10 million annually.
As the energy school proposal was being developed, we were mindful of elements within the Energy Act of 2005 and opportunities presented by research and education partnerships with Federal agencies, the most important of which is the Department of Energy. We are pleased with Senator Thomas’ co-sponsorship of the PACE-E and ARPA-E Senate bills. We recognize the importance of this legislation especially the elements dealing with education of a competent workforce and of increased funding for energy-related research.
In order for coal to be used as cleanly as possible, the nation needs greater understanding about the processes of trapping carbon dioxide (CO2) from combustion and gasification processes and about geologic carbon sequestration. “Carbon sequestration” is initiated with CO2 capture from the flue gas, followed by usage or storage or both. Flue gas, produced by conventional air combustion, contains approximately 10-15 % CO2; the balance is nitrogen and minor combustion byproducts. Flue gas produced by plants using oxygen instead of air for combustion, as in future Integrated Gasification Combined Cycle” (IGCC) plants, also contains CO2 but more concentrated (say 50%) and at higher pressures. Aqueous-amine absorption currently is widely used for separating CO2 from flue gas. This type of separation substantially increases the cost of electricity generated. DoE’s goal is to reduce this cost and therefore they support programs developing new separation technology that will reduce the CO2 capture cost, hopefully by a factor of 4 (http://www.netl.doe.gov/technologies/carbon_seq/index.html). DoE’s target for IGCC plants is a new separation technology that will reduce the CO2 capture cost by a factor of 2-3. To our knowledge existing separation technologies, however optimized and configured, cannot approach these stretching targets. A route to achieve these capture targets is through novel sorbent and membrane materials. Sorbent is made of granular material that can trap CO2, but not the other flue gas components, and hence is similar to the materials used in in-line filters for purification of water and air. These materials need both high CO2 capacity and high CO2/nitrogen selectivity, and they must be easy to regenerate. The University of Wyoming is actively pursuing research to identify and develop this needed material.
UW has considerable expertise in geological CO2 sequestration. As a member of the DoE-funded Big Sky Carbon Sequestration Partnership (Montana State University is the lead institution), we are examining CO2 sequestration in carbonate rock reservoirs and the economic analysis of CO2 sequestration. This work is being done UW’s Enhanced Oil Recovery Institute where we will couple this knowledge with research deepening our understanding of petroleum reservoir stimulation using the off-loaded CO2; an end result will further use of the nation’s existing known oil supplies.
According to the Wyoming Geological survey, there is 1.4 trillion tons of coal in Wyoming, of which about 64 billion tons can be mined with current technologies. In order for the nation to use the energy residing in the remaining 1.3 trillion tons, new technologies are required. Specifically in situ gasification process needs greater understanding through research. In situ gasification is not new; as a matter of fact, Wyoming was home for such research over twenty years ago. The Nation also needs a much more fundamental understanding of the biological and physical events associated coal bed natural gas (CBNG) formation. Many important scientific questions remain open - what is the rate of gas formation? what are the physical and biological components of gas formation? can the gas production be altered through manipulation? - to name a few. Finally the University of Wyoming is doing considerable research into issues associated with CBNG process water production using DoE funding.
As Wyoming’s surface coal mining industry was strongly developing in the early 1970’s many felt that reclamation of the mined surface would be quite slow in the arid, cold regions of the state. The Wyoming Abandoned Coal Mine Land Research Program, part of the Wyoming Department of Environmental Quality Abandoned Mine Division, produced much valuable information for mine managers to use in reclaiming mined lands. This program is managed by the University of Wyoming for DEQ and many UW-based research projects have resulted in a wide array of reclamation techniques useful not only in coal mine reclamation, but to the reclamation of other disturbed lands throughout the West. While surface coal mining is by its nature a disruptive process, active reclamation is effective in returning once mined land into effective places for grazing and wildlife.
The University of Wyoming Research Corporation is a 501(c) 3 not-for-profit research entity known as the Western Research Institute, funded primarily by the U.S. Department of Energy and the Federal Highway Administration to supports these organizations’ mandates for the benefit of the Nation.
In the energy sector, WRI continues its efforts in coal conversion and upgrading, power generation, waste management and utilization, alternative fuels, environmental remediation, renewable energy technologies, and bioprocessing.
WRI is supporting the utilities on a number of emission issues. For example, WRI has built a test-scale Combustion Test Facility that mimics a coal-fired utility boiler. This facility is now supporting technology development and verification projects for utilities, for coal technology companies and combustion and emissions control equipment manufacturers. The following are examples of the projects being conducted: testing of NOx reduction technologies (with Breen Energy Solutions); testing of Hg capture technologies (with MoboTec U.S.A.); testing of strategies for multi-pollutant control (with Headwaters, Inc.).
WRI has developed a patented pre-combustion mercury removal process that first dries the coal, then uses the hot recycle gas to remove the mercury. Unlike post-combustion processes that remove mercury from the flue gas, WRI’s patented process removes the mercury from the coal prior to combustion. The process has been shown to remove up to 80 percent of the mercury in PRB coal (additional mercury is removed during combustion). Not only is this technology competitive with post-combustion processes on a cost basis, it also is easily integrated into a power plant, and the treated coal product increases plant efficiency by 3-4 percent for Powder River Basin (PRB) coal. What’s more, the water removed from the coal can be condensed and used at the power plant for cooling and other uses, a considerable benefit in the arid West. A recent economic study sponsored by the Electric Power Research Institute showed the WRI process to be one of the lowest-cost technologies for removing mercury from PRB coal-fired power plants. In February 2006, WRI was notified by the Department of Energy that this project was selected for an award to support commercial scale-up. The DoE funding of approximately $1 million will be matched by approximately $460,000 from industry-affiliated co-sponsors Electric Power Research Institute, Southern Company, Basin Electric Power Cooperative, North Dakota Industrial Commission, Montana-Dakota Utilities, Detroit Edison and SaskPower.
WRI supports the coal industry in mine reclamation through the development of a novel bio-based source treatment of acid mine drainage (AMD). Although the high-sulfur coals of the East make this problem more widespread in the eastern half of the country, acid mine drainage is associated with hard rock mining and coal mining throughout the United States. Other processes treat the drainage through neutralization. WRI has partnered with Kennecott Energy to demonstrate the effectiveness of the bio-based source treatment process at a mine in Tennessee. The results to date have confirmed that the process effectively controls acid mine drainage by controlling the source of the acid within the mine. Additional demonstrations are being planned with other coal companies at other mines.
Since the first commercial coal bed natural gas (CBNG) well was established in the Powder River Basin in 1986, CBNG production has grown explosively and now constitutes a major resource within the energy mix for Wyoming, the region and the Nation. More than 40,000 wells are expected to be drilled in the next decade alone. The management of the produced water, however, remains a significant consideration. When an operator drills a CBNG well, large amounts of water are withdrawn in order to free the methane to be extracted. In some areas of Wyoming and Montana, the water quality is such that it cannot be used for agriculture, livestock or discharge into surface streams without causing degradation of the water. WRI is working with developers and others to demonstrate treatment methods that will allow the beneficial use of the produced waters. For example, WRI is working with CBM Associates to demonstrate an application that allows the water to be used for irrigation purposes. WRI also is exploring the use of CBNG produced water in power plants to reduce the draw of fresh water for cooling and other plant purposes.
WRI is working to develop enabling technologies for zero-emissions coal-based power plants of the future. With “oxycombustion,” fuel is combusted in pure oxygen (rather than air which contain considerable nitrogen gas) and flue gas is recycled back into the furnace to maintain optimum burning conditions. Because oxycombustion excludes nitrogen, the byproduct is nearly pure carbon dioxide, a waste that can be more effectively managed. The cost of oxygen, however, is a major issue in the development of sequestration-ready power systems of the future. Working with a specialty gas manufacturer, BOC Process Gas Solutions (Murray Hill, New Jersey), WRI is developing a novel technology for the lower-cost production of oxygen that takes advantage of the oxygen “storage” properties of the mineral perovskite. The cost of producing oxygen using the BOC Catalytic Autothermal Reformer (CAR) technology is estimated to be 20 to 30 percent lower than the cost of cryogenic air separation.
A hydrogen project now underway at Western Research Institute and the University of Wyoming is expected to yield a cheaper and easier way to produce pure hydrogen from gasified coal and other mixed gases. The new process advances the water-gas shift process whereby coal is reacted with steam (water) and oxygen to produce a synthesis gas. Under a U.S. Department of Energy grant, WRI and the University of Wyoming are developing a device that combines water-gas shift technology with improved hydrogen separation to maximize the total hydrogen produced. The University of Wyoming is leading the development of a ceramic catalyst, while WRI will test a variety of vanadium alloy foil membranes for durability and optimum effectiveness at lower temperatures. Finally, the ceramic catalyst and the vanadium membrane will be integrated into a single stackable device that can operate at lower temperatures.
Through this testimony, I want to make apparent that Wyoming is a major player in the Nation’s energy production. We desire to have a much greater role in processes associated with the conversion of coal into other forms of energy. The University of Wyoming has established the School of Energy Resources for this and other reasons. It will have a very important role in research, outreach and education regarding energy production. The Western Research Institute continues to apply knowledge leading to new and efficient production technologies that are less polluting but will result in meaningful new uses for the Nation’s energy supply.

Mr. Chairman, thank-you for the opportunity to provide testimony to this committee.
Mr. Marion Loomis

Executive Director

Wyoming Mining Association

Read statement

Witness Panel 2

Mr. Marion Loomis

WYOMING MINING ASSOCIATION

COMMENTS

TO

COMMITTEE ON ENERGY AND NATURAL RESOURCES

RE:

ISSUES ASSOCIATED WITH DEVELOPMENT OF

WYOMING COAL INDUSTRY

BY

MARION LOOMIS
WYOMING MINING ASSOCIATION

Senator Thomas, ladies and gentlemen. I am Marion Loomis. I am the Executive Director of the Wyoming Mining Association (WMA). Thank you for opportunity to talk to you about the coal industry in Wyoming. WMA represents 24 mining companies in Wyoming producing bentonite, coal, trona and uranium. As you know, Wyoming leads the nation in production of all four of those minerals. This hearing is only about coal, but I think it is important to note that Wyoming provides 85-90% of the soda ash used in the United States and contributes positively to the foreign balance of payments with the soda ash exported from the United States. Our bentonite goes all over the world for oil and gas drilling and Wyoming leads the nation in production of uranium.

On the coal front, Wyoming producers supply over 35% of this nation’s coal. Last year 17 mines produced over 405 million tons. Those 17 mines generated over $670 million for Wyoming in the form of severance taxes, ad valorem production taxes, federal mineral royalties, bonus bids on new coal reserves, Abandoned Mine Land Reclamation fees, local property taxes on equipment and facilities, state royalties, and sales taxes. They provided another $364 million to the federal government in the form of federal mineral royalties, Abandoned Mine Reclamation fees, and Black Lung fees. I am sure they also paid a significant amount in federal income taxes, but I don’t have those numbers. The industry employed over 5,300 miners with an annual payroll of $475 million. That is money that flows through our economy buying houses, cars, food, clothes and provides for an excellent quality of life for those miners.

Revenue to Wyoming from Coal Produced in 2005

Severance Tax $160,000,000
Ad Valorem Tax on Production $133,000,000
Ad Valorem Tax on Real and Personal Property $11,000,000
Federal Mineral Royalty - Wyoming share $180,000,000
Abandoned Mine Reclamation Fee Returned to
Wyoming $29,000,000
Bonus Bids Returned to Wyoming $102,000,000
Sales Tax $44,000,000
State Royalties $8,000,000
Total Revenue returned to Wyoming $667,000,000

Payroll $475,000,000

Production in tons 405,000,000

The Wyoming Geological Survey estimated that the average selling price for coal in 2005 was $7.75 per ton so the total value of Wyoming’s coal production is projected to exceed $3 billion. I think it is interesting that 34% of the selling price of the coal goes to state and federal government and, as I stated above, that does not include any income taxes to the federal government.
Wyoming has the third largest coal reserves in the nation and, as stated above, leads the nation in production. Our proven coal reserves exceed 45 billion tons, but the total resource, i.e. proven reserves combined with coal uneconomic today, exceed 1 trillion tons.

Most of our coal is shipped out of state as steam coal for electric plants across the nation. The latest figures show that Wyoming consumers used 25 million tons of coal in 2004. The other 372 million tons were shipped to 35 states from New York to Oregon, from Texas to Wisconsin and most states in between. That distribution demonstrates the ability for Wyoming coal to be shipped economically across considerable distances due primarily to the low sulfur content. As plants across the country install wet scrubbers, Wyoming producers will lose that competitive advantage. But, we believe that Wyoming’s efficiency and effectiveness will prevail when it comes to producing coal at a competitive price per million BTU’s. Additionally, the quality and contemporaneous nature of reclamation at Wyoming coal mines will provide this resource in a low impact manner.

You asked what we thought the future of Wyoming coal might look like. While the future is going to be much different than the past, we are very optimistic about the future of coal, not only in Wyoming, but also for the United States. As we see it, coal will not only play a continued major role in the electricity generation mix, it will also provide a source of supplemental liquid fuels. It is our view that the trends in oil production will play a potentially significant part in the future of coal. We believe that as the world oil production nears a peak, the value of domestic coal reserves and production, in conjunction with energy conservation, will be even more important to our nation’s economy and security.

Many forecasters say that world oil production will peak in the next 20 years. There are some that say world oil production actually peaked in 2005. Although we won’t know for some time how close we are to a peak in world oil production, it is accepted that U.S. oil production peaked in the 1970’s and nothing, including development of ANWR, is projected to turn that around. At best ANWR will improve the decline curve, but U.S. production will continue to decline. Maybe with Enhanced Oil Recovery and ANWR we will be able to hold our production flat, but no one seems to suggest that we can increase production.

There has been a great deal of recognition about how vulnerable the United States is to a disruption in oil supplies. Sixty percent of our oil consumption comes from foreign sources. Some comes from friendly allies such as Canada, Mexico and Ecuador, but a good portion comes from countries much less friendly to the United States such as Nigeria, Venezuela, and Iraq. OPEC countries supply over 2 billion barrels per year of our annual consumption of 7 billion barrels. Just from a national security position, it is critical that the United States become more self reliant on our own reserves. To not address this most important issue puts our nation at risk. Combine the security concerns with our balance of payment deficits and it just makes so much sense to develop the resources available in the U.S.

Coal is a major part of the answer. The U.S. has 250 billion tons of proven coal reserves.   Some of this could be converted to supply 100 million barrels per year in the near future. It would require 30 coal-to-liquid plants producing 10,000 barrels per day. However, the coal reserves could supply much more than that if the U.S. takes the position that energy security is worthy of an effort similar to putting a man on the moon. This will need to be approached as strategic and sustainable development, including measures that address emissions or other environmental considerations related to additional coal production and utilization.

Coal-to-liquids and coal-to-gas has to be a big part of the answer to our future supplies. It takes 0.7-0.9 tons of coal to make a barrel of liquid. In order to generate 100 million barrels per year of coal derived fuel, we would have to devote approximately 80 million tons of coal per year to conversion plants. That is only 20% of the 2005 Wyoming coal production rate. At an average thickness of 70 feet for Wyoming’s coal seams it would take 726 acres per year to supply the coal to generate 100 million barrels of fuel. Last year the United States imported 145 million barrels of oil from Russia, 418 million barrels from Nigeria, 549 million barrels from Venezuela and 556 million barrels from Saudi Arabia. We need to find new sources of fuel.

The cost of coal conversion plants averages about $750 million for a 10,000 barrel per day plant. The proportional costs decrease with increasing plant size, but it will conservatively take over $20 billion of investment to reach 100 million barrels per year. It is important to recognize, however, that this will represent only 5% or less of the 2 or 3 billion barrels per year of new sources that the U.S. will need to find.

One coal to liquids plant has been announced in Wyoming. It would produce 11,000 barrels per day with the plans to take it to 40,000 barrels per day if the money and technology is available. It would be located in Carbon County near where the first coal mine in the state opened in 1869. There are several other announced plants in the U.S., but there is nothing built yet.

As I stated above, in the future coal will be burned differently than it is today. Existing technology will allow new coal fired power plants to capture the particulates, NOx (nitrogen oxide), SOx (sulfur dioxide), and maybe mercury.   Further in the future coal fired power plants will need to develop approaches to address CO2 emissions. Coal still has so much energy that it cannot be ignored; it will be a major part of our electricity resources for generations to come.

The U.S. electricity demand is increasing at a rate of 2% per year. All projections indicate that demands for electricity will continue to increase. From 1993 to 2004, total generation increased 24%. If that growth rate continues over the next ten years, we will need an additional 15,000 to 23,000 MWe of generation capacity each year. That is 10 plants the size of the Wheatland coal fired power plant every year.

In summary coal must play a key role in addressing our future energy needs. While renewables and enhanced oil recovery can do a lot to address our needs, only coal has the reserves to produce significant amounts of new fuels. The technology exists to produce these new fuels. Now is the time for the United States to take the position that reducing our reliance on foreign imports of fuel is critical to our security and our economy.

Thank you.
Dr. Norman Shilling

Product Line Leader

IGCC Power, GE Energy

Read statement

Witness Panel 2

Dr. Norman Shilling

Draft – April 7, 2006
Testimony of
Dr. Norman Shilling, Product Line Leader IGCC Power GE Energy
Before the U.S. Senate Committee on Energy and Natural Resources
Wyoming Field Hearing
April 12, 2006
Good afternoon, Senator Thomas and Members of the Committee. I am Norm
Shilling, Product Leader for IGCC Power at GE Energy. GE appreciates the opportunity
to participate at this hearing and in the Wyoming Energy Summit. GE is a worldwide
supplier of advanced power generation technologies from renewable resources such
as wind, water, biogas and solar, to natural gas, oil nuclear, and coal, the focus of
today’s hearing. I will address 5 points
First, coal will continue to be a significant part of our energy mix. We are seeing a
nationwide resurgence of interest in coal. The West is leading this trend. The power
industry has grown to recognize the advantages that low cost Western coal provides.
EIA’s most recent Annual Energy Outlook predicts that over the next 25 years, the
West is one of the regions in which the largest amount of coal-fired capacity addition
is expected.
Second, environmental considerations will strongly influence any decision to
use coal. The environmental challenges to coal are well known. We believe that the
answer lies in using the cleanest, most efficient technology to generate electricity
from coal.
This leads to my third point: integrated gasification combined cycle, or IGCC,
is a technology for using coal more cleanly and efficiently. IGCC delivers
significantly reduced emissions of sulfur dioxide, nitrogen oxides and particulate
matter. IGCC is highly effective in removing mercury. IGCC consumes 30% less
water than combustion coal technology and produces useful byproduct. All are
matters of particular importance in the West. IGCC also offers the capability to
remove carbon before combustion thus providing a significant savings in cost and
efficiency in comparison to post-combustion capture.
Commercial development of large IGCC plants is underway. GE, in alliance
with Bechtel, is a single source supplier of a 630 MW IGCC reference plant, with
strong contractual guarantees & warranties. The alliance is working to reduce the
cost of IGCC. GE and Bechtel have entered into front-end engineering design studies
for the 630 MW IGCC “reference plant” for two major utilities – AEP and Cinergy.
These “first-of-a-kind” plants are a critical step to the widespread commercialization
of IGCC.
GE is working now to advance IGCC to significantly improve the performance
and economics of IGCC for low rank coals. The low heating values and high moisture
in Western coals, as well as the altitudes at which Western plants would be located,
require further engineering, design and development work for IGCC systems that are
optimized for Western coals.
My fourth point is to thank you and your colleagues in the Congress for
recognizing the vital role of cleaner coal in last year’s energy bill. The advanced coal
project investment tax credit is valuable as a means to mitigate the cost differential
facing the first commercial scale IGCC plants. The new DOE loan guarantee program,
once implemented, offers another financial mechanism to support IGCC deployment.
We are particularly interested in the provisions included in section 413 of the
Act authorizing the Western Integrated Coal Gasification Demonstration Program. If
the full environmental and energy benefits of IGCC are to be achieved, the ability of
IGCC to efficiently use Western coals must be established. Significant engineering
and technology integration is required for the first-of-a-kind plants for Western coals.
The cost-shared Western IGCC demonstration program could provide the framework
for Federal government and industry to work together to expand the envelope of
efficient, low emissions IGCC plants to economically use these coals. We support and
appreciate your efforts to speed the implementation of this program.
My last point is to highlight the opportunities that are available through the
gasification component of IGCC to deliver broader benefit from coal. Gasification is a
coal refining process. It can generate a slate of products including hydrogen and
ultra-clean transportation fuels such as diesel. The gasification aspect of IGCC thus
provides a path away from imported petroleum or natural gas for the production of
many of our national staples. We encourage the consideration of a broader federal
policy initiative to take advantage of this opportunity.

In summary, GE believes that the national, economic and energy security
interests of the United States will be served by deploying cleaner coal technologies,
such as IGCC, that enable us to utilize the full range of our domestic coal resources --
including those found here in the West. We thank you for your leadership, and look
forward to working with you to this end.
I look forward to your questions.
Mr. Steve Waddington

Executive Director

Wyoming Infrastructure Authority

Read statement

Witness Panel 2

Mr. Steve Waddington

United States Senate
Committee on Energy and Natural Resources

The Future of Wyoming Coal
April 12, 2006 Hearing

Wyoming Oil and Gas Conservation Commission
Casper Wyoming

Testimony by
Steve Waddington, Executive Director
Wyoming Infrastructure Authority

Mr. Chairman and distinguished members of the Committee, thank you for inviting me to make this appearance before you today. My name is Steve Waddington. I am the executive director of the Wyoming Infrastructure Authority. The Authority is an instrumentality of the state of Wyoming. Our mission is to diversify and expand the state’s economy through improvements in the electric transmission system to facilitate increased utilization of Wyoming’s energy resources. Earlier this year, the Wyoming state legislature expanding the Authority’s role to also take a leadership role in supporting emerging advanced coal technologies as it relates to electricity production.

I believe the future for Wyoming coal is bright – but only if we work proactively to address market and infrastructure challenges that have the potential for eroding Wyoming’s share of the national coal market long term. My testimony will touch on three areas of concern related to the future growth and development of Wyoming coal. In all three issue areas, Congress and the Federal Government have important roles to play, in collaboration with the State, to overcome these market and infrastructure obstacles. My three topic areas are: 1) the need for transmission investments; 2) the need for advanced coal technologies to emerge on a commercial scale using Wyoming coal at Wyoming altitudes; and, 3) the captive shipper issue.

The Need for Transmission Investment

One value-added means for future growth and development of Wyoming coal is to ship coal by wire, instead of by rail. Generating electricity from coal in Wyoming, and shipping the product by wire, will create jobs and other economic base for the state. Coal-fired generation in Wyoming, combined with Wyoming’s world-class renewable wind generation potential, offer an attractive option for utilities throughout the western interconnect. Many utilities serving fast growing urban areas in the west have relied heavily on natural gas-fired generation in recent years to meet their growth. These utilities are now seeking alternatives to diversify their power supply and Wyoming has abundant natural resources – and a political will to deploy these energy resources – to help meet growth in the west. The key for unlocking this value-added expansion of Wyoming’s economy is adding to the transmission infrastructure.

It is critically important to recognize that the existing electric transmission system was built by electric utilities in a vertically integrated manner. As a result, the existing system was built and sized to serve local customers, integrate utility-owned generation and to support reliability. In addition, the existing regulatory and institutional system relied upon to address congestion and facilitate resource development on the grid has not functioned well. A wide variety of regulatory, financial and policy uncertainties have significantly slowed the pace of both private sector and public power system investments in the utility transmission system. The impacts of these uncertainties on the consumer and overall economic activity have been, and continue to be, profound. Unless immediate improvements to the transmission grid are made, increasing pressure on existing facilities will intensify and system reliability will erode. At the same time, the Nation could find itself continuing to over-rely on natural gas fired generation located close to load centers. Such an outcome would not further the national interest. Each of these concerns has a particular significance for the West.

In the West there is intensifying interest in securing a more diverse power supply through increasing reliance on low cost fuels, such as coal and wind, that are abundant in areas of the West, but that are distant from load centers.   However, with few exceptions, in the West the transmission system was not designed to support economic transfers of power or the development of new sources of supply. To enable this development to occur will require new transmission facilities.

The Western interconnection is especially vulnerable as a result of growth in the region. To meet these needs, load serving entities are seeking to build new power generation to keep pace with both the retirement of aging power stations and the need for more capacity to meet growing electric power demand. This, along with increasing requirements for fuel diversity to offset natural gas reliance and improved environmental performance, is placing added pressure on existing transmission facilities. There is an immediate need for transmission upgrades to enable additional transmission-dependent generation facilities to serve load growth in the very near-term.

The Wyoming Infrastructure Authority was created to help address this issue in a positive way for Wyoming. The Authority has embarked a several transmission development feasibility projects. Our pending projects are summarized briefly below.

TOT3 Partnership with Trans-Elect and Western

The Authority has entered into a partnership with Trans-Elect Inc. to pursue development of new electric transmission between Colorado and Wyoming – known as TOT3. The Western Area Power Administration (Western) has joined the WIA and Trans-Elect to work jointly together on the TOT3 project to determine the public service benefits and interest in this transmission upgrade. Interest expressed in the proposed line ranges from between 2,100 MW and 7,300 MW of additional capacity, including prospective coal and wind project developers. Load serving entities in Colorado have also expressed interest. We are now entering the technical feasibility study phase on this project.

Wyoming-West Partnership with National Grid

The Authority has also entered a public-private partnership with National Grid USA to jointly conduct a transmission study that will help lay the groundwork for a significant increase in electric transmission capacity between Wyoming and neighboring states in the west. This project is dubbed Wyoming-West. The Authority is also in active discussions with Western, which operates one existing corridor between Southwest Wyoming into Utah, and Western is actively interested in working with us on the Wyoming-West endeavor as it moves forward.

TransWest Express Partnership with Arizona Public Service

Arizona Public Service Company (APS), National Grid and the Wyoming Infrastructure Authority (WIA) signed a Memorandum of Understanding (MOU) in early March to collaborate in developing new electric transmission lines between Arizona and Wyoming. This MOU expands upon previous announcements by APS in October 2005 to begin development of the TransWest Express Project and by the WIA and National Grid in December 2005 that they would jointly undertake the Wyoming-West Transmission Study.

Arizona and neighboring states are experiencing significant growth in electricity demand. To help meet that growth, APS envisions construction of two new 500,000-volt (500-kV) transmission lines from northern Arizona, through Utah to Wyoming. APS and other utilities in the west are attracted to Wyoming as an abundant source of low-cost wind and clean coal generation. The TransWest Express Project will be designed to help meet growth in demand with low-cost sources of supply from Wyoming.

The Frontier Line

In April 2005 four western Governors joined and announced their memorandum of understanding to stand ready to support a major transmission corridor development between California, Nevada, Utah and Wyoming. The Frontier Line will be designed and developed to ensure citizens of all four sponsoring States benefit from it. The four sponsoring Governors recognized our region needs a significantly more robust interstate electricity system in order to enable access to more sources of clean energy. The Frontier Line will deliver this goal for millions of consumers across the West.

In the past year there has been significant groundwork laid. The Authority has been actively involved, providing technical and financial resources toward the successful development of this project. Next week, on April 17-18, the four sponsoring Governors are hosting a major energy conference to be held in San Diego. A significant announcement is planned for this event, laying out the plan for actively beginning the detailed feasibility study of the Frontier Line concept.

Moving to federal actions, Congress recognized the challenges related to transmission development with a number of measures in the 2005 Energy Policy Act. In particular, the Department of Energy’s role to study and designate critically important transmission expansion needs as corridors that are in the National Interest, and the Federal Energy Regulatory Commission’s backstop siting authority related to corridors so designated, is a critically important initiative. For the West especially, where transmission is needed across long distances involving several states, and likely over vast tracts of Federally-managed lands, FERC’s potential back-stop siting role could be a significant help.

The Department of Energy needs to be encouraged to move ahead as quickly as possible with the designation of National Interest Electric Transmission Corridors (NIETCs). DOE should also accept proposed projects early for DOE review and possible early designation, where projects are already underway. The Authority provided DOE with comments recently raising a number of concerns with its proposed approach. These comments are summarized below.

• It is critically important that DOE’s designation of corridors not be limited to those where persistent congestion obtains today. Doing so would put an inappropriate brake on the legislative intent to encourage transmission infrastructure to develop to reduce consumer prices and diversify the fuel mix.

• DOE must expedite the study and designation of NIETCs, and do so by designating corridors for potential projects broadly, as generalized paths between two (or more) locations.

• DOE must fully recognize the features and characteristics of the Western transmission system, and take into account the numerous studies that have already demonstrated the need for, and benefit from, transmission infrastructure investment.

• DOE should recognize several ongoing major transmission expansion efforts in the West, including the Frontier Line, the TransWest Express Project and WIA’s two ongoing projects in partnership with Trans-Elect, Inc. and National Grid USA, and anticipate that one or more of these projects will likely apply to DOE for early designation as a NIETC.

• DOE should remain flexible and in a position to accelerate an early review and the designation of corridors on a case-by-case basis, and establish the application process for such early designation.

The Authority can issue revenue bonds to finance transmission investments, including extending up to $1 billion in borrowing capability to the private sector. Several other States in the west have following Wyoming’s lead, creating state bonding authorities to finance transmission infrastructure. Today, because of a IRS rule known as private use restrictions, these public sector bonds would not be Federally tax exempt except under very limited and unlikely circumstances.

Congress should consider relaxing the private use exemption for transmission investments. The exemption should be relaxed for certain circumstances, such as for investment in a corridor that has received a national interest designation or is being financed by a public entity such as the Wyoming Infrastructure Authority. Another alternative would be for Congress to allocate an amount of tax credit bonding authority for state entities to use to finance important needed transmission infrastructure. By either means, tax exemptions or tax credits, the cost of financing the transmission investment would be significantly reduced. Lowering the cost of transmission investments would help to stimulate its development and deployment, and will reduce the costs to consumers.

Senator Kent Conrad is working on a bill to promote energy production and one of its provisions would relax the private use exemption in certain circumstances. The language in the draft bill on tax-exempt bonds would recognize the Wyoming Authority to be a governmental entity and thus qualify relative to waiving the IRS private activity rules – making WIA bonds a federally tax exempt issuance. This provision is meritorious and I respectively ask the committee to strongly consider it on its merits.

Advanced Coal Technology

Congress, with the leadership of this committee, has signaled in the Energy Policy Act last year the Federal Government’s intent to continue to stimulate and support clean coal technology and synthetic fuels production. Wyoming needs to be actively participating in these Federal programs. These technologies must be developed to work and to emerge on a commercial scale using Wyoming coal at elevation. Otherwise, as these technologies become mainstream elsewhere in the nation, Wyoming’s coal market share will be threatened.

The Governor and the State legislature have taken a number of significant steps to position Wyoming strategically to secure a value-added utilization of coal through advance technologies. A Clean Coal Work Group is actively engaged. The Infrastructure Authority and the Pipeline Authority are both actively involved in this effort.

Emerging advanced coal technologies are a significant opportunity for the future growth and development of Wyoming coal. Wyoming’s coal market potential can be viewed in terms of a value chain. Currently, the commodity, coal, is produced and primarily directly sold and shipped by rail for use in electricity generation around the country. But in the future there are a number of products and co-products that will be profitably produced from Wyoming coal. If petroleum prices continue their recent upward trend, these value-added markets will become increasingly commercially viable.   The figure below shows the value chain with coal as the base commodity. As the value of coal-derived commodities increases, the likelihood of moving even further up the primary products value chain increases. Additionally, the co-products of water and hydrogen could have potential economic value as the nation moves toward a hydrogen economy.

FutureGen

FutureGen is a government-industry cost-shared project to design, build and operate the world’s first coal-based, near-zero emission power plant. The plant will also produce hydrogen and byproducts for use by other industries, while capturing and permanently storing carbon dioxide in deep geologic formations.

A FutureGen industrial alliance has been established and on December 2, 2005, the U.S. Department of Energy entered into a cooperative agreement with the alliance to begin the site selection process and prepare a conceptual design for the facility. The Alliance has issued its RFP inviting proposals for host sites upon which to build and operate the FutureGen plant.

The State of Wyoming has submitted its notice of intent to submit a proposal responding to the FutureGen Industrial Alliance’s RFP for host sites sponsors. The detailed proposals are due May 4, and the Governor’s office is leading a concerted effort to put forth a competitive proposal. We intend to compete vigorously for FutureGen to be developed in Wyoming.

A total of nine states have formally expressed interest in hosting the FutureGen project, representing as many as 22 proposed sites. Given the complexity and rigor of the proposal process, there will probably be some attrition in the application process and less sites actually submitted by May 4. The process will then move to a short-listing of candidate sites to be announced this summer. Then DOE will take one year to develop an environmental impact statement, and then issue a record of decision with a likely even shorter list of sites that it deems acceptable. The Alliance will then select the one preferred site from this shorter list by around September, 2007.

We believe Wyoming has a competitive edge because of our strong position for permanent storage of carbon dioxide – which is one of the key deliverables in the FutureGen project scope. That said, the application criteria are rigorous and the competition will be fierce. We expect that Wyoming will at least reach the short list and continue to be considered as DOE does its environmental study work.

Section 413 – a Western Integrated Demonstration Project

The FutureGen application effort will also help position Wyoming strategically to seek an appropriation and allocation of Federal program funds to support a Western Integrated Coal Gasification Demonstration Project using western coal at elevation. Section 413 of the Energy Policy Act calls for this demonstration project as a means for ensuring that coal gasification technology emerges on a commercial scale using Western coal and operating at Western elevation. Wyoming is very interested in working to ensure that this program is funded, and we believe Wyoming will merit strong consideration as the location for this demonstration project.

The Captive Shipper Issue

The captive shipper issue is a threat to the production of coal and other key commodities in Wyoming, as it is in rural America generally. A captive shipping customer is one who, by virtue of its physical location, has access to only one rail provider. Captive shippers pay rail rates of up to 450 percent above railroad costs, by one statistic I’ve seen, as opposed to the 6 percent above railroad costs paid by shippers where railroad competition exists.

One Wyoming example is the Laramie River Station, a coal-fired generation facility located near Wheatland, Wyoming. This power plant is vital for serving the electricity needs of consumers served by cooperative utilities across Wyoming. It is served by one railroad, which transports 8.3 million tons of coal annually from the Powder River Basin south 175 miles to the plant. The power plant’s contract with the railroad expired last year and the railroad renewed the contract with dramatically higher rates. At four times the railroad’s average coal hauling rates, these new fees will cost electric customers $1 billion over the next 20 years. Since the power plant is captive to this sole practical option for shipping the fuel it needs to produce power, there was little choice but to accept what would appear to be the exercise of monopolistic advantage and, with that, a very rate increase.

Congress needs to act and bills are pending. The Railroad Competition Improvement and Reauthorization Act (S. 919 and H.R. 2047) would clarify and ensure that the primary objectives of the nation’s rail transportation policy are:
• To maintain consistent and efficient rail transportation service for shippers, including the timely provision of rail cars requested by shippers;
• To promote effective competition among rail carriers at origins and destinations; and,
• To maintain reasonable rates in the absence of effective competition.

The Railroad Antitrust and Competition Enhancement Act (H.R. 3318) would also help promote competition among railroads and provide better rates for shippers. This competition enhancement act would amend the Clayton Act to eliminate the antitrust exemption applicable to railroads.

In Conclusion

In conclusion, the future for Wyoming coal is bright – but only if we work proactively to address market and infrastructure challenges that have the potential for eroding Wyoming’s share of the national coal market long term. These significant challenges include: 1) the need for transmission investments; 2) the need for advanced coal technologies to emerge on a commercial scale using Wyoming coal at Wyoming altitude; and, 3) the captive shipper issue.   In all three issue areas, Congress and the Federal Government have important roles to play, in collaboration with the State, to overcome these market and infrastructure obstacles.

Thank you for the opportunity to appear before the committee today. This concludes my testimony. I would be pleased to answer any questions you may have.

Hearings and Business Meetings

Witness Panel 1

Mr. Thomas Shope

Witness Panel 2

Mr. Joe Coyne

Dr. William Gern

Mr. Marion Loomis

Dr. Norman Shilling

Mr. Steve Waddington