Statement of the Hon. Ed Whitfield, a Representative in Congress from the State of Kentucky

Mr. Chairman and Members of the Committee, I am pleased to offer my testimony on the effects of federal tax laws on the production, supply and conservation of energy.

The National Academy of Engineering recently identified "Electrification - the vast networks that power the developed world" as the single most important achievement of the 20^th century. The economy of the 21^st century will require increased amounts of reliable, clean and affordable electricity. Coal, the nation’s most abundant energy resource, can help meet these requirements if new technologies are developed and deployed to convert this resource to electricity more efficiently and cleanly. I hope to soon introduce the National Electricity and Environmental Technology Act, which would make such a venture possible.

By the year 2020, U.S. electricity consumption is projected to grow 35% and worldwide electricity is projected to grow by 70%. Today, more than half of that U.S. electricity is generated from abundant, low-cost domestic coal. In fact, coal constitutes more than 85% of U.S. fossil fuel resources, enough to last more than 250 years at current rates of consumption.

Not only does an ample supply of coal exist, but the electricity it produces is significantly cheaper than other sources of power. For example, on average the cost of electricity from coal is less than one-half the cost of electricity generated from natural gas or oil, and it also costs less than nuclear power. Additionally, even though electricity produced from coal has tripled since 1970, overall emissions from U.S. coal-based generating plants have been reduced by one-third.

Despite the benefits of using coal to produce electricity, uncertainty about new environmental requirements and electricity deregulation, as well as optimistic projections about natural gas prices, has led generators to rely heavily on natural gas for new electric generating capacity. Consumption of natural gas for electricity is projected to triple by 2020.

Such widespread use of an expensive resource could prove detrimental to many Americans. Average wellhead prices for natural gas in 2000 exceeded $9.00/mcf, well above the $3.66/mcf price DOE forecasted for 2020. Large-scale conversion to natural gas generation could double retail electric prices - creating a significant hardship for low and fixed income consumers. It would also eliminate an advantage the U.S. enjoys in the world marketplace.

Currently, only expensive retrofit technologies can achieve the more stringent emissions limits being considered for existing coal-based generating facilities. Advanced technologies for converting coal into electricity could effectively eliminate health-based pollutants and substantially improve efficiency in new power generating facilities. Unfortunately, initial commercial deployment of new coal generating technologies entails significant risk which generators are unwilling to accept in a newly competitive electricity market.

The National Electricity and Environmental Technology Act provides a measure of burden-sharing to cushion the cost of improving the environmental performance of existing coal-based generating facilities. It also stimulates deployment of advanced technologies to further reduce emissions and improve efficiency in new generating facilities, allowing our most abundant domestic energy resource to help meet the nation’s growing need for clean, reliable and affordable electricity.

Title I of the bill provides for an accelerated technology research and development program for new and existing coal-based generation facilities. The Secretary of Energy, in consultation with the private sector, is authorized to establish R&D cost and performance goals that can be achieved by 2007, 2015 and 2020 by existing and new coal-based generating facilities. The bill authorizes the Secretary to study the technologies capable of achieving the performance goals and make recommendations for the programs required to develop those technologies. It also authorizes the appropriations necessary to carry out the R&D program to advance the technologies identified in the study as being capable of achieving the cost and performance goals. The Secretary will be authorized to carry out a power plant improvement initiative that will demonstrate commercial applications to new and existing plants of coal-based technologies that will advance the efficiency, environmental performance and cost competitiveness beyond that of facilities in service or demonstrated to date. The bill allows for 50% of the private sector cost-sharing along with the use of uncommitted Clean Coal Technology program funds to provide the federal share of the demonstration projects.

Title II makes the provisions for tax credits for emission reductions and efficiency improvements in existing coal-based generating facilities. It establishes a 10% investment tax credit for investments in systems of continuous emissions controls retrofitted to existing coal-based electricity generating units. Additionally, it creates a production tax credit (0.34 cents/kWH) for the first 10 years of electricity output from existing coal-based generation units that are repowered with qualifying clean coal technologies.

Title III makes the provisions for tax credits for early commercial applications of advanced coal-based generating technologies. It establishes a 10% investment tax credit for investment in qualifying advanced coal-based generating technologies for use in new or repowered units. It establishes an efficiency-based production tax credit for electricity generated during the first 10 years of operation of a new or repowered unit using qualified advanced coal-based generation technologies. In subsequent years, eligible technologies must achieve increasingly higher levels of efficiency to qualify for the credits. Finally, it establishes a risk pool amounting to 5% of the cost of the new technologies to help defray the cost of any modifications necessary to achieve design performance levels.

Title IV provides credits for certain exempt organizations and government units. Additionally, it establishes an offset against payments required as an annual return on appropriations by the Tennessee Valley Authority.