FERC Chairman Joseph Kelliher, commenting on the President's State of the Union address this week, said he applauds Bush "for his leadership and his steadfast recognition that addressing the nation's energy needs must be one of the country's top priorities." World events "are validating the President's call to build upon his 2001 National Energy Policy and the comprehensive energy legislation he signed into law last summer."

But not everyone was pleased with the President's speech. According to the Competitive Enterprise Institute (CEI), President Bush in his address "took a big step toward returning the United States to the disastrous energy policies of the Nixon and Carter years." The president's "dangerous rhetoric" that "we are addicted to oil is an indication that the Administration is addicted to confused thinking about energy policies," said Myron Ebell, CEI's director of energy policy. "As bad as the policies proposed by President Bush are, the addiction rhetoric is much worse. President Bush might as well have said, 'we're addicted to prosperity, comfort, and mobility, and I've got the policies to do something about it.'"

CEI believes the goals and methods the President announced will be hindrances and obstacles to creating a bright energy future for American consumers. "They will interfere with the working of the market that provides incentives for increasing supplies and for technological innovations. In taking these steps in the wrong direction, President Bush also seems to have forgotten the positive energy policies that he has promoted in the past. These include removing the political and legal obstacles to exploiting America's vast conventional energy resources, such as opening portions of the Alaska National Wildlife Refuge and the Outer Continental Shelf to oil and gas development."

Manhattan Institute senior fellow Max Schulz remarked on Bush's comment that the United States is "addicted to oil." Schulz said, "Oil has - quite literally - fueled our economy and provided Americans unparalleled standards of living, has delivered levels of sustained economic production unimaginable a century ago, and helped advance the concept of personal automobility that is so much a feature of present-day America." Moreover, according to Schulz, bashing foreign oil overlooks the fact that the main supplier of crude oil to the U.S. is not Saudi Arabia or any other OPEC nation. It's Canada. " We should look to new technologies for solutions to our most pressing energy challenges . . . we shouldn't condemn oil as some sort of narcotic or poison when it does so much to enrich our daily lives."

The president of the Independent Petroleum Association of America (IPAA), Barry Russell, also urged caution, while agreeing with the addiction analogy. He commented, "It is equally important to recognize two other significant facts. First, energy is essential to a strong and growing economy and for the foreseeable future oil and natural gas will provide over 65 percent of that energy. Second, many alternative fuel options depend on petroleum or natural gas for their most effective development; hydrogen is a good example."

While the President's proposals to seek new research and development for alternative technologies are valuable steps, Barry suggested it is equally important to assure that the nation maximizes it domestic oil and natural gas production. In part, this means that federal resource areas, including offshore resources, need to be available to diminish reliance on unstable energy sources. Federal research and development needs to be directed toward improving development of domestic oil and natural gas resources at the same time that new energy sources are being developed.

According to Barry, "additionally, the President's call to develop the math, science and engineering skills of the nation and to encourage more Americans to move into these professions reflects a keenly felt problem facing domestic oil and natural gas producers as they cope with an aging workforce."

FERC currently is reviewing separate proposals by Gulf LNG Energy LLC (CP06-12, PF05-5), and Bayou Casotte Energy LLC (CP05-420, PF05-9) to construct and operate liquefied natural gas (LNG) import terminals. Gulf LNG's project is the LNG Clean Energy Project, and Bayou Casotte's project is the Casotte Landing LNG Project. Both are located in the Port of Pascagoula, Mississippi, on Bayou Casotte. The Commission is preparing an environmental impact statement (EIS) for each proposal and expects to issue the drafts this spring.

A week after Woodside Petroleum announced new plans to export LNG to California, BHP Billiton said 18 large buyers had signed letters of interest in purchasing gas from its $US600 million Cabrillo Port import terminal project. No final agreements will be struck until the offshore terminal is approved by the U.S. Coast Guard, the California State Lands Commission and the Governor, Arnold Schwarzenegger, which BHP believes could occur later this year. The U.S. Coast Guard "stopped the clock" on the approvals process last year, asking BHP to submit more information about the environmental impact of the project, which has faced fierce opposition from environmentalists. "We're confident the information that is in there will allay the fears and concerns the environmental community had over the last year or so," Kathi Hann, BHP's Californian spokeswoman said. A new draft environmental report is expected to be released on March 2. It is understood that the letters of intent, if converted to contracts, would represent more than the terminal's LNG capacity when it opens as early as 2010. Woodside announced it would develop a rival LNG import project in California, called OceanWay, which would reheat the gas on dedicated ships rather than using a floating terminal like Cabrillo Port.

Dominion Cove Point LNG, LP has been unable to conduct post-construction noise surveys for its Cove Point East project compressor stations "due to low gas demand and an unseasonably warm winter." It has not been possible to load or run all three units at the station necessary for final testing. If full load conditions cannot be achieved using an alternative abbreviated testing method, the company said it will extrapolate the results of the partial load test and report those to the Commission. Then, another test will be conducted at the time full load conditions occur, i.e., those conditions typically associated with colder temperatures and higher gas demand.

Caledonia Energy Partners LLC (CP05-15, et al.) has fallen behind schedule in developing the Caledonia Storage Project in Lowndes and Monroe Counties, Mississippi, certificated 4/19/05. Caledonia was authorized to charge market-based rates for the services it will offer. The project sponsors requested an extension of the in-service date to April 2007. The certificate order requires Caledonia to construct and make the facilities available for service by 10/19/06 (18 months from the issuance of the certificate). Because of delays in obtaining financing for the project, "caused by higher commodity prices," Caledonia is seeking a "modest" extension.

El Paso Corp.'s Tennessee Gas Pipeline Co. was informed last week that BP will not reopen its Grand Cheniere gas processing facility in Louisiana following damage from hurricanes Katrina and Rita. Tennessee posted the development on its company's website. BP, operator of the Grand Chenier gas processing facility near Cameron, Louisiana, notified the company of its decision not to repair or resume operations at the plant. "Until a more permanent solution for gas processing and liquids separation can be achieved, Tennessee is allowing producers/shippers to deliver gas and liquids to the Targa Seahawk Pipeline System for processing at the Lowry gas processing plant," the posting said. Tennessee may restrict scheduled and/or physical volumes based on the limited amount of capacity on Tennessee to the Seahawk interconnect.

The Grand Chenier plant had an operating capacity of 650 MMcf/d and delivered into El Paso's Tennessee Gas and ANR pipelines. Separately, Tennessee affirmed that the Yscloskey gas processing plant in Louisiana was operational and able to provide approximately 600 MMcf/d of processing. The Lowry and Yscloskey plants are operated by Targa Resources Inc. The Yscloskey plant also is partially owned by Enterprise Products Partners, LP.

El Paso Corp. reported 2.7 Tcf-equivalent of proved gas and oil reserves as of the end of 2005 and renamed its exploration and production subsidiary El Paso Exploration & Production Co., formerly El Paso Production Holding Co., as of 12/31/05. The total reserve, 78% of which is gas, is 22% higher than reported at the end of 2004. The company replaced 94% of its 280 Bcfe of 2005 production through the drill bit and added 529 Bcfe of reserves with the acquisition of Medicine Bow Energy Corp. and Medicine Bow's pro forma share of proved reserves in Four Star Oil & Gas Co. El Paso said it is aiming to achieve 5-10% reserve growth for 2006.

NiSource Inc. and its Columbia Gas Transmission Corp. unit said Thursday it would it will proceed with its proposed Eastern Market Expansion designed to provide an incremental 97,050 dth/d of storage deliverability and associated firm pipeline transportation to four gas distribution customers in Virginia and Pennsylvania. The "Eastern Market Expansion Project" has a proposed in-service date of 4/1/09. Columbia Gas said four local gas utilities have executed 15-year agreements for the combined storage and transportation services. The total storage contract quantity exceeds 5.8 MMdth. Existing storage fields will be enlarged in West Virginia and Ohio.

Gulfstream Natural Gas System, owned by Duke Energy and Williams, launched an open season to gauge market interest in a new 200,000 dth/d mainline expansion that is scheduled to be in-service by 1/1/09. The open season will end March 1. And Williams is holding a month-long open season for incremental firm storage service on Northwest Pipeline's Jackson Prairie storage facility near Chehalis, Washington. CenterPoint Energy Gas Transmission and Duke Energy Gas Transmission are likely to proceed with a proposed Southeast Supply Header that will maintain up to 1 Bcf/d capacity with service slated to begin in 2008. The companies cited "exceptional interest" during an open season. CenterPoint and Duke are looking to form a joint venture for the project and plan to move forward with the pipeline between CenterPoint's hub in northeast Louisiana and the Gulfstream system, which starts in Alabama and Mississippi and runs to Florida.

A publication of Peoples Energy Services, an energy provider in the Midwest, provides a guideline to consumers who wonder if the energy supplier they choose is stable enough to withstand the financial pressures brought on by rapidly changing energy markets. To assist energy customers of all types in choosing a fiscally stable energy provider, Peoples Energy Services prepared the following guideline.

Peoples Energy Corp. reported fourth-quarter and full-year fiscal 2005 earnings (loss) of $(0.06) and $2.05, respectively, per diluted share. This compares to earnings (loss) of $(0.27) and $2.18 for comparable periods in 2004. Fiscal 2005 results for both the quarter and year were adversely affected by hurricanes Katrina and Rita.

Ziff Energy Group announced a report which examines the value of gas storage in North America. It assesses gas storage cost versus winter summer gas price differentials, revenues and costs for gas storage operators, and presents a review of gas storage withdrawals and injections for seven North American regions. According to Dana Bozbiciu, "The gas industry is willing to invest in gas storage because it provides considerable value in terms of increased efficiency, greater reliability of service, and facilitates market growth." The 2005 average cost of gas in storage is US$10.89/MMBtu, up 52% from 2004. The value of gas injected represents 83% of the total value of gas in storage, the carrying cost is 11% and the service fee represents 6%.

Cinergy was recertified with high marks in a "satisfaction" survey of call center operations customers conducted under the J.D. Power and Associates Certified Call Center Program(SM). "This distinction acknowledges a strong commitment by Cinergy's call center operation to provide an outstanding customer service experience." Cinergy provides energy to customers in Indiana, Kentucky and Ohio. Cinergy's call center operations handle more than 5 million telephone, e-mail and fax interactions annually from its centers in Plainfield, Ind., and Cincinnati, Ohio. A call center must perform within the top 20% of customer service, based on J.D. Power and Associates' cross-industry customer satisfaction research, in order to achieve certification status. "Cinergy's call center operations far surpassed the rigorous standards of the certification process, receiving particularly very high ratings from customers for its customer service representatives," said Steve Kirkeby, senior director of the telecommunications practice at J.D. Power and Associates. The evaluation criteria used during the survey include: courtesy of the customer service representative (CSR); knowledge of the CSR; the CSR's concern for the customer questions and/or problem; usefulness of the information provided; convenience of customer service operating hours; ease of getting through to a CSR; and the timely resolution of the customer's problem, question or request. Certification is valid for one year.

LOAD-DATE: February 6, 2006

4. FD (Fair Disclosure) Wire, “Q4 2005 Exponent Earnings Conference Call – Final,” January 26, 2006

20 of 687 DOCUMENTS

FD (Fair Disclosure) Wire

January 26, 2006 Thursday

TRANSCRIPT: 012606aj.739

LENGTH: 7316 words

HEADLINE: Q4 2005 Exponent Earnings Conference Call - Final

BODY:

OPERATOR: Good afternoon. My name is Amy and I will be your conference operator. At this time, I would like to welcome everyone to the Exponent Quarter Four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[OPERATOR INSTRUCTIONS.]

I would now like to turn the conference over to Ms. Brinlea Johnson. Please go ahead, ma'am.

BRINLEA JOHNSON, INVESTOR RELATIONS, THE BLUESHIRT GROUP: Good afternoon, ladies and gentlemen, and thank you for joining us on today's conference call to discuss Exponent's fourth quarter and fiscal year 2005 results. Please note that this call is being simultaneously Webcast on the Investor Relations section of the Company's corporate website at www.exponent.com. This conference call is the property of Exponent and any taping or other reproduction is expressively prohibited without Exponent's prior written consent. Joining me on the call today are Mike Gaulke, President and CEO, and Rich Schlenker, CFO of Exponent.

Before we get started, I would like to remind you that the following discussion includes forward-looking statements, including statements about Exponent's market opportunities and future financial results that involve risks and uncertainties, that Exponent's actual results may vary materially from those discussed here. Additional information concerning factors that could cause actual results to differ from forward-looking statements can be found in Exponent's periodical filings with the SEC, including those factors discussed under the caption "Factors Affecting Operating Results And Market Price Of The Stock" in Exponent's Form 10Q for the quarter ended December 30, 2005. The forward-looking statements and risks today stated in this call are based on current expectations as of today and Exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise.

And now, I'd like to turn the call over to Mike Gaulke, President and CEO of Exponent. Mike, please go ahead.

MIKE GAULKE, PRESIDENT AND CEO, EXPONENT: Thank you, Brinlea. And thank you for joining us today as we report our fourth quarter and fiscal year 2005 results. We are pleased with our financial results for both the fourth quarter and fiscal year 2005. For the fourth quarter, net income increased 38% to $2.7 million or $0.31 a share as compared to $2 million and $0.22 a share for the same period in 2004. Total revenues for the fourth quarter increased 11% over the same period last year of $39 million-- sorry, total revenues increased to $39 million, 11% over last year. And net revenues increased 8% to 34.6 million.

We experienced a 10% increase in net revenues in the fourth quarter, excluding revenues from technology development, which was soft, as expected. Our civil engineering practice had a strong fourth quarter as we assisted our clients with the aftermath of Hurricanes Katrina and Rita. Exponent was uniquely positioned to help clients in the assessment of structural, wind and water damage, as well as mold. In our biomechanics practice, we continued to expand our business in the quarter. Among other things, we help clients with their development of medical devices, such as implants. Additionally, our business continues to grow in conducting injury analysis for transportation accidents.

In defense technology development during the fourth quarter, we completed the delivery of 332 Markbots for the army's rapid equipping force. These robots help in the identification of deadly improvised explosive devices, commonly referred to as IEDs. The robots are currently being deployed in Iraq, where they are receiving positive feedback from our troops. Our antisubmarine warfare work for the navy is in a demonstration phase, which is scheduled to run through the first half of 2006. We remain focused on growing our defense technology development business and securing new contracts with the Department of Defense.

For the full year of 2005, we had strong performance in civil engineering, biomechanics and food and chemicals. We improved net income by 18% over the prior year to 14.2 million or $1.62 a share. Revenues increased 2% to 155.2 million while revenues before reimbursables increased 3% to $142.9 million.

Our strong net income performance was the result of our focus on improving our operating model. We made progress in recruiting during the year, adding a number of key hires to our team and ending the year with a 5% increase in technical full time equivalent employees, which is an important foundation for our future success.

As we look at 2006 and beyond, we believe our diversified offerings uniquely position us for additional growth. We remain committed to recruiting top caliber talent and focusing on strategic areas for growth, including health sciences, construction consulting and design consulting. Additionally, we are targeting the energy business as a market opportunity where we can grow. As an example of a project in this area, we've recently been involved in assessing the environmental impact of using seawater in open-loop vaporization systems proposed for LNG terminals in the Gulf of Mexico.

In summary, we are pleased with the progress we made in 2005 and believe we are positioned to maintain our leading stance in engineering and scientific consulting in the years ahead.

With that, I will turn the call over to Rich for a detailed discussion of our financial results for the fourth quarter and fiscal year 2005.

RICH SCHLENKER, CFO, EXPONENT: Thanks, Mike. As Mike discussed, we are pleased with our fourth quarter results. Net income improved 38% to $2.7 million or $0.31 per diluted share compared to net income of 2 million or $0.22 per diluted share reported in the fourth quarter of 2004. Total revenues for the fourth quarter increased 11% from the prior year period to $39 million and revenues before reimbursements or net revenues, as I will defer to them from here on out, increased 8% from the prior year period to $34.6 million.

For the year, net income increased 18% to $14.2 million or $1.62 per diluted share. Total revenues increased more than 2% to $155.2 million and net revenues increased 3% to $142.9 million. Hereafter, I will compare all results on a percentage of net revenue basis.

For the fourth quarter, we reported an increase in operating income of 17% to $3.4 million, up from $2.9 million reported in the fourth quarter of 2004. Our operating margin was 9.9% versus 9.1% reported in the same period last year. For the full year 2005, operating income increased 6% to $20.4 million and the operating margin for the period was 14.3% as compared to 13.9% in the same period of 2004. We are pleased to have realized a 40 basis point improvement in our operating margin in 2005.

Utilization for the fourth quarter of 2005 improved to 63% as compared to 60% in the same period of last year. On an annual basis, we saw a .5% increase in utilization to 66%. Technical full time equivalent employees were 535 in December 2005 as compared to 511 in December of 2004. Compensation expense for the fourth quarter increased 9.8% over the prior year to $23.5 million or 68% of net revenue as compared to $21.4 million or 66.8% reported in the fourth quarter of 2004.

This was the result of the increase in FTEs as well as a 4.5% increase in annual salaries that occurred last April. Additionally, $530,000 in labor cost incurred for the Markbot program in the second and third quarters was expensed from inventory in the fourth quarter upon delivery of the robots. For the full year, compensation expense increased to $94 million or 65.8% of net revenue versus $90.8 million or 65.4% reported in 2004.

Other operating expenses in the fourth quarter were $4.7 million or 13.5% of net revenues as compared to $4.9 million or 15.2% of net revenue reported in the same period one year ago. Depreciation in the fourth quarter of 2005 was $880,000. For the full year, other operating expenses decreased to $18.6 million or 13% of net revenue as compared to 13.6% of net revenue in 2004.

For the full year, depreciation was $3.4 million. G&A expense for the fourth quarter increased to $3 million or 8.6% of net revenue as compared to $2.8 million or 8.8% of net revenue reported in the same quarter one year ago. For the full year, G&A increased by less than 1% to $9.9 million or 6.9% of net revenue as compared to $9.8 million or 7.1% in 2004.

Reimbursable expenses for the quarter were $4.4 million as compared to $3 million in the fourth quarter of 2004. This increase is associated with the Markbot contract. In the fourth quarter, we benefited from an improvement in interest income, which totaled $388,000, up from $172,000 one year ago. Our tax rate was 34.8% as compared to 41% in the fourth quarter of 2004. For the full year, our tax rate was 37.3%, which includes the benefit of the $272,000 reported in the third quarter. Going forward, we expect our annual rate in 2006 to be approximately 39%.

For the fourth quarter, shares used to calculate net income per diluted share of $0.31 were 8,845,000. Capital expenditures for the quarter were $660,000. Capital expenditures for the full year were $3 million and stock repurchase for the year was $4.3 million. At the end of 2005, accounts receivables net were $46.2 million as compared to 38.6 million at the end of 2004. We generated $13.8 million in cash from operations and closed the year with cash and short-term investments of $68.9 million, an increase of approximately $8.9 million over the prior year.

Beginning in the first quarter, we will break out stock based compensation expense as a separate line item on our press release table. While we currently have vested and unvested restricted stock charges as spelled out in our 10K, we will add stock option expense as required by FAS123R. Stock option expense is expected to be approximately $880,000 in 2006. Additionally, the amortization of unvested restricted stock will increase by approximately $250,000 in 2006.

For 2006, we expect to post revenue growth in the high single digit to low double digits and to improve operating margins by approximately 50 basis points excluding stock based compensation. For the first quarter, due to the timing of projects in defense technology development, we expect to show more modest growth in the mid single digits as compared to the same period last year and operating margins will be flat to slightly down for the quarter.

Now, I will turn over the call to Mike for his closing comments.

MIKE GAULKE: Thanks, Rich. 2005 was an important year for Exponent. First, we made significant progress in each of our strategic growth areas. In health consulting, we saw our business grow in Europe. In construction consulting, we expanded to the point where we decided to make a formal practice of construction consulting in the 2006 year. And in design consulting, we added capabilities to better serve our clients with the opening of our office in China this past June.

Second, in 2005 we increased net income by 18% and meaningfully improved our operating model as we had planned. Third, we generated $13.8 million in cash from operations and closed the year with $69 million in cash. And fourth, we demonstrated progress in our recruitment efforts, increasing FTEs by 5% and continuing to successfully add to our talented team.

As we look to 2006, we remain focused on recruiting key personnel, expanding our business offerings, pursuing our strategic initiatives and positioning Exponent for higher levels of growth.

With that, I'll turn the call over to the Operator for your questions.

EDITOR: [OPERATOR INSTRUCTIONS.] Patrick Elgerbly with Next Generation Equity Research.

PATRICK ELGERBLY, ANALYST, NEXT GENERATION EQUITY RESEARCH: I was wondering if you had available the utilization rate during the quarter excluding the defense practice?

RICH SCHLENKER: Yes, I do, Patrick. The utilization for the quarter was, they're basically about the same with tech or without in the fourth quarter because we had the-- that's when we recognized the robot revenue, so that utilization was incorporated into that. So, the utilization's the same. 63% in the fourth quarter.

PATRICK ELGERBLY: And so, I guess related to that, what was the revenue, the total revenue dollars from that practice during the quarter?

RICH SCHLENKER: Our technology development business for all the contracts related to that area were about 2.5, $2.6 million.

PATRICK ELGERBLY: And how does that compare to the year ago period?

RICH SCHLENKER: It was $2.8 million a year ago. So, it's down $270,000.

PATRICK ELGERBLY: Okay. And then, I was also wondering if it was possible to quantify the impact on utilization or on revenue during the quarter from business related to hurricanes. And to follow up to that, has there been any significant new business or contracts won in related areas since the last update?

RICH SCHLENKER: Yeah, why don't I answer the first part of that and Mike might want to follow up on the back end. The revenues in the quarter, net revenues in the quarter associated with Katrina and Rita are approximately $1.2 million.

MIKE GAULKE: The work from Katrina, Patrick, is continuing. We will-- it's our expectation that we will continue to see work throughout 2006, likely carrying on over into 2007. These natural events, like hurricanes and earthquakes on the West Coast, in particular, tend to have, from our experience, very long tails associated with them. So, where you have a major disaster, and Katrina certainly qualifies as that, we will likely have business from that for some period of time. And as I say, our expectations are that will clearly continue throughout 2006. We're working on it now and we have-- as far as we can see, we will continue to be working on multiple kinds of assignments, but all one way or another linked back to that event.

PATRICK ELGERBLY: Okay. And then, relating to-- I was wondering if you could provide any more detail on what you're seeing out there related to the energy business and the opportunity that's out there.

MIKE GAULKE: Well, energy is a marketplace that we have under-participated in. Our firm, it's almost going on four decades of practice has had a number of projects in the energy field. But, relative to the size of the market, we think that there's still a substantial growth opportunity there.

One of the areas, in particular, that we have been investing in, investing in the sense of doing research and trying to get ourselves more widely exposed to the marketplace, is the LNG market. We've done some significant work in LNG, particularly one of the major LNG explosions in Africa last year-- actually the year before that, I think it was. But, that really focused our, focused the opportunity for us as LNG became then a technology that is one that is being seriously considered and implemented in the US.

So, the example that I cited in terms of the environmental work of open vaporizers in the Gulf is one. We're doing-- we've done another significant piece of LNG research on, again on vaporization techniques. So, we will continue to look at that market, LNG in particular, and more broadly as we do that to try to get ourselves better positioned to serve energy companies. The-- Katrina is, also plays into the energy field. We are serving some of the larger energy clients there with losses that they experienced or in some cases, litigation ensuing from spills. And so, that will also help broaden our reach in energy.

PATRICK ELGERBLY: Okay. And then, if I could, one last set of questions on headcount. Was the increase-- I believe it was the FTE headcount was 535. Is that right?

RICH SCHLENKER: At the end of the year, yeah.

PATRICK ELGERBLY: At the end of the year. Was that increase a result of additional hires done in the fourth quarter or was that the third quarter hires basically rolling through on an average basis?

RICH SCHLENKER: Yes. They were both. We had a-- I think we ended the third quarter with FTEs of 528, 529, somewhere in there. And so, we did have a net increase in the hires, as well as what we saw coming in through the middle of the third quarter and hires in January-- in October and November. A few in December, but you tend not to get many once you roll into the holidays.

PATRICK ELGERBLY: Okay. And last question. What sort of expectation should we have on headcount and hiring for '06 and maybe you can discuss the availability of qualified talent that you're seeing out there. Thanks a lot.

RICH SCHLENKER: Yeah. Why don't I start off and Mike can talk a little bit about our discussions recently with many of our practice directors. What we're seeing and expecting for 2006 is that we should see a, somewhere between a 5 to 7% increase in our full time equivalent employees. We think that we've really got the right focus in this area and started seeing the results of that focus in the back half of this year. That should help us as we enter the front end of 2006. But, I think the momentum is continuing with, I know, a number of new hires actually coming on board here in January alone. So, we are on our way to a good year, I think, from a recruiting standpoint.

MIKE GAULKE: In terms of what we're seeing in the marketplace, I think it's a reasonably good market for talent. It's certainly much better than it was in the, right around the-- the '99, 2000 market was the most difficult market for us just because of all the other activity associated with .com that was going on that had bright talent looking at perhaps other opportunities. But, that time has passed. It certainly passed at Silicon Valley. But, I would say across the country in terms of good talent coming out of the schools.

So, we're looking hard at both doing college recruiting and more selectively with senior hires. I think we talked in a prior call that we made the investment to bring in house some of our senior recruiting. We have a senior, a full time senior recruiter that really does nothing but work on our senior employment needs. And that's-- we're quite pleased with how that portfolio of potential candidates is developing as a result of that investment.

OPERATOR: Mike Crawford with Barrington Partners.

MIKE CRAWFORD, ANALYST, BARRINGTON PARTNERS: First, a clarification on the full time equivalents. It sounds like you're giving international employee count including UK and China now versus before, I think you were just giving the US numbers. Is that maybe right?

RICH SCHLENKER: Yeah, I changed up to international, including international about two quarters ago, I believe.

MIKE CRAWFORD: Okay. And regarding growth, it sounds like looking more so maybe than in the past weighted towards just this organic growth versus piecing together an opportunistic group out there to add in.

RICH SCHLENKER: No, I-- as far as-- we are very focused on trying to continue to look for acquisition candidates, as well as finding senior hires that might bring work in a sense that we can support a number of others. So, we're heavily pursuing both of those avenues.

MIKE CRAWFORD: Okay. And also, with your company owned headquarters, are you still trying to sublease out some of that space or what's the status of the excess space there?

RICH SCHLENKER: Yes. We still have 20,000 plus, 25,000 square feet available for rent. We have continued to be active in marketing that. We have Cushman and Wakefield that's acting as our broker in that. We've brought on a couple of new tenants during this past year. Probably most recently, about four or five months ago, for about 7,000 square feet.

MIKE CRAWFORD: Okay. And regarding-- also, you said $4.3 million I think you spent buying back stock during the year. Was there any in the last quarter?

RICH SCHLENKER: No, there was none in the last quarter.

MIKE CRAWFORD: Okay. So, based on your free cash flow generation, it sounds like cash is headed up around, I don't know, $15 million next year, which puts you at around 85 million. At some point do you get more aggressive in trying to re-deploy that capital into something earning a higher return?

MIKE GAULKE: Yes. That's the answer. Short answer, Mike. We have been asked, as you've been a participant here on these conference calls for the last couple of years, as our cash balance has grown, what we intend to do with that. We have responded in the past that we are exploring the opportunities here probably in three areas. The continued success that we have in terms of the strong cash flow and 13.8 million this last year and prospects of a good year going forward here and growing cash balance, I can tell you that we are committed to doing something with that cash this year. That's all I can say at this point.

MIKE CRAWFORD: Okay, great. And then the final question is more specific to China. So, could you talk a little bit more specifically about how many people you have working there now and kind of what kind of customer base they're supporting or serving?

RICH SCHLENKER: Yeah. We've currently got maybe about, I think there's about five technical people over there. So, it's still a very small group. The clients that we've been working with over the last six months as we've done business development and being able to move forward have been primarily multinational companies, usually US based multinationals who are having manufacturing activities and design activities going on in China and have retained Exponent to assist them in ensuring the quality of the design process and the manufacturing process for their products. We have also done some issues related to intellectual property.

MIKE CRAWFORD: Okay. And then actually, maybe one final question is just on the navy demo phase. So, that's going to go through the next six months or so. And then, is there a potential for a big step up in level of award there, assuming they like what they see? Or does that open it up to others coming in or how exactly is that process expected to work at this time?

MIKE GAULKE: If the demonstration phase goes well, although we don't have any firm commitments at this point, it would be our expectation that we would then go on to a follow on phase. That is contingent upon how the demonstration goes. And so, at this point in time, we really can't provide any more guidance than this work will continue through the second quarter for us.

MIKE CRAWFORD: Okay. All right. Thanks a lot.

OPERATOR: Jeff Myers with Intrepid Capital.

JEFF MYERS, ANALYST, INTREPID CAPITAL: So, question for you just in terms of timing of revenue and projects for next year. It sounds like some of the growth is going to be more back-end loaded, I guess, with specific either projects are practices are going to be, I guess, coming, having revenue come more in the second half of the year. And what sort of visibility do you guys have on that?

RICH SCHLENKER: Yeah. Let me be clear on what I had said earlier. We do still-- we do think that we can get back up into our, what we consider our normal steady state growth area of a high single to low double digit growth for the year. The reason that the we feel that the first quarter is going to be lower than that is primarily related to technology development. Last year, in the first quarter, we had $2.8 million in technology development. That was-- if you remember right, we had some activity in actually the fourth quarter of 2003 that we didn't get to recognize revenue yet until the first quarter of 2004. We brought over about $700,000 worth of revenue over there that's included in that 2.8 million that we did in the first quarter last year.

We expect to be off of that by between 1 million and $1.5 million in the first quarter. And so, that has obviously some dampening effect on our year-over-year growth and as such, would hurt a little bit on improving our margins. We think that with the prospects that are out there in technology development and the fact that we didn't perform great in there in Q2 and Q3 of 2005, that we can end up seeing technology development make up for its year-over-year shortfall in Q1 as we go through the back end of the year. And we expect that in, from what we see from our practices right now and the remainder of the business, we would expect those to perform in that high single to low double digit range here in the first quarter and out through the rest of the year.

JEFF MYERS: Got you. Okay. Thank you.

[OPERATOR INSTRUCTIONS.] Mark Robins with the Robins Group.

MARK ROBINS, ANALYST, THE ROBINS GROUP: Help remind me if you would, please. Did you sell your building a few years ago and lease it back?

MIKE GAULKE: No.

MARK ROBINS: Okay. So, you still own that facility?

MIKE GAULKE: Yes. It's on the books for about 16 million.

MARK ROBINS: Have we got a guess as to what it might be worth?

MIKE GAULKE: It's hard. We're at the bottom of the real estate cycle here in Silicon Valley at the moment.

MARK ROBINS: You still are, aren't you?

MIKE GAULKE: We still are. But, it's probably in the 30 to 40 million range. It's some place in there.

MARK ROBINS: Right. Let's talk a little bit about your energy business, energy. It sounds to me like that's more safety and environmental work. Is that correct? Is that how you would characterize it or am I being a little too specific?

MIKE GAULKE: No. It tends to be focused in risk management. Also, our thermal practice has been very active and that's our hard-core engineering and science relative to-- well, particularly in the case of LNG, there's a lot of unknown or at least concern as to what happens if an LNG vessel is ruptured.

MARK ROBINS: Yeah. You have a [blanom], I think they're called, and nobody really knows how those things transform.

MIKE GAULKE: Yeah. And we've actually done a fair amount of work in that area. So, we think we understand the fluid mechanics of LNG and what kind of hazards that it actually would create. We've also been working in conjunction with risk. The environmental area is an area where we think that we've got a particularly good skill set.

MARK ROBINS: Just out of curiosity-- I guess it's morbid curiosity-- are you at all involved with the Texas City explosion, refinery explosion that happened earlier in '05?

MIKE GAULKE: Yes, we've been working on that.

MARK ROBINS: Okay.

MIKE GAULKE: Mark, just really to round out because I didn't mention probably the part of our business that has been involved in energy longer than the rest of the firm, which is our more traditional mechanical engineering activities, we-- back in, a couple of decades ago, we really got involved in failure of diesel engines, backup at nuclear power plants and the like. And so, questions of mechanics and materials continue to be an active area. We've worked on a number of pipeline failures this last year, both onshore and offshore.

MARK ROBINS: So, you would actually be working on the mechanical material failures and why that would happen and how to fix them and prevent them and so forth and so on. Is that a correct assumption?

MIKE GAULKE: Yes.

MARK ROBINS: Okay. Just a question-- we were talking about full time equivalence and I was just curious. How long does it take to fully employ and utilize a new FTE?

RICH SCHLENKER: It depends on what level we're bringing them in at. But, if we're bringing in a junior staff, it's probably something like three, call it at least a quarter to get them integrated and get them up to speed working, one to two quarters for senior hires that we hire out of industry or academia that it's going to take maybe six to nine months to bring them up and get them fully integrated.

Obviously, if you hire somebody who's got an existing consulting practice, depending on how much of their-- it varies from them being able to come over and have a lot of their current projects and clients follow them just by the nature of our business. And other times, their projects stay behind at their existing company. And then, it is more up in that six to nine month time to integrate them.

MARK ROBINS: Okay. All right. And then lastly, just out of curiosity, years ago your traffic and auto business legal work used to be just a huge part of the overall pie. What is it now and how would you characterize that part of the business, that traditional section of the business?

MIKE GAULKE: Yeah, it is still there and if you look at it as a percentage of our total revenues, it has declined. But, it has grown in absolute dollars. It has declined because we--.

MARK ROBINS: Everything else has grown.

MIKE GAULKE: Everything else has grown. And some of that has grown at a faster rate. And as we've moved into environmental and health over the years, which combined today is 25% of our revenues, the transportation auto-centric businesses, vehicle centric businesses overall have become some place down in the teens. Rich is look at the numbers here. I don't know exactly what number he's going to give you. But, my estimate is it's in the high teens. But, where it was grew into sort of the mid 20's a few years back--.

RICH SCHLENKER: I think what we've seen over the last four or five years and it's continued through this year is that we used to be the traditional failure analysis, some design support, recall work for the auto industry and some of the broader transportation companies. What we've been able to do over the last four or five years is grow that more broadly servicing them. One of our faster growing groups has been mild mechanics. Looking at the injuries involved in these same accidents that we would normally look at the performance of the vehicle in those situations, we also are looking at the occupant, were they belted or not, how did the safety system work or not in a particular situation.

Additionally, we've been able to cross-sell ourselves to that industry addressing their issues around asbestos and other health and environmental issues as we've grown a stronger practice in that area.

MARK ROBINS: Uh-huh, okay. Percentage change. I'm just wondering if you have found--.

RICH SCHLENKER: Yeah, we're-- I don't have the exact numbers right now. But, it's at, for that industry, including some of the health and environmental issues, it's in the teens.

MARK ROBINS: Okay. And then, that would have been down from the late '90s, early '00. What would it have been then?

RICH SCHLENKER: It probably crept over 20, but it was more focused on just one company, but on the design and reconstruction on the vehicle side and less on these broader areas.

MARK ROBINS: Design and everything, yeah.

RICH SCHLENKER: So, as we've grown the firm, it's proportionally gone down a little bit, but we've been able to continue to cross-sale into some of the, basically our best client base that we had back in the '90s. The firm's broadened since then in its industries that it serves.

MARK ROBINS: Really good. Thanks, fellows.

OPERATOR: Jerry Heffernan with Lord Abbett.

JERRY HEFFERNAN, ANALYST, LORD ABBETT: Hey, I'd like to ask you about the-- I know that on a longer-term basis, you have always said that we are keeping our eye out for acquisitions. And not that you are doing anything right now, but just wondering if there's anything in the market and if you can give me any kind of range for pricing of acquisitions in the market?

MIKE GAULKE: Let me talk about the first piece. We have actively over the last few years been looking for the right businesses to really complement or extend the practice areas that we're in. The focus has most recently been in the health sciences arena, in the construction arena, as well, construction marketplace. The-- on an annual basis, we probably take, have conversations, take somewhat of a look at 20, 20 plus firms. Most of those-- this is a low yield process for us. Most of those, we conclude, aren't exactly the right fit for us. But, we very much are in the market trying to find the ideal candidates.

RICH SCHLENKER: Yeah. The pricing out there, I hate to give a vague or a broad answer here, but it really varies with what you're looking at, especially when we're looking at very small firms, what you're talking here of, let's say 2 to $15 million in revenues, you're dealing with a small number of principals or partners in these firms. And the value of those firms has a lot to do with the longevity of the service of the people that you're acquiring. So, the multiple that we would be willing to pay or the market would be willing to pay for somebody who is near retirement either taking a business over are very different than somebody who you really believe has 10 or 15 year expectation in the business.

So, they also vary significantly in their profitability. What we have done historically at Exponent and we're continuing to work towards are acquisitions, which we believe will provide, be accretive to shareholders in the near term, maybe not immediately. But, we're not looking to just do something that only pays off in the long, long term here. So, you're going to find sort of single digit multiples on EBITDA. Sometimes, you can get something that's about ready to crest and you're going to pay more than that. But, it does vary based on a lot of variables that go on associated with these people businesses.

JERRY HEFFERNAN: Okay. Correct me if I'm wrong. Over the last couple of years, you've actually started up some new segments, new discipline segments by organic hiring, let's call it. Is that correct?

RICH SCHLENKER: Yes. Go ahead.

JERRY HEFFERNAN: To somewhat challenge you here and doing this purely on a friendly intellectual basis, at what point do you step back and say, you know something, we've been working hard here, not finding any on the acquisition side, having some success here on the organic side of developing things. In regards to this cash balance that we're sitting on and with all true efforts of trying to put this to work, perhaps we should start segmenting this money and saying, you know something, let's apply half of this to a dividend, half of this to an acquisition effort or buyback acquisition or something like that. Just, at some point we say, okay, let's kind of divvy up the mindset for this cash balance.

RICH SCHLENKER: Yeah. Jerry, I can assure you that we believe that it is important for us to evaluate all of the opportunities to deploy that cash, that there isn't necessarily one right answer or one place. It's a matter of looking at all of them and deciding if one just completely outweighs the other, then great. But, it's not-- we have not sort of put one thing ahead of the other at this point in time.

JERRY HEFFERNAN: Okay, okay. On a different effort here, not to nitpick because certainly you guys have a very clean income model here-- the accounts receivable jumped up by about 20% year-to-year.

RICH SCHLENKER: Yeah.

JERRY HEFFERNAN: Just an explanation of what's going on there.

RICH SCHLENKER: Yeah. What I can tell you is this is sort of a shorter-term blip. I think in the fourth quarter, we ended up having a couple of projects where we ended up not being able to bill until closer to the end of the quarter. The robots are a good example of that where we've been doing the work, incurring the cost and then generating the revenue. We bill it, but we didn't get the collections in before year-end. The navy contract is another one that's over a million plus that's outstanding there on that.

In addition to that, we had some slower payments from one particular insurance company where we've been working through their bureaucratic process of wanting to hold onto money as long as they possibly can and work through those. So, we had-- unfortunately we had a couple of those aligned in the fourth quarter. And because of the size we are, 3, $4 million less and everybody, we'd all be jumping up and down saying we had a great year and operating cash flow would be 3 or 4. I think it's right around net income at 13.8. It could have been substantially above that with a few key collections.

JERRY HEFFERNAN: Uh-huh. Yeah, certainly. And certainly, you collect more. It just adds more fuel to my earlier challenge, though.

RICH SCHLENKER: Well, let me make you comfortable. It is not our intention to--we want to work that number down. We think that in 2006, that will return back down to approximately 90 days DSO. So, we should benefit from some of that as-- it'll be in the low 90's, lets say, in 2006. So, we should benefit from that going forward.

JERRY HEFFERNAN: Sounds good. I'd like to follow up on something you gave, a piece of information you gave regarding the options expense and the new accounting rules here. You said 880,000 for one aspect and another 200,000 for another. Could you just repeat what you said there?

RICH SCHLENKER: Yeah. Let me bring a little even further clarity than that. As the investors who have been with us for a while, but for those who are newer, if-- in 2004, at the beginning of 2004, we instituted a restricted stock unit program for our principals, officers and directors at that point in time as a way of restructuring sort of what we were doing, primarily in options in prior years.

And what we did there is we took what was an existing bonus program-- Exponent has returned 33% of its pretax profits into a bonus program each year for probably about a decade now. We took some of those dollars-- we didn't spend any more than that-- we took some of those dollars for the principals and we started paying that out in restricted stock units. That probably will be about, oh, $1.5 million here from 2005's bonus pool that will be paid out in RSUs. So, that's one component that could be, that is sort of a stock based comp.

In addition to that, when we put that program in place, that really was just part of paying bonus differently. What we went and also did is whatever we took out and paid in their bonus RSUs, we also went and put a matching amount in that was sort of our equity compensation with those principals. So, the ones that were out of the bonus are fully vested shares, which the employee doesn't receive for four years. The matching units were paid-- have a clip vest four years out and those are amortized over a four-year period of time.

So, the amortization of the grants that we made in March of 2004 and March of 2005 for '03 and '04 performances, that amortization in 2005 was 600,000. That will be about 850,000 in 2006 because as we build this program in over four years, that will grow. So, that's the increment going from 600 to 850 that's in the matching.

And then, the last component is really our options. And historically, we had more options bid out. This past year, I think that the total grant was down to about 55,000 shares that were granted in '05. Those historical shares that were granted that haven't fully been amortized, as well as any new shares, we estimate that that cost will be about 880,000 in 2006. So, you'll end up between the bonus, the portion that comes out of the bonus pool, the portion that is on the matching of 850, plus the stock options of 880, end up with a combination of about $3.5 million that would be total stock based compensation in 2006.

JERRY HEFFERNAN: Okay. And the 880 would compare to nothing that's in the current year?

RICH SCHLENKER: Yeah, the 880 compares to nothing that's in there. If we would have had to expense that in 2005, it would have been an expense of about 1.47, something like that, almost $1.5 million. So, you can tell that that's working its way down from what would have been 1.5 in 2005 down to 880 because of a couple of years ago us instituting this RSU program.

JERRY HEFFERNAN: Right. Okay. And one final item, a much smaller item. Other assets increased by 4 million. What was that?

RICH SCHLENKER: Yeah. The other assets, we implemented a deferred comp program, which doesn't have the expense to shareholders. But, we instituted a deferred comp program in the middle of 2004. So, we only had it in for six months and then, had it in in 2000-- I mean, we instituted in middle of 2004 and in 2005, that's just the incremental difference in people's deferrals.

JERRY HEFFERNAN: The deferred comp pool?

RICH SCHLENKER: Yes.

JERRY HEFFERNAN: Primarily.

RICH SCHLENKER: And that's out of people's existing salaries or bonus. It's not any additional new expense by the company.

JERRY HEFFERNAN: Got you. Okay. Thank you very much, guys.

OPERATOR: Mark Robins with the Robins Group.

MARK ROBINS: Thank you. Let's go through the numbers, the bonus numbers for last year. It would have been-- we talked about-- Jerry asked you to compare '06 versus '05. And for '05, it would have been 1.0-- 1.47 and then, 880 for '06. And then, the 880 match would have been what last year?

RICH SCHLENKER: Mark, the-- oh, the 880, which is the, associated with stock options?

MARK ROBINS: Yeah, that's compared to 1.47--.

RICH SCHLENKER: Yeah--.

MARK ROBINS: Yeah, if you do apples-to-apples.

RICH SCHLENKER: Yeah. In the portion that is, it comes out of our bonus pool that was 1.5 million in 2005--.

MARK ROBINS: Uh-huh--.

RICH SCHLENKER: That will, assuming we growing the profits, that will grow up to 1.75 million looks so, between 1.75 million and 1.8 million.

MARK ROBINS: Okay. And then that match?

RICH SCHLENKER: The matching part was 600 in '05. It'll go up to 850 in '06.

MARK ROBINS: Then, I only missed the one number. Okay. And-- oh, one other question that Jerry opened up and I think makes a lot of sense to ask. When you're looking at the realm of prospects, purchase prospects, acquisition prospects, did I hear you correctly in saying that they're usually run between 2 and $15 million in size?

RICH SCHLENKER: Yes. That generally is-- if we are to take that pool, as Mike said, of 20 to 25 prospects, they're generally going to fit into that size. Now, that makes up a lot of the universe of high-end professional service firms.

MARK ROBINS: Okay, great. I was just wondering if you're going to change the name to Exponent First Bank. All right, guys, thanks. Have a good afternoon.

OPERATOR: There are no further questions at this time. Mr. Gaulke, are there any closing remarks?

MIKE GAULKE: No. Thank you all for joining us and appreciate your support and look forward to speaking with you in the days ahead.

OPERATOR: This concludes today's Exponent conference call. You may now disconnect.

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LOAD-DATE: February 4, 2006

7. The Weekly Standard, “Dam Environmentalists; Why there's no hope for the obvious solution to New Orleans flooding.,” January 16, 2006

34 of 687 DOCUMENTS

The Weekly Standard

January 16, 2006 Monday

SECTION: ARTICLES Vol. 11 No. 17

LENGTH: 1803 words

HEADLINE: Dam Environmentalists;

Why there's no hope for the obvious solution to New Orleans flooding.

BYLINE: John Berlau, The Weekly Standard

BODY:

GIVEN THE PASTING PRESIDENT BUSH has taken over the government's response to Hurricane Katrina, one might have assumed the president's critics were in agreement about how to prevent such disasters. But for years now, the left has been deeply ambivalent about the most logical and time-tested mitigator against the threat of city-wide and regional floods: dams.

How could dams, embraced by everyone from beavers to Franklin Delano Roosevelt, be a source of contention? Ask the environmentalists. Their campaign against dams has gained influence and stalled, decommissioned, or otherwise limited the construction of many dams and levees, including one project that could have made a significant difference during Katrina's pounding of New Orleans. This animus against dams also continues to skew spending and construction priorities to make such disasters more likely in the future.

Until recently, dams were the pride of the left, and for good reason: They provide electricity, irrigation, and, of course, bulwarks against flooding. In 1964, presidential candidate Barry Goldwater was thought to have committed campaign suicide when he proposed privatizing the Tennessee Valley Authority, which had been built with New Deal dollars. Local voters, grateful to the TVA for providing power and controlling wild rivers, didn't much like Goldwater's argument.

Now a position far more radical has become respectable. In Deep Water: The Epic Struggle over Dams, Displaced People, and the Environment, a new book receiving rave reviews from the mainstream press, Jacques Leslie assails all dams as "loaded weapons aimed down rivers" and calls for rivers to be allowed to return to their natural flows. Leslie, who was a Vietnam war correspondent for the Los Angeles Times and has written for magazines such as Harper's and the Washington Monthly, takes on what he calls the "Rooseveltian vision, arising out of the New Deal, built into the Hoover Dam and the Tennessee Valley Authority, enthralled with its seeming capacity to foster prosperity by subjugating nature." He concludes by inveighing against dams as "relics of the twentieth century, like Stalinism and gasoline-powered cars, symbols of the allure of technology and its transience . . . of the delusion that humans are exempt from nature's dominion."

Most New Deal programs are considered sacred on the left, as George Bush learned recently when he tried to reform Social Security. But liberals conveniently forget Roosevelt's no-nonsense views on dealing with nature. At the 1935 dedication of Hoover Dam, FDR hailed the taming of a "turbulent, dangerous river" and the "completion of the greatest dam in the world." He proudly noted that the dam on the Colorado River was "altering the geography of a whole region," calling what had existed before "cactus-covered waste" and "an unpeopled, forbidding desert."

Roosevelt also defended public works such as dams on the now-discredited Keynesian ground that they create jobs (the New Deal did not bring down overall unemployment, which only returned to pre-Depression levels with World War II), but he was generally pragmatic about nature in its pristine state. About the river he said bluntly that "the Colorado added little of value to the region this dam serves." In the spring, he said, farmers "awaited with dread the coming of a flood, and at the end of nearly every summer they feared a shortage of water that would destroy their crops."

But to Leslie, damming the Colorado River was a damn shame, and he pushes for returning it "to its virgin state: tempestuous, fickle, and in some stretches astonishing." He acknowledges that if you took away the dams and the hydroelectric power they provide, you would also "take away modern Los Angeles, San Diego, and Phoenix" as well as the nearby former desert outpost known as Las Vegas. But in exchange for this major subtraction from civilization as we know it, Americans would be able to marvel at a "free-flowing river" and "an unparalleled depository of marine life."

What does the left-wing website Salon, a consistent defender of New Deal programs, have to say about Leslie's savaging of Roosevelt's achievement? (And what does a West Coast webzine make of a book that proposes cutting off a major power source for Los Angeles?) Salon heaps praise on Leslie, stating in a September article that "the modern dam, in short, has come to signify both the majesty and folly of our age's drive to conquer nature."

Leslie and Salon aren't alone. Support for dam removal and opposition to new dams have become a staple among modern environmentalists, giving rise to organizations whose only agenda is to stop dams. American Rivers, for example, brags about how many dams have been decommissioned and has as its slogan "Rivers Unplugged." The Berkeley-based International Rivers Network does similar work in Third World countries, where dams are even more crucial for power and flood control. This sea change on dams illustrates a larger shift of the left concerning technology and the nature of man.

The same weekend that Salon ran its glowing notice for Jacques Leslie's rants against artificial barriers on natural rivers, it also ran an article about a recent antiwar protest in Washington under the headline "'Make Levees, Not War.'" This was a popular trope at the time, with leftie antiwar spokesmen charging that money for the war in Iraq could have gone to building levees as well as their favorite social programs. Yet one of the main obstacles, before Katrina, to building and fortifying levees, as well as creating more innovative flood barriers, was put up by environmentalists.

In 1977, the group Save Our Wetlands successfully sued the Army Corps of Engineers to halt the construction of large floodgates intended to prevent Gulf of Mexico storms from overwhelming Lake Pontchartrain and flooding New Orleans. The gates, the environmentalists said, would have hurt wetlands and marine life, although the Corps had already done an environmental assessment to the satisfaction of environmental regulators. Many experts believe the gates could have greatly reduced the impact of Katrina. "It probably would have given [the people of New Orleans] a better shot," says Daniel Canfield, a renowned professor of aquatic sciences at the University of Florida.

Then, in the 1990s, the Army Corps of Engineers tried to upgrade 303 miles of levees along the Mississippi River, telling the Baton Rouge Advocate in 1996 that a levee "failure could wreak catastrophic consequences on Louisiana and Mississippi." But the anti-dam American Rivers, along with eco-groups such as the Sierra Club and state chapters of the National Wildlife Federation, sued, alleging harm to "bottomland hardwood wetlands." This resulted in the Corps doing another environmental impact study and holding off some work for two years.

The Corps compromised with the anti-dam activists in other ways. As Ron Utt notes in a Heritage Foundation study, the Corps began spending hundreds of millions of dollars on environmentally correct projects like "aquatic ecosystems" instead of flood control. The distraction from the Corps's mission continued from the Clinton to the Bush administration and is something Bush can legitimately be blamed for.

Even now, with Katrina a recent memory, efforts to protect New Orleans are being turned into eco-boondoggles, though the media seems not to have noticed. Bills from Louisiana senators Mary Landrieu, Democrat, and David Vitter, Republican, couple money to fortify levees with millions of dollars to restore a vast swath of "coastal wetlands." These were not wetlands destroyed by Katrina, but land that started disappearing, from both natural and manmade causes, in the 1930s. The argument is made that the wetlands (which used to be called swamps) can help absorb floodwater before it gets to the city. But the University of Florida's Canfield says that while wetlands are valuable for marine life, they are vastly overrated for flood protection. "If they're already wet, and filled with water, they provide no extra protection," he says.

Leslie and other dam opponents say land-sinking and the buildup of sediment caused by dams show the futility of attempts to artificially control rivers. It's true that engineering isn't perfect, and there are always new challenges that require upkeep. But to refute the claim that dams are "dinosaurs," all we have to do is look to Western Europe, usually a favorite reference point for liberal activists and the media. There has, however, been a good deal of silence about European efforts on flood control, while the few reports that have addressed this subject largely focused on the amount of money Europe spends.

But what the countries spend it on is more important: dams, walls, and gates. After a North Sea storm in 1953, the Netherlands, half of which is below sea level, set out to dam every last major body of water. The last of these were ultramodern dams built in the 1980s. In the United States, The Weekly Standard was virtually alone in suggesting that Lake Pontchartrain could be dammed along Dutch lines. (See James R. Stoner Jr., "Love in the Ruins," September 26, 2005.) London, which sits below the high tide of the Atlantic waterways, has also had severe problems with the flooding of the Thames River. So, in the '80s, gates were built that can rise as high as five stories. The Dutch and the British are sensitive to the environment, but only to a point. They try to regulate water levels to accommodate the native fish. But neither country is undertaking massive projects to restore swamps or, in the eco parlance, "wetlands."

The environmentalist crusade against dams is curious for other reasons. The same activists who campaign for hydrogen-powered cars, for example, rail against the hydroelectricity produced by dams. As environmental journalist Gregg Easterbrook pointed out in his 1995 book A Moment on the Earth, a dam "burns no fossil fuel and emits no greenhouse gases, smog or toxic or solid wastes." Take away dams, and folks will have to rely on other energy sources such as coal, which, as we know from the recent tragedy in West Virginia, has its own environmental and safety concerns.

Citing the Dutch and British experience, Canfield says the anti-dam movement is not mainly about science, but rather philosophy, or even theology. "It's a belief structure," he says. What motivates anti-dam activists is abstract talk about man not interfering in the "ecosystem" or leaving a "footprint" on the planet. But without humans asserting themselves, nature will leave plenty of its own footprints, like Katrina, as it stomps at will over human beings and wildlife alike.

John Berlau, a fellow at the Competitive Enterprise Institute, is writing a book on the health risks of environmentalism.

LOAD-DATE: January 8, 2006

9. Monterey County Herald (California), “The Stories Of 2005,” December 31, 2005

62 of 687 DOCUMENTS

Monterey County Herald (California)

December 31, 2005, Saturday

KR-ACC-NO: MN-1231-The-Stories-Of-2005

LENGTH: 3169 words

HEADLINE: The Stories Of 2005

BYLINE: By Larry Parsons

BODY:

It was a year of high-profile criminal trials and continual wrangling over Monterey County growth and water. But the top news story of 2005, for many average county residents, was written on service station signs in early fall.

For a few weeks, as seasonal gasoline demand collided with the Gulf Coast devastation inflicted by Hurricane Katrina, the price at the pump jumped above $ 3 a gallon -- even for regular.

As 2005 comes to an end, gas prices have returned to run-of-the-mill levels, closing another year marked by intriguing, dramatic and quirky news.

It was the year that 19 penguins, refugees from a Katrina-battered Aquarium of the America in New Orleans, joined their cousins at the Monterey Bay Aquarium and went on display in October.

The aquarium also lost -- or liberated -- one of its biggest draws ever in 2005, a great white shark that spent 198 days thrilling aquarium-goers before it was re-released to open sea off Point Pinos in March.

Animals of a different sort, perhaps the party kind -- the classic country-rock group The Eagles -- brought their show to the Salinas Sports Complex in August to the delight of 15,000 fans taking it easy.

And in a move at odds with their city's often-straitlaced mores, Monterey leaders in June gave permission for rentals of Segway "human transporters" to people seeking something other than running, walking, biking or skating on the city Recreation Trail.

All, of course, was not whimsy and cute animal stories.

From heavy turnover of education leaders to high-profile criminal trials, the top stories of 2005 cut to the bone of politics, government, crime and punishment, and community aspirations.

Here's a look at the major signposts along the way as the year unfolded.

Government

Voters in Salinas produced the biggest local government story of the year in November, when they enthusiastically supported a half-cent sales tax to restore budget-gutted services in libraries, recreation centers and public safety ranks.

The hometown of acclaimed novelist John Steinbeck had endured adverse, worldwide publicity when money shortages scaled back hours at Salinas' three libraries to a few hours a week.

A major story in 2006 will be how Salinas leaders decide to spend the estimated $ 11 million a year generated by Measure V to restore services that city voters envisioned when they voted for the tax increase.

An August decision by the federal Base Realignment and Closure Commission produced another huge story in 2005. The commission spared the Monterey Peninsula's treasured Naval Postgraduate School and Defense Language Institute from feared closures.

Meanwhile, Monterey County supervisors spent much of the year as they have for six years -- trying to cobble together a new general plan to guide rural growth during the next 20 years.

The bitter debate over the general plan spawned an initiative drive by environmental and slow-growth groups that could leave the general plan controversy in the laps of county voters in June.

Another major land-use fight over growth in the rolling hills of Rancho San Juan north of Salinas likely will be on the same June ballot, after a second citizens' referendum drive to overturn decisions by the Board of Supervisors.

In November, voters overwhelmingly defeated Measure C to overturn supervisor approvals of a 2,500-acre Rancho San Juan growth plan. But supervisors, a day before the election, had ratified a smaller, 671-acre golf-residential development called Butterfly Village that provoked foes to launch another round of petition-gathering.

County supervisors also approved Pebble Beach Co.'s major development plan for the Del Monte Forest. But scores of protests were quickly filed with the state Coastal Commission, which will have the final say over the resort-and-residential expansion.

The county also approved the 1,400-home East Garrison project, a "new urbanist" development that will have space for an artists' colony, on Fort Ord land. Unlike most major projects in the county, East Garrison won almost unanimous favor.

In Monterey, the City Council ended the year in controversy over the future of the Safeway store on city land on Munras Avenue. The council decided to cut off negotiations with Safeway in favor of a developer who promises to bring a Trader Joe's store to the site.

In Pacific Grove, former City Manager Ross Hubbard retired, and the newly aligned City Council hired veteran county administrator Jim Colangelo as the city's top executive. A financial audit raised questions about the handling of city funds. And the Friends of the Library dropped its plan to pursue a contested expansion of the Pacific Grove Library.

In Seaside, the City Council made headway on two long-simmering projects. In October, the city signed a deal with developer Don Orosco to revitalize four acres at Broadway Avenue and Fremont Boulevard, and in July, the city came to terms on plans to build a resort hotel, time-share units and homes at the Bayonet & Black Horse Golf Course.

Seaside leaders also decided to embark on a $ 19 million revamping of the city's Auto Center and hired Ray Corpuz as their new city manager, despite controversy during Corpuz's 12-year tenure in Tacoma, Wash.

In Marina, the City Council approved the huge University Villages development that will bring big-box retail stores off Highway 1 and a mix of 1,237 housing units. The project still faces an environmental lawsuit set for trial in January.

Developers of another major Marina project on Fort Ord land, the 1,050-home Marina Heights development, reached a settlement in November in an environmental lawsuit by pledging $ 1.75 million toward affordable housing for city residents.

Another lawsuit settlement was struck in November in a long battle pitting residents of Spreckels against the Tanimura farming family over development of 73 vacant lots depicted on a 1907 map of the former sugar company town.

Carmel leaders made their city the first jurisdiction in Monterey County to ban cigarettes from beaches. And the City Council voted in September to sell the 78-year-old Flanders Mansion, a controversial move that spurred an environmental lawsuit.

In Carmel Valley, residents of the Rippling River living center continued to fight to save their home, which ended with a July promise from the Housing Authority of Monterey County to keep Rippling River open. But questions remain about financing extensive renovations needed at the center for elderly and disabled residents.

The possible incorporation of a large portion of Carmel Valley continued to grab the attention of many valley residents. A major step in the debate over the proposed township came this month, when the Local Agency Formation Commission said an environmental impact report wasn't needed for the incorporation process.

County voters will face a half-cent sales tax measure in June after directors of the Transportation Agency for Monterey County decided to put on the ballot a $ 350 million, 14-year plan to raise money for major highway projects.

Another new shopping center was approved in Salinas, as the City Council gave its blessing to the 41-acre Boronda Crossing Center next to the city's Auto Mall. The center will have a Home Depot and Kohl's department store.

In the wake of questions raised by an investigation in The Herald about drug use by a paramedic crew responding to a 2002 Monterey drowning, Monterey County decided to hire Westmed Ambulance Inc. to replace American Medical Response as the countywide emergency responder, starting in 2006.

Public safety

Gang violence started the year on a chilling note in January when three people were wounded in a shooting involving gang rivals at the Northridge Mall in Salinas. A shooter subsequently received a 25-year-to-life prison sentence. Two other men were shot dead in Salinas the same night.

But 2005 also saw the culmination of the longest federal law enforcement prosecution against the Nuestra Familia prison gang. The case, nicknamed Operation Black Widow, took five years and resulted in five Nuestra Familia "generals" receiving life sentences in federal prison.

The tentacles of Nuestra Familia were demonstrated in the still-unsolved slaying of 20-year-old Crystal Morado, the wife of one of the top Nuestra Familia generals targeted in Operation Black Widow. Her body was found in January on a remote Santa Clara County road.

In another suspected gang-related crime, the 17-year-old son of Salinas City Councilwoman Gloria De La Rosa, an outspoken advocate against violence, was shot in the back near his home after a confrontation this month with two men. Police were searching for suspects.

Two criminal trials in Monterey County Superior Court produced a lot of headlines in 2005.

In one trial, Ilona Leidig, former wife of Carmel restaurateur Ted Leidig, was acquitted of attempted murder for the shooting of her then-estranged husband in the closet of their Carmel Valley home. She mounted a battered spouse defense.

After a marathon five-week trial, William Tyquiengco was freed from jail when a jury quickly acquitted him in November of the 1996 stabbing death in Monterey of his sister-in-law, Starr Mooren.

The court system itself was rocked by two scandals in 2005.

Richard Rutledge, former traffic commissioner, resigned after a jilted ex-lover accused him of fixing traffic tickets for friends and engaging in sexual trysts during working hours and in court offices.

An investigation by the District Attorney's Office cleared Rutledge of criminal wrongdoing but strongly criticized his actions.

In another embarrassing episode, a deputy public defender was discovered to be working without a law license. Margaret O'Shea, who faces pending charges of grand left and practicing law without a license, also had worked as an attorney for the U.S. Department of Justice on one of the biggest federal civil rights cases ever involving black farmers who accused the U.S. Department of Agriculture of racist loan practices.

On a positive note, Judge Wendy Duffy, the county's first female Superior Court judge, was elevated to the 6th District Court of Appeal in San Jose.

An ongoing debate over the use of Taser stun guns by local police intensified in 2005 with the February death of 40-year-old Robert Heston, who was jolted by five stun guns fired by Salinas police officers answering a disturbance call at his father's home. In November, the District Attorney's Office said drug use, not the use of stun guns, was the primary reason for Heston's death.

Eight teenagers died in two tragic traffic accidents early in the year. Five were killed in a drunken-driving crash on Highway 101 in February in Prunedale. Three others died in March in a collision on Highway 1 near Moss Landing.

A 2004 drunken-driving crash at Lake San Antonio that killed two people continued to reverberate through local courts in 2005.

In February, Dana McCormick, a former Notre Dame High School student in Salinas, was convicted of second-degree murder for the crash and sentenced to seven years in the California Youth Authority.

In November, her father, Dennis McCormick, was ordered to spend two years in jail for providing alcohol to his daughter the day of the fatal traffic accident. His sentence prompted calls for stricter laws against adults who provide minors with alcohol.

On Labor Day weekend, local Coast Guard officials searched about 30 vessels in the Monterey Bay area, provoking outcries from some boat residents who said they were terrified by the actions of armed guardsmen. Coast Guard officials said they were merely enforcing boating-safety rules.

A fugitive from Monterey County justice, Dr. James Daly of Salinas, who fled before being convicted on child molestation charges, was captured in Uruguay. He faces a 58-year prison sentence.

Law enforcement officials also uncovered two unusual cases. Two Salinas travel agents pleaded guilty to grand theft after defrauding clients of $ 400,000. The case temporarily snarled plans by the North Monterey County High School band to perform in China.

In February, Pacific Grove police and animal control officers seized about 130 cats from the home of an elderly woman who took in stray cats. Authorities declined to file charges because of the woman's mental condition.

Water, environment

Not surprisingly, 2005 wasn't a breakthrough year for the Monterey Peninsula's seemingly intractable water problems.

California American Water was the focus of dozens of stories -- rate increase requests, competing desalination plants in Moss Landing, litigation over the Seaside aquifer, its parent company RWE's plan to spin off its U.S. and United Kingdom water companies, and campaign expenses over a November ballot measure to study a public takeover of the oft-criticized utility.

The race between Cal Am and the Pajaro-Sunny Mesa Community Services District to build a desalination plant to allow a state-ordered reduction in pumping from the Carmel River was dealt another twist when Duke Energy announced it wants to sell its huge Moss Landing power plant. Cal Am is eyeing Duke-owned land for its desalination plant.

The long-running water wars reached another peak in the November election, when voters of the Monterey Peninsula Water Management District rejected Measure W to pay for a $ 500,000 study of a public takeover of Cal Am's Peninsula system.

The year also ended with the fate of the proposed Salinas Valley Water Project up in the air. It would bring Salinas River water to coastal areas threatened by saltwater intrusion. County water officials are waiting for federal wildlife officials to sign off on the project. A lawsuit by some Salinas Valley farmland owners successfully challenged property assessments designed to pay for the project.

Another lawsuit, filed by the marine sports concessionaire at lakes San Antonio and Nacimiento, is still waiting in the wings. The head of the county Water Resources Agency said project construction could be delayed until at least 2007.

But 2005 did bring major news to a long-running environmental program of interest to many county residents.

In October, the U.S. Fish and Wildlife Service said it plans to end a 19-year-old sea otter relocation program that moved otters to a Channel Islands refuge and out of a no-otter zone off the Southern California coast. The reason: The relocated otters wouldn't stay put.

Education

The old guard moved aside at many of Monterey County's top educational institutions in 2005.

Peter Smith, founding president of CSU-Monterey Bay, resigned to take a position in Paris with a United Nations agency. Diane Cordero de Noriega was named interim president in May.

At Monterey Peninsula College, 13-year President Kirk Avery stepped down in September, and Carl Ehmann took over the reins of the college on an interim basis.

The most dramatic administrative change took place in the Monterey Peninsula Unified School District, where, after a turbulent, two-year tenure, former superintendent Daniel Callahan left June 30 after a divided school board refused to extend his contract.

Callahan's troubles began when the district had to cut costs to plug a $ 2.2 million budget shortfall. He was replaced on an interim basis by veteran administrator John Lamb.

But the district received dismaying news this fall with an audit that blamed accounting errors, missed deadlines and staff turnover for losing out on $ 5.7 million in state funds to make repairs at school facilities.

The Peninsula district is firming up plans to open a high school campus in Marina in August 2006, a long-held goal of Marina city officials.

Another venerable Peninsula educational institution, the Monterey Institute for International Studies, marked its 50th year by merging with Middlebury College in Vermont, a move that officials said would strengthen both schools.

The Salinas City Elementary School District had a rocky year, facing a $ 5 million budget gap, the closing of two schools, the opening of a new campus and averting the layoff of about 100 employees with an 11th-hour agreement with the teachers union.

In November, voters in the Carmel Unified School District approved a $ 21.5 million bond for school facilities.

Business

One of the biggest business deals of 2005 came in June with the announcement by Chiquita Brands International that it would buy Salinas-based, bagged-salad giant Fresh Express for $ 855 million. Chiquita said the purchase wouldn't affect its local operations.

In another big deal, a major player in the Monterey Peninsula real estate industry, The Mitchell Group, was sold in August to Sotheby's International Realty Inc. Terms weren't disclosed.

November saw stores opening in the new Cypress Center on North Fremont Street in Monterey, but the popular Old Bath House restaurant in Pacific Grove closed for business in October.

The strength of agriculture, the county's top industry, was demonstrated with the spring release of the agricultural commissioner's 2004 crop report, which put the gross value of farm output at $ 3.4 billion.

Wine grape value grew by 8.8 percent, after a few slower years caused by overproduction.

But leaders of the county produce industry spent much of 2005 consumed by food-safety issues.

The federal Food and Drug Administration warned the industry it needed to take more measures to protect crops from contamination after tracing several food-borne illnesses during the past decade to Salinas Valley lettuce and spinach.

The Peninsula's tourism industry took some heat in July, when many motorcycle racing fans complained that local hotels were overcharging or canceling reservations, as thousands flocked to the area for the U.S. Grand Prix MotoGP World Championship at Laguna Seca. Industry leaders vowed to take measures to avoid the same problems during major events in 2006.

The fortunes of downtown Salinas took a major step forward in July with the opening of the 14-screen Maya Cinemas that promised to bring more business and visitors to the city's Oldtown.

After three frustrating years over stalled plans by developer Gerry Kehoe for a hotel and condos in the 100 block of Main Street, the Salinas City Council this month decided to negotiate with a local development group that proposes a 14-story hotel and condo complex across Main Street from Maya Cinemas.

Larry Parsons can be reached at 646-4379 or lparsons@montereyherald.com.

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JOURNAL-CODE: MN

LOAD-DATE: December 31, 2005

10. Los Angeles Times, “THE POLITICS OF FLOOD CONTROL; Levees Weakened as New Orleans Board, Federal Engineers Feuded,” December 25, 2005

70 of 687 DOCUMENTS

Los Angeles Times

December 25, 2005 Sunday

Home Edition

SECTION: MAIN NEWS; National Desk; Part A; Pg. 1

LENGTH: 4057 words

HEADLINE: THE POLITICS OF FLOOD CONTROL;

Levees Weakened as New Orleans Board, Federal Engineers Feuded

BYLINE: Stephen Braun and Ralph Vartabedian, Times Staff Writers

DATELINE: NEW ORLEANS

BODY:

When the U.S. Army Corps of Engineers and New Orleans levee officials joined forces in July 1985 to protect the city from a long-feared hurricane, the two agencies could not agree on how to proceed. It was the beginning of a dysfunctional partnership that ushered in two decades of chronic government mismanagement.

Corps engineers wanted to install gates in front of the city's three main internal canals to protect against violent storm surges from Lake Pontchartrain. The Orleans Levee District, the city's flood protection agency, preferred to build higher flood walls for miles along the canals. For five years, neither side yielded.

But in October 1990, a deft behind-the-scenes maneuver by the levee board forced the corps to accept higher flood walls. As Senate and House negotiators gathered to craft the Water Resources Development Act of 1990, Louisiana's congressional delegation quietly inserted a lobbyist's phrasing ordering the corps to raise the levee walls.

"It was stealth; legislative trickery," recalled New Orleans lawyer Bruce Feingerts, who lobbied for the levee board. "We had to push every button at our disposal."

The gambit was a crucial victory over the corps by the Orleans district, the most powerful and well-financed among 18 Louisiana boards that supervise more than 340 miles of storm levees across the hurricane-prone southern half of the state. The corps had to abandon its floodgate plan and shoulder 70% of the project's costs while allowing the Orleans board to hire its own consultants to design the strengthened levees.

But their fractious partnership proved disastrous. While the corps and the Orleans board settled into an acrimonious 15-year relationship, spending $95 million to buttress the city's canal levees, their shared supervision failed to detect crucial weaknesses inside the flood walls before Hurricane Katrina struck.

"No one felt the urgency, none of us," said Lambert C. Boissiere Jr., a former Orleans levee commissioner. "The corps and our own engineers told us the levees were strong enough. They were all dead wrong."

Structural inspections were cursory. Maintenance was minimal. A confusing regulatory patchwork of ownership over the levees and canals blurred the lines of authority -- all shortcomings cited by independent engineering teams analyzing the levees' collapse.

Although the corps and federal officials kept a tight leash on funding, the Orleans board spent money lavishly, diverting resources to high-stakes investments such as casinos and marinas. The levee board's unusual authority to hire its own consultants allowed its officials to select firms that regularly gave campaign contributions to politicians with influence over levee board business.

Left unchecked because of repeated failures by the Louisiana Legislature to reform the levee board system, critics say, the Orleans district operated its own patronage system.

"The New Orleans board had the reputation of being one of the worst -- by worst, I mean more political than professional," said former Louisiana Gov. Charles E. "Buddy" Roemer III, a Republican whose Orleans board appointees launched the 1990 power play in Congress.

When Katrina hit in late August, floodwater from Lake Pontchartrain burst through the walls of the 17th Street and London Avenue levees, where steel foundations gave way in porous soil. Storm water also flowed through a 200-foot gap in the Orleans Avenue levee, a section left unfinished due to Bush administration funding cuts.

Last week, the corps announced plans to seal off the three broken canals with permanent barriers and relocate New Orleans' pump houses from inside the city to the lakeshore -- at a cost of $3.1 billion. The corps' move to abandon the old flood-control system it built with the Orleans board came as a bitter coda to a 20-year relationship.

'Least Cost' Project

Money was the most pressing concern in July 1985, when Orleans levee officials signed "assurances" -- an official commitment -- to join the corps in buttressing New Orleans' hurricane protection system.

The corps' traditional preference for a "least cost" project made floodgates a far more attractive option -- at $20 million -- than the $60-million estimate for raising the levees.

"We were caught between the [Reagan] administration saying keep the cost down, and Congress and New Orleans officials saying spend more," said Fred H. Bayley III, then the corps' director of engineering for the Lower Mississippi Valley Division.

But the corps' proposed "butterfly-valve gate" -- a concrete-and-steel barrier that would open to let out water and close to seal off storm surges -- was untested in high storm conditions.

The corps' plan also clashed with the city's practice of using its system of antiquated pump stations -- two miles inside the city -- to force floodwater out into the lake through the canals. Officials with the New Orleans Sewerage and Water Board who supervised the canals feared that in a major hurricane, the gates would jam with debris and canals would back up, submerging the city.

Corps engineers had been fixated on floodgates since the 1970s, when the agency proposed using towering gates to block off surges at the far eastern end of the lake. That plan was the corps' response to Hurricane Betsy, a storm that hit New Orleans in 1965, swamping the city's Lower 9th Ward, killing at least 75 people and causing more than $1 billion in property damage.

Louisiana's congressional delegation, led by Democratic Sens. Russell Long and J. Bennett Johnston, won legislative approval for the barrier plan. But by the early 1980s, the project was shelved, scuttled by a judge's order, opposition by environmental and business groups, and bickering levee boards.

The corps, convinced that raising levees was risky, shifted its plans, proposing to build gates at the lakeshore. Higher flood walls required deep sheet piles -- heavy-gauge steel foundations -- sunk into the soft coastal soil to brace against water pressure.

To raise the levees properly, corps engineers warned that houses along the 17th Street and London Avenue levees might have to be razed. But the corps refused to absorb the costs, and the levee board shied from taking on neighborhood groups -- a pivotal early error.

Eager to show off their prototype, corps engineers herded city officials into the Army's cavernous Hydraulics Lab in Vicksburg, Miss. The hinged doors opened and closed easily. But city sewerage officials peppered the engineers with doubting questions.

Indeed, according to a November 1987 corps report, the "original design did not perform as intended." Only when corps engineers altered the model, "the gate design performed satisfactorily."

Despite the skepticism, corps officials moved firmly to clear a path for the floodgate plan. The corps ruled that it would not pay for raising the levees because the city's canals were used for local drainage, not navigation -- beyond the scope of the corps' authority over river and waterway projects.

The decision forced Orleans levee officials to gamble. Although the corps refused to pay for raising the levees, the Lake Pontchartrain, La., and Vicinity High-Level Plan was still in its planning stages. Under the drawn-out design process, levee officials still had the ability to research their own alternative -- at the board's cost.

They aimed to keep the levee-raising option alive by hiring their own design consultants, then using political leverage to win their levee-raising plan later.

Involving Politics

From the Orleans levee office on Stars and Stripes Boulevard to the governor's mansion in Baton Rouge, Louisiana's political veterans knew the unstated rules of the levee-building game.

There were scores of qualified civil engineers in New Orleans, all angling to score lucrative public contracts. Many firms boasted former corps engineers who knew how the corps worked and had friends still in the service.

"The corps had these relationships with the levee boards," Roemer recalled acidly. "In their conversations, the levee board would ask the corps: 'What do we need to do to have safety and economic development?' And the corps would give unofficial answers. Then the levee board would hire a consulting engineer and go to the window the corps had opened. It was sweet."

Normally, the corps used its own contractors to design and build flood-control projects. But with the corps' approval, levee boards could hire consultants as a way to pay their 30% local share of a project's cost. In hindsight, said the corps' commander, Lt. Gen. Carl A. Strock, the decision to let the Orleans board hire its own contractors was "an unusual practice for us."

Some corps veterans worried about the intrusion of local politics and budget complications. "Generally, when there were more layers involved, it got more difficult," Bayley said.

The political lines stretched to Louisiana's governors, who chose the majority of commissioners on local levee boards. In 1985, the power in Baton Rouge was Roemer's predecessor, Democratic Gov. Edwin Edwards, who had installed New Orleans lawyer Emile Schneider as levee board president.

Schneider moved quickly. The board issued $50 million in bonds, then began hiring private engineers. The consultants were chosen on their qualifications. But politics and hiring sometimes mixed, said former commissioners.

All three engineering consultants who were selected by the Orleans board to design the levees contributed to the political campaigns of officials with sway over the board.

Burk-Kleinpeter Inc., the engineering firm that designed the raised London Avenue flood wall, gave $5,000 to Edwards in 1991 before he won the 1992 governor's race. Walter Baudier also donated during the period that his firm, Design Engineering Inc., planned the Orleans Avenue levee. Baudier gave $2,200 to Roemer in 1987 and $3,000 to Edwards in 1991.

"Everybody gave to everybody," Baudier said. "That neutralized any advantage."

Baudier's firm was also awarded a separate contract with the Orleans district, coordinating other levee board projects. Louisiana's legislative analyst criticized the arrangement in 1992, warning of potential conflicts between the firm's dual roles. Baudier insists his firm dealt only with financing and did not "review other people's designs."

Levee board contractors also frequently gave campaign money to Francis C. Heitmeier, a powerful state legislator from New Orleans who has long wielded influence over Orleans levee district affairs.

Among Heitmeier's donors from 1996 through 2002 were Baudier ($5,000), Burk-Kleinpeter ($10,000), and Modjeski and Masters Inc., an engineering firm that designed the 17th Street levee ($750). Officials with Burk-Kleinpeter and Modjeski and Masters did not return calls seeking comment.

For years, former Orleans levee officials say, Heitmeier, who headed the state Senate's public works committee and now its Finance Committee, was influential in levee board decisions on hiring, policy and contracts. Roemer was stymied by Heitmeier when he tried to reform the levee board system and wrest contracts away from local authorities. His "biggest battles," Roemer said, were with Heitmeier.

Just last month, Heitmeier again played obstructionist, helping to snuff out a post-Katrina attempt by reformers to create a unified state levee board. Critics howled. Heitmeier shrugged.

"They can say what they want," he said.

Questions About Depth

By 1990, faced with spiraling costs for its gates at the 17th Street canal, the corps agreed to pay for raised levees there. But the corps still insisted on gates at Orleans and London avenues.

Even before the corps made its concession, the board had acted on its own, hiring a construction firm to drive sheet piles at 17th Street.

The Orleans board's impatience with the corps was shared by neighboring levee agencies. In recent years, Plaquemines Levee District President Benny Rousselle twice ordered crews to raise levees along a local highway despite formal corps orders to desist. And earlier this year, the East Jefferson Levee District bolstered its side of the 17th Street levee by a foot and a half without the corps' approval.

"When you deal with the corps, it takes years of studies," Rousselle said.

Corps engineers were openly peeved in 1990 when they learned about the Orleans board's decision. The move posed "an undesirable situation for this office and the corps," Bayley wrote to the corps' district commander.

Bayley also warned that work crews were not driving the steel foundations deep enough. It was the first alarm about shallow sheet piles under the levee.

Despite the corps' recent insistence that 17th Street's foundations were properly designed at 17 feet below sea level, a National Science Foundation team of engineering experts has described the pile depths as inadequate.

By autumn of 1990, the Orleans board had also quietly hired Bruce Feingerts, a former aide to Russell Long, to lobby in Washington for levee expansion. Feingerts had discovered that the levees of Orleans and London avenues might win federal funding if he could persuade Congress to expand the coverage of the post-Betsy hurricane plan passed in 1965. Sens. Johnston and John B. Breaux agreed to help, Feingerts said, as did most of the state delegation.

When Senate and House versions of the 1990 Water Resources bill neared passage in October, Feingerts went into action.

Johnston recalled that former Louisiana Rep. Jimmy Hayes was the "point man" as a House manager for conference negotiations.

Now a Washington lobbyist, Hayes did not respond to interview requests. But a former aide, Rhod Shaw, said he often aided New Orleans projects and "would have been carrying whatever the delegation wanted."

The military engineers were "asleep at the wheel," Feingerts said. "If they had seen it coming, they would have blown a gasket." The final bill passed with his language intact: "The conferees direct the corps to treat the outfall canals as part of the overall hurricane project."

As new levee construction projects geared up at Orleans and London avenues, work crews at the 17th Street canal were struggling with construction obstacles. Unable to operate from the land side of the canal because property lines backed tightly up against the levee, construction crews had to maneuver by barge up the canal with a 300-foot crane to drive steel piles and raise the concrete wall.

Lakeview resident Bud Thaller stormed outside one day when his house began to shake violently. A levee crew driving foundations at 17th Street with a vibrating hammer had just struck a sandbar. The foreman shrugged when Thaller approached.

"He told me they were having a hard time getting the piles in," Thaller recalled.

Boh Brothers, a Louisiana construction firm, was the first of three companies to drive sheet piles under the levee walls. They were joined by concrete specialists, some working for the Orleans board, others hired by the corps and the sewerage board. A parade of inspectors and engineers also crowded over the site, so many that "it could get confusing," recalled Boh Vice President Dale Biggers, then a crew foreman.

The corps was always the final authority -- even overseeing the number of hammer blows used to drive in the sheet piles. But on any given day, crews also had to coordinate with state and city officials and inspectors for Modjeski and Masters, the levee board's design consultant. The question of who performed the inspections is crucial because engineering experts have had difficulty learning how on-site decisions were made.

"No one was in charge," said Raymond Seed, a UC Berkeley engineering professor leading a National Science Foundation inquiry. Seed's team has heard allegations that piles were deliberately shortchanged. The Justice Department is investigating.

Structural engineer Herbert J. Roussel Jr., who testified for a construction firm that sued the corps during one dispute, recalled Army engineers as dismissive: "The corps had an attitude problem. It was: 'We're the Army Corps of Engineers. We know what we're doing and you don't.' "

Levee board officials complained about excessive corps delays. "They were slow. We'd come up with a design, and the corps would always send them back," Boissiere said.

Army engineers raised their own complaints. Baudier's firm was removed as Orleans Avenue designer in 1992, accused by the corps of missing deadlines.

As sections of the flood walls were finished piece by piece through the mid-1990s, the levee board's emphasis turned to the mundane chores of grass-cutting and maintenance. That left ample time for board business that had little to do with flood protection.

Outside Interests

When lawyer Robert Harvey was installed as the Orleans district's president in 1992, the levee board was a recreation powerhouse. A year after Mississippi River floods swamped New Orleans in 1927, Louisiana political legend Huey Long had prodded the state Legislature to allow the Orleans board to expand its influence into parks, beaches and other "places of amusement."

By the late 1980s, the board operated an airport, two marinas and lakeshore rental properties, but the agency was hemorrhaging money. Leases went unfilled at the airport, and its South Shore Marina had too many vacant boat slips.

Instead of scaling back, Harvey accelerated the board's outside interests. The tough-talking lawyer won his post after contributing $5,000 to the 1991 campaign of Gov. Edwards, an old friend.

"It's a plum job," Harvey recalled. "Your connection with the governor is close. You have 300 employees, lots of contracts."

When Edwards pushed for state gambling -- a position that led to his federal corruption conviction in 2001 -- Harvey wooed the Bally's gambling empire to locate a casino boat at a dock owned by the levee board.

The boat brought in millions in gambling taxes, but other Harvey projects fell flat. A flirtation with film studios went nowhere. A series of probes by the state auditor found cases of financial mismanagement, conflicts of interest and risky investments. At one point, six attorneys were working for the board without formal contracts. And Harvey was accused by the New Orleans Metropolitan Crime Commission of padding the levee board payroll with old friends. The controversies took their toll. Harvey resigned in 1995, followed by an FBI probe of his levee board tenure. "They didn't find anything," Harvey said.

His successor, James P. Huey, waded into his own controversies. Huey's board hired his wife's first cousin, George Carmouche, as a lobbyist in Baton Rouge. After Katrina struck, the board sublet a Baton Rouge office from Carmouche. And Huey pocketed nearly $100,000 in back pay, failing to first obtain permission from state lawyers. He returned the money after resigning under pressure.

Huey, who did not respond to interview requests, is under investigation by state and federal authorities.

At the same time, the newly raised flood walls received haphazard scrutiny.

Harvey recalls staring jealously at East Jefferson Levee District's well-trimmed border of the 17th Street canal, then at untamed foliage and trees massed along the Orleans levee wall. "I'd look at the Orleans side and get depressed," he said.

Neither the corps nor the Orleans board had a rigorous program for scanning for structural defects. Instead, the two agencies joined twice a year for five-hour-long inspection tours. A caravan of officials would make random stops along the floodwalls. Sometimes corps officials issued citations. Then they would head out for long lunches.

"That was \o7always \f7on the agenda," said former Orleans commissioner Peggy Wilson.

On one tour, Wilson was joined by only one other levee board official. When they stopped briefly at the levees, corps officials seemed in a rush. "I kept asking them what I was supposed to look for, puddles of water?" she said. "They said, 'Oh, don't worry.' "

The agencies relied largely on maintenance crews and neighbors to flag levee problems. "If something structural came up, we'd tell the corps," said retired Orleans levee board crewman Ed Robbins.

But at 17th Street, corps engineers were a rare sight, recalled Eric Moskau, a commercial real estate agent who has lived near the flood wall since 2001.

"I'd just see them driving out near the walls," Moskau said. "I always wondered exactly what they did out there."

17th Street

When Katrina's swells blew out huge chunks of 17th Street's cement wall on the morning of Aug. 30, Harvey was prepared for disaster.

Years of interagency spats with the corps and his own engineers had left him a skeptic. He bought an inflatable rubber boat and stored it in the attic of his house near the 17th Street levee.

When floodwaters rose, Harvey dragged down his boat and began rescuing neighbors. "Nobody wanted to go into a starvation mode and pay for real protection in the halls of Congress," he said afterward.

Since 2001, the Bush administration had repeatedly turned down requests from the levee board and the Louisiana delegation for more flood protection.

When Katrina struck, Orleans Avenue's levee walls held firm. But when Walter Baudier, the levee's original designer, drove out with another engineer to the canal weeks later, he was stunned to find a 200-foot gap between the levee wall and the pump station. The wall was left unfinished because of the government's refusal to fund the project, according to the corps and levee officials. The gap allowed floodwater to flow freely into the city.

Near the breach at 17th Street, an 18-foot section of levee wall ended up in Moskau's living room. Displaced to Idaho, Moskau returned weeks later to survey the damage. He hiked over hardened mud, gaping at the two-block-long rupture. Crowds of red-shirted corps engineers swarmed nearby, directing repairs. There were more engineers, he realized, than he had seen in the four years he had lived near the levee.

"The government was just like everybody who lived near the levee," Moskau said later. "They took those walls for granted."

Times researcher John Beckham contributed to this report.

()

A history of the levees

September 1965

Hurricane Betsy sweeps over New Orleans, flooding the city's Lower 9th Ward. The Category 2 storm resulted in more than $1 billion in damage and at least 75 deaths.

October 1965

Congress authorizes a massive Army Corps of Engineers plan to strengthen New Orleans' flood protection. The corps proposes massive floodgates and barriers on the far end of Lake Pontchartrain to thwart storm surges from the Gulf of Mexico.

December 1977

A federal judge orders the corps to produce an environmental impact report on the barrier plan, a decision that leads the corps to abandon that proposal.

November 1984

The corps presents a scaled-down set of alternatives called the Lake Pontchartrain, La., and Vicinity High-Level Plan, which contains options to protect the city. The corps says it wants to build floodgates on the canals, but local officials want to raise the levee walls.

July 1985

The Orleans Levee District and the corps agree to work together on a flood plan.

November 1987

The corps reports that a scale-model floodgate has been tested in its hydraulics lab in Mississippi. The gate model failed initial tests but worked after it was modified.

August 1990

The Orleans levee board begins work on the 17th Street Canal levee without telling the corps.

October 1990

Congress orders the corps to begin raising the levees on the London and Orleans avenues drainage canals. Earlier in the year, the corps had agreed to raise the 17th Street Canal Levee.

May 2005

A corps report on the Lake Pontchartrain high-level plan indicates that construction work on the project is 90% complete but won't be finished until 2010.

August 2005

Hurricane Katrina rakes New Orleans, whipping up powerful storm surges that funnel in from Lake Pontchartrain. Floodwaters breach the 17th Street Canal and London Avenue Canal levees. Water spills through a 200-foot gap left in the Orleans Avenue Canal. More than 1,000 people die.

December 2005

The Bush administration announces it will permanently place barriers where the city's three internal canals connect with Lake Pontchartrain and relocate the city's pumping stations to the lakefront. The massive project is expected to cost $3.1 billion and provide protection against a Category 3 hurricane.

Los Angeles Times

GRAPHIC: GRAPHIC: New Orleans' levees (includes map of New Orleans) CREDIT: Los Angeles Times PHOTO: POLITICS: Former Gov. Edwin Edwards was one of many politicians who received donations from contractors who worked on the levees. PHOTOGRAPHER: Bill Haber Associated Press PHOTO: CORPS: Hurricane Katrina "simply exceeded the design capacity of the levee," says Lt. Gen. Carl A. Strock of the Army Corps of Engineers. PHOTOGRAPHER: The Vicksburg Post PHOTO: LONDON AVENUE: Workers examine the collapse of a levee wall in New Orleans. Steel foundations at London Avenue and 17th Street levees gave way to floodwater during Katrina. PHOTOGRAPHER: Robyn Beck AFP/Getty Images PHOTO: PREPARED: Robert Harvey, former president of the Orleans Levee District, helped rescue neighbors near the 17th Street canal after Hurricane Katrina. PHOTOGRAPHER: Carolyn Cole Los Angeles Times

LOAD-DATE: December 25, 2005

12. Sun-Sentinel (Fort Lauderdale, Florida), “NATURAL GAS PORT PROPOSED OFF COAST; FRENCH FIRM'S PLAN LIKELY TO FACE RESISTANCE,” December 17, 2005

88 of 687 DOCUMENTS

Sun-Sentinel (Fort Lauderdale, Florida)

December 17, 2005 Saturday

Broward Metro Edition

SECTION: LOCAL; Pg. 1A

LENGTH: 1089 words

HEADLINE: NATURAL GAS PORT PROPOSED OFF COAST;

FRENCH FIRM'S PLAN LIKELY TO FACE RESISTANCE

BYLINE: David Fleshler Staff Writer

BODY:

A French energy company plans to build a natural-gas terminal in the ocean

about 10 miles off Fort Lauderdale, in a proposal that would allow tankers the

size of aircraft carriers to deliver fuel to South Florida's power plants.

Suez, based in Paris, expects to file an application with the Coast Guard

in the next few months to build a complex of buoys, anchors, cables and pipes

to allow tankers to unload natural gas at sea. The gas would go via pipeline

to power plants, most likely in Broward and Miami-Dade counties.

Demand for natural gas has soared because it emits far less pollution than

oil or coal, the other major fuels for power plants. But the plan is likely to

face hard questions in South Florida, where previous proposals for natural-gas

pipelines drew protests over concerns about coral reefs, parks and public

safety. Recent proposals for offshore natural-gas ports near Massachusetts

have generated fierce opposition because they would reduce access to rich

fishing grounds.

The public will have several opportunities to comment in the coming months

as the Coast Guard prepares an environmental impact statement that will look

at the possibility of accidents, harm to marine life, explosions, terrorism

and other dangers. If Suez receives approval for the project, it expects to be

in operation by the summer of 2010.

Under the plan, called the Calypso Deepwater Port Project, Suez would

obtain natural gas in Algeria, Egypt, Trinidad or other exporters. The gas

would be cooled, transforming it to liquid that takes up a fraction of the

space of gas. Tankers 1,000-1,200 feet long -- the size of the Navy's

Nimitz-class aircraft carriers -- would haul it to the offshore port near the

Fort Lauderdale coast.

The port could handle two tankers at a time. Each would connect to a buoy

and turret that would allow it to rotate with the current and waves while

remaining securely connected. The tanker would heat the gas until it vaporized

and send into the pipeline to South Florida. It would take about a week for

each tanker to unload its gas.

Dan McGinnis, vice president for business development of Suez Energy N.A.,

based in Houston, said the port and pipeline would provide an alternative

source of natural gas to a fast-growing state that's dangerously dependent on

the Gulf of Mexico for energy. Currently two pipelines bring gas into the

state, both from the Gulf.

"What it does is give you greater supply security," he said. "If there's a

hurricane coming in the gulf, this will still supply you with gas."

Explosions at liquefied natural gas facilities are rare. In 1973 in Staten

Island, N.Y., liquefied natural gas storage tanks exploded, killing 40

workers. In 1998 in the central China city of Xian, a liquefied natural gas

plant exploded, killing 11 people. And in September, in Nigeria, a liquefied

natural gas pipeline exploded, killing 11 people.

The Coast Guard says the industry's safety record is excellent. And

McGinnis said the terminal's location in the open ocean would protect the

public.

"The best safety factor of these is they're located 10 miles off shore," he

said. "They've not located near population centers or on land."

Suez, provides electric power, produces natural gas and operates water

systems all over the world. Suez reported revenues of $35.7 billion for the

first nine months of 2005.

The proposal is the outgrowth of a previous plan for an undersea pipeline

to bring in natural gas from the Bahamas. Suez was one of three companies to

pursue such a plan, but the Bahamian government hasn't given final approval to

any of them. Tired of waiting, Suez is proposing an alternative that would

place the project entirely in U.S. jurisdiction.

The port would be built in 950 feet of water in the Gulf Stream, a powerful

current that flows north at speeds that can exceed 4 mph and generate

formidable waves.

Mark Prescott, chief of the Coast Guard's deepwater port standards

division, said the natural-gas port is a relatively new idea, although it

combines safe, well-tested technologies. The natural gas tankers have a long

safety record. So do deepwater ports, even in challenging environments such as

the North Sea, although they've generally been used to transport oil, not

natural gas.

Prescott said liquefied natural gas is too rich to ignite. If it spilled,

it would immediately heat up and vaporize, dissipating into the atmosphere.

The danger of an explosion or fire is remote, and even then the only danger

would be to the ships, he said.

"The safety record for transportation of liquefied natural gas is very

good," he said. "The vessels themselves have a long track record."

But the plan could face a fight.

"Judging by the number of oil rigs destroyed or adrift due to Katrina, the

industry does not appear to be able to make their structures stand up to the

increasing number of hurricanes," said Pedro Monteiro, Sierra Club Broward

Group conservation chair. "I have concerns about how Suez will bring the gas

to shore, and how they will ensure that the pipeline will not break free and

sweep the seafloor.

"Americans consume five times more energy than the average person," he

said. "The way to solve our energy problems is to waste less and to use clean,

renewable sources, rather than to increase our fossil fuel consumption."

Once the company submits its application, the Coast Guard will prepare an

environmental impact statement, a long process that calls for public hearings,

comment periods and consultation with other government agencies. The Coast

Guard will look at any danger to the public, the impact on marine life and

other issues. The Coast Guard will also establish the size of the exclusion

zone from which other vessels will be barred.

Aware that the port would have to weather rough waters, the Coast Guard

would press the company to prove the system could hold up.

"They are going to have to demonstrate that the vessel can safely maintain

anchorage under those conditions," Prescott said.

Under federal law, the governor of the state closest to a proposed

deepwater port can veto the project. Although someone other than Jeb Bush is

likely to be living in the Governor's Mansion when the time comes to decide,

Suez representatives have met with his chief of staff.

Russell Schweiss, spokesman for Bush, said the governor has not decided

whether to support the project. "The governor is interested in learning more

about it," he said.

David Fleshler can be reached at

dfleshler@sun-sentinel.com

954-356-4535.

GRAPHIC: MAP

MAP: Off-shore proposal: Locates proposed location of pipeline route and Deepwater port. Source: Suez Energy International. Staff graphic/Hiram Henriquez

LOAD-DATE: December 18, 2005

14. Federal Document Clearing House Congressional Testimony, “NATIONAL ENVIRONMENTAL POLICY ACT: LESSONS LEARNED AND NEXT STEPS,” November 17, 2005

121 of 687 DOCUMENTS

Federal Document Clearing House Congressional Testimony

November 17, 2005 Thursday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 7957 words

COMMITTEE: HOUSE RESOURCES

HEADLINE: NATIONAL ENVIRONMENTAL POLICY ACT: LESSONS LEARNED AND NEXT STEPS

TESTIMONY-BY: NICHOLAS YOST, PARTNER

AFFILIATION: SONNENSCHEIN, NATH & ROSENTHAL, LLP

BODY:

Statement of Nicholas Yost Partner Sonnenschein, Nath & Rosenthal, LLP

Committee on House Resources

November 17, 2005

Introduction. Rep. Cathy McMorris (R-Wash.), the Chairwoman of the House NEPA Task Force, said, "If we can make [the NEPA] process more timely and more efficient, I think that would be a win." I agree. In order to streamline NEPA -- to reduce delay while preserving the benefits of the law -- there are steps that can legitimately be taken. As you will see, I make specific proposals to reduce delay, which include:

--time limits on the NEPA process

-- two potential mechanisms

--implementing NEPA early in the approval process

--concurrent agency reviews

--getting cooperating agencies to cooperate

--adequate resources

--well-trained and decisive agency personnel

--top down direction to expedite

--early assurance of legal compliance

--availability of agency headquarters personnel to expedite NEPA process

--regular meetings among those responsible for the NEPA process

--getting the right level of NEPA documentation

--maximum coordination with State mini-NEPAs, and

--expediting judicial review, including;

-statutes of limitations,

-expediting preparation of the administrative record,

-priority for NEPA suits, and

-the joinder of NEPA and comparable state claims.

There are also other measures which it would be a mistake to adopt, which would gut NEPA rather than streamline it. Specifically:

--Congress should not exempt actions from NEPA.

--Congress should not eliminate or reduce the obligation to consider alternatives.

--Congress should not squeeze the public out of the NEPA process.

--Congress should not curtail judicial review.

Throughout I respectfully suggest that we keep in mind the original intent of the drafters. The Senate's lead author, Henry Jackson of Washington, characterized NEPA as "the most important and far-reaching environmental and conservation measure ever enacted." The ranking Republican, Gordon Allott of Colorado, called it "truly landmark legislation." The lead House author, Congressman John Dingell of Michigan, stressed that "we must consider the natural environment as a whole and assess its quality continuously if we really wish to make strides in improving and preserving it." President Nixon chose January 1, 1970, to sign NEPA into law -- as his first official act of the new decade. In Senator Jackson's words,

The basic principle of the [national environmental] policy is that we must strive in all that we do, to achieve a standard of excellence in man's relationship to his physical surroundings. If there are to be departures from this standard of excellence, they should be exceptions to the rule and the policy. And as exceptions they will have to be justified in light of the public scrutiny required by section 102.

I would respectfully suggest that we would do well to continue to be guided by the framers' words. In this presentation I will address the issues confronting the Task Force as follows:

(1) the question whether there is unwarranted delay in the NEPA process; (2) the causes of that delay;

(3) measures that can be taken to reduce delay and otherwise streamline the NEPA process, and; (4) discussion of the measures that should not be adopted in the name of streamlining NEPA, measures which would instead undercut the act to the detriment of the nation's environmental protection.

Throughout I should emphasize that as General Counsel of the Council on Environmental Quality I was the lead author of the Federal Government's CEQ NEPA Regulations, which remain in effect a quarter century later after five Presidents with only one amendment to one section. I strongly believe that NEPA and its basic message -- look before you leap environmentally -- serves the American people immensely well. This statute has been an environmental success story. It has been replicated in about half our states, and having served as the model for environmental impact assessment legislation in more than 100 countries, it may be the most imitated American law in history. However, I should also add that I have spent much of the last twenty years assisting clients through the NEPA process and have had my own share of frustrations with unneeded delay in that process. The goal should be to cut the fat but not the muscle.

1.Is there a problem with delay under NEPA? In many cases there is for the reasons I set out below. My impression is that such delay is most often associated with applicant-sponsored projects (when timeliness may be critical) as distinct from agency- sponsored ones, where timeliness is often less urgent, such as with respect to long-term actions involving planning.

--By way of anecdotal example, a principal in a highly regarded consulting firm told me of a draft EIS he had prepared for an agency within the Interior Department that had been sitting on an agency official's desk for 3 months awaiting review and that the official had said it would be another 3 months before she could get to it._ I happen to know the agency official, and she is a highly competent, responsible professional, but her workload is overwhelming. It is, however, the applicant to the government whose project is the subject of the EIS who suffers.

--By way of a more pervasive illustration of delay, a couple of years ago the Federal Highway Administration set a goal of reducing its median Environmental Impact Statement (EIS) preparation time from 4 '/2 years to 3 years, and its Environmental Assessment (EA) preparation time from 1 "/z years to 1 year. While admirably intentioned and while the FHWA has been a leader in addressing issues of delay under NEPA, even the goals appear to me to assume excessive time. The President's Council on Environmental Quality (CEQ), the agency charged with overseeing NEPA's implementation throughout the government, has issued guidance saying that agencies' EISs should not take over one year to prepare and process and EAs not more than three months. These are far shorter times than the goals the FHWA has set for itself.

2.What is responsible for delays in the NEPA process?- I would suggest several answers:

--Lack of deadlines. The absence of time deadlines, milestones, and schedules in many NEPA processes enables delay. As I will discuss, I think this the single most important deficiency to be addressed.

--Lack of determination. The simple lack of drive within agencies to do what is necessary to complete the process in a reasonable amount of time. I will return to this subject later, but the lack of command direction to move the process rapidly is critical.

--Lack of resources. Quite simply, if the agency personnel aren't there, they can't do the job in a timely fashion. A 2002 study (Smythe and Isber, NEPA in the Agencies-2002) stated that the Army Corps of Engineers cut its Headquarters environmental staff from 12 to 3; the Department of Energy cut its comparable staff from 26 to 14; and the Environmental Protection Agency reduced its headquarters NEPA staff by 20% over a 10 year period. Fewer staff members to do the work -- any work-- will mean that it takes longer to do it. The ones who suffer from the Federal staff shortages are the private businesses or the State or local governments or Indian Tribes which are trying to move projects through the Federal process.

--Fear of litigation can lead to an overcaution which can lead to delay. I should emphasis that this fear is more a matter of perception than of reality. In fact only a small proportion of NEPA actions result in judicial challenges, and experienced agency NEPA counsel can make informed judgments as to which actions are potentially vulnerable and which are not, thereby eliminating needless delay associated with excessive time on non- problematic matters. Each year approximately 450 EISs and 45,000 EAs are prepared on Federal actions. (The EIS numbers cover both Draft and Final EISs, so the number of actions

represented is approximately half the total number.) In the last year for which CEQ has made public statistics on NEPA litigation dispositions (which it assembles in collaboration with the Justice Department) -- 2004 -- 156 NEPA cases were filed, and in only 11 of those cases did the judge grant an injunction. In 2002 150 NEPA cases were filed, and injunctions were issued in 27 of them. In 2003 128 NEPA cases were filed, of which 6 resulted in injunctions. By way of larger comparison, in that same year, 2004, 281,338 civil cases were filed in the U.S. District Courts. During the same year 998 cases were filed in District Courts involving environmental matters. Of these, 548 involved private parties only (i.e., not the U.S. Government), and of the balance, which involved suits to which the United States was a party, the government was the plaintiff in 171 cases and defendant in 279.

Environmental cases therefore represent a miniscule portion of the Federal court caseload, and NEPA cases a modest part of even that small fraction. In summary, with respect to NEPA actions and NEPA litigation, taking the average number of NEPA documents filed annually and the 2004 NEPA injunction figures, a 99.97% rate of NEPA actions successfully completed without injunctions does not provide a factual basis to prompt an excessive caution on the part of agency personnel. Even looking at the relatively modest number of NEPA cases filed, in 2004 in 93% of them the judge did not issue an injunction. Federal judges on the whole use good judgment and do not act in unwarranted manner.

--Lack of cooperation by other agencies can contribute to delay. In NEPA's early days the agencies charged with safeguarding natural resources and environmental protection (typically the Environmental Protection Agency, the Fish and Wildlife Service, and what was then the National Marine Fisheries Service (now NOAA Fisheries)) were sometimes perceived as withholding their contribution while an EIS was being prepared and then, when the time came for public comments, castigating the lead agency for an inadequate job and requesting that the document be redone. In an effort to turn this adversarial -- and time consuming -- interaction into a more constructive approach, CEQ in its 1978 NEPA Regulations devised the concept of "cooperating agency," requiring agencies not to withhold their input until the comment stage, but to get involved early on when the EIS was being prepared, contributing their expertise to it and even taking the lead on the portions on which they had a special knowledge. Everybody benefited -- the lead agencies and project proponents saw a constructive collaboration instead of an adversarial comment process. Project proponents also saw objections to their proposals being surfaced early in the process, so they could be evaluated and the project adapted to reflect meritorious objections, ultimately saving time. Those concerned with the environment saw their concerns being interjected into the NEPA process early on, with an EIS reflecting a fuller range of environmental inputs and values, rather than being treated as an add-on at the end.

However, it is fair to say that this emphasis on cooperation needs constant oversight and consistent reinforcement: The natural tendency of agencies to hold off their involvement and husband their resources must be resisted. Top down direction from the highest levels of the Executive Branch to participate in working through the NEPA process -- not avoiding environmental allegiances and responsibilities, but embracing them by insistence on the early involvement of the resource agencies -- is vital. To emphasize -- the purpose is not to silence those agencies -- quite the opposite, it is to ensure their meaningful contribution by insisting on their early involvement.

--Difficult substantive areas. Some environmental problems are complex and -- often quite apart from NEPA -- take time to figure out how wisely to deal with them. Examples include:

Air quality conformity. Under the Clean Air Act Congress has provided that EPA adopt national air quality standards which stand as healthy air goals for all Americans. States are then charged with devising State Implementation Plans (SIPS) setting out the steps to be taken in that state to attain those goals. In an appropriate effort to ensure that Federal agencies do not by their own actions within a given state subvert that state's planning, Congress has also provided that Federal agencies' actions must "conform" to the state's SIP. Such conformity often leads to hard choices, such as how to offset an increase in air emissions -- which may be time-consuming.

Wetlands. Congress has provided that permits must be obtained to dredge or fill "waters of the United States." More particularly, wetlands are safeguarded in part by requiring that there can be no fill when there is an upland (i.e., non-wetland) alternative available. This is an "alternatives" requirement independent of NEPA, and it is one which imposes a substantive requirement -- you must avoid the wetland if there is another, upland alternative available. Additionally, both Presidents Bush and President Clinton have followed a policy of "no net loss" of wetlands -- if you fill a wetland, you must create or foster a wetland elsewhere. This leads to a hunt for suitable sites, sometimes using a so-called "mitigation bank," which can also take time.

Section 4(f). Similarly in section 4(f) of the Transportation Act, which applies to transportation facilities -- most commonly highways and airports -- Congress has provided that the agency must pursue alternatives which avoid parks and historic structures. Again -- Congress had created an alternatives requirement independent of NEPA, and one with real bite.

Indirect impacts. Sometimes the most consequential environmental impacts are not the most immediate ones. For instance, when a new highway is built in an undeveloped area, there will be immediate impacts as part of the construction, typically involving noise and dust. Then there will be the impacts of operating the highway once it is built -- again noise and the air emissions of the vehicles using the road. And, in an undeveloped area, there will be still further impacts as the highway opens a new area to development. These so-called "growth-inducing" impacts may be a good thing -- that may be precisely why the highway was built -or they may not be -- the inadvertent consequences of a highway built for other purposes. But NEPA at minimum requires that these impacts be examined such that the public can be aware of and responsible authorities can plan for what is to come. The analytical work of Federal agencies is made available to the affected local government.

Cumulative impacts encompass another set of effects that NEPA examines. For instance, if the Department of Veterans Affairs were building a hospital for the nation's veterans on a road that could just accommodate the traffic of the patients coming to the hospital, and simultaneously the local government was approving a Home Depot across the street, which would also generate considerable traffic, NEPA's cumulative effects analysis will alert everybody concerned that there is a problem. NEPA doe's not solve the problem, but it provides the occasion and the traffic data which will lead the Federal agency and the local government and perhaps the state highway agency to sit down together and figure out what is necessary to deal with the problem of the cumulative impacts of the combined effects of the new hospital and the new megastore. Future traffic jams are averted.

Cumulative impacts consist of past, present, and reasonably foreseeable future impacts of the same type. (40 CFR 1508.7). For instance, the FHWA in preparing an EIS on a highway into a newly developing valley (with its attendant air and noise impacts) in analyzing the capacity of the highway will need to analyze the past impacts (e.g., the number of people and destinations already in the valley), the present proposals (e.g., any new projects which are the immediate occasion for building the highway), and the "reasonably foreseeable" future projects (e.g., other developments which are known to be planned for the valley). Only through an accurate analysis of cumulative impacts will the agency be able to get a complete picture of what is in store for the valley in terms of traffic, air, and noise and so that the highway can be appropriately sized.

Often an agency simply does not follow the law, creating problems for itself. I know you have heard testimony -- often conflicting -- about a NEPA case in the 1970s against the Corps of Engineers in New Orleans involving flood control issues. I have no personal familiarity with that case, but in the 1980s I was privileged to represent the State of Louisiana in NEPA litigation against the Corps of Engineers over the dredging of oyster shell reefs -- which act as a natural barrier to coastal erosion -- off the Louisiana coast. The Corps, having found that the impacts of the dredging were "significant," still refused to prepare an Environmental Impact Statement analyzing the impact. In order to safeguard its coast, the State of Louisiana had to go to court to prevent the Corps from flaunting the Congressional command. The State was successful in the U.S. Court of Appeals for the 5t' Circuit in New Orleans in enforcing NEPA. State of Louisiana v. Lee, 758 F.2d 1081 (5"' Cir. 1985). In brief, agency recalcitrance in following the law can be and is itself often a cause of delay.

I set out these examples -- some of which arise under NEPA and some under other Congressional enactments -- as only that -- examples chosen from among many to illustrate that there may be complex environmental issues to resolve and what takes time is not necessarily NEPA but the reality of people working together to solve complex problems. ( See the excellent testimony presented before the Task Force by Thomas C. Jensen, Chairman, National Environmental Conflict Resolution Advisory Committee, on the importance of collaborative decision making.)

3.What can be done to reduce delay?

--Time limits. Agencies must be encouraged -- perhaps directed -- to set time limits on the NEPA process (and on individual aspects of the process). If delay is the issue -- and it often is -- then time limits are the one answer that directly addresses and reduces the problem. >With precisely that in mind, when CEQ adopted its NEPA Regulations it provided that an agency must, when requested by an applicant, adopt time limits. 40 CFR 1501.8. ("The agency shall set time limits if an applicant for the proposed action requests them . . . .") (The full text of 1508.8 is set out as Attachment A to the presentation.) At the same time CEQ did not impose a single universal time limit because the various actions to be evaluated differ so much in their magnitudes. For instance, it simply takes more effort and time to evaluate a TransAlaska Pipeline than it does to examine a single Interstate highway interchange.

That said, the provision has been grossly underutilized, largely, I believe, because applicants are reluctant to antagonize agencies by exercising their right to demand that time limits be set.

As one trade association from the aviation industry put it in urging reform in agency implementation of NEPA, the agency procedures could "instill greater urgency in the process if it integrated words such as 'schedule,' and 'milestones' and 'deadlines' into the process . . . ." (Comments submitted by Airports Council International - North America to FAA (2004).)

By way of constructive example, the FHWA, as part of its "Vital Few Environmental Goal," has adopted a policy of "negotiated timeframes" to expedite the NEPA process. The new Safe, Accountable, Flexible, Efficient Transportation Equity Act will accelerate that process.

I believe that new innovations are needed to emphasize time limits. Let me make two suggestions for dealing with the very real problem of delay (which are not mutually exclusive):

(a) The most direct solution would be to require the adoption of presumptive time limits, through CEQ or legislatively, such that EISs are required to be completed in a discrete period of time absent special circumstances warranting lesser or greater time periods. For instance, either CEQ could impose by Regulation or Congress could impose by law a set of 3 or 4 presumptive time limits for the NEPA process (for EISs; same could be done for EAs). (Or, either CEQ or Congress could require each agency to prescribe such categories). Category A might involve 10 months for an EIS process (running from the Notice of Intent (NOI) through the Record of Decision (ROD)); Category B 15 months, and so on. At the outset of the process, perhaps as part of scoping, the lead agency would (in consultation with the applicant (if any) and with agencies with jurisdiction by law or special expertise, and in the case of actions with the potential for controversy, the public), assign the action to one of the time limit categories. Some sort of flexibility for unforeseen circumstances or unusual situations would be needed, but as a general rule those affected by the NEPA process will have a predictable schedule for the completion of the process. The fact of having a time limit will drive the process. This is the single most important measure needed to reduce delay.

(b) Alternatively or additionally Congress could repeat the approach it has recently adopted in the newly enacted "Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users" (SAFETEA). This year Congress enacted and the President signed legislation which contains detailed and well- considered provisions for expediting the NEPA process for transportation projects. 23 U.S.C. 6002. There is no reason why those provision -- already considered and adopted by Congress -- could not be adapted to non-transportation projects. (It should be noted that there are some provisions in the SAFETEA which do not lend themselves to replication for all other activities subject to NEPA. For instance, the Act allows the lead agency to develop the preferred alternative to a higher level of detail than other projects (23 U.S.C. 6002(8)(4)(D)), which is generally not a good idea because it tilts the decision making prematurely in favor of the particular, preferred alternative.) In general those provisions, under the statutory title, "Efficient Environmental Reviews for Project Decision making" (Id.) direct the Secretary (of Transportation, but that can be adapted to other agencies) to take charge of an interagency NEPA process and establish a schedule for the completion of the environmental review process for the project under consideration. 23 U.S.C. 6002(g)(1)(B). To ensure that other laws and the agencies charged with their implementation do not take time beyond the NEPA schedule, the law provides that the Secretary is to deliver a progress report to the relevant Congressional Committee (in the SAFETEA the Senate Committee on Environment and Public Works and the House Committee on Transportation and Infrastructure) on the occasion of the later of 180 days after the application was submitted or the date on which the Secretary made all final decisions on the project. Additional reports are due every 60 days.

Implementing NEPA earlier in the approval process. Insofar as NEPA's consideration of environmental matters is integrated early in an approval process - - as distinct from being an add-on at the end - - NEPA takes less time, and the values it represents are better integrated into the action being taken.

CEQ has long emphasized this goal (40 CFR 1500.5(a), 1501.2), but the mandate needs constant reinforcement.

Concurrent reviews. Often many Federal agencies have a say in a project's approval process. It is essential that these agencies undertake their environmental responsibilities concurrently rather than sequentially. That cuts down on delay.

CEQ has also tried to make this happen (40 CFR 1502.25, 1500.5), but consistent insistence is needed.

--Getting cooperating agencies to cooperate. Insofar as agencies other than the lead agency have either special expertise or jurisdiction by law, they too have a role to play in the NEPA process (NEPA, 102(2)(C); 40 CFR 1501.6 and 1508.5). Any tardiness in their taking action has the potential to delay the whole process.

CEQ has recently and quite laudably spent considerable effort in making the cooperating agency concept work well.

In many cases, resource shortages (discussed below) play a role in cooperating agency contributions to delay (which can be alleviated if the lead agency augments the resources available to the cooperating agency). SAFETEA specifically provides for transportation funds to be made available to State agencies and Indian Tribes which are participating in the environmental review process for activities which contribute to expediting and improving transportation planning and project delivery.

That said, facilitating and expediting the cooperating agency role has promise for accelerating the whole process.

--Adequate resources. As I noted above, no job can be performed if there are not adequate personnel assigned to do it.

The expedition with which an agency undertakes its NEPA responsibilities is often directly proportional to the availability of experienced staff to undertake and complete the job promptly.

By way of illustration of action to reduce delay, the Federal Aviation Administration (FAA), an agency with an exceptionally high success rate in defending its NEPA documents in court, acting in response to the Department of Transportation FY 2003 Appropriations Act and to the requests of affected airports brought on 44 more personnel - - 31 environmental specialists and 13 lawyers -with the avowed purpose of cutting delay. That was a constructive step.

I am fully aware that resources are in short supply these days -- that the many demands on the Nation's exchequer, both foreign and domestic, from Iraq to Katrina, diminish the prospect of additional resources. But that recognition does not make the problem go away. If there is nobody thereto do the job, the job doesn't get done, whether the job is NEPA implementation or any other function. In some measure, particularly with projects for which there is a project sponsor, this lack of resources can be addressed by having the project sponsor pay the cost of environmental review. For the sponsor that additional cost may well be dwarfed by the cost of delay. It is to everybody's advantage to allow sponsors to advance the cost of evaluating these applications, understanding, of course, that expedited analysis does not guarantee approval but rather only rapid evaluation. Congressional authorization would make clear that agencies can accept funds for this purpose._

By way of example, some agencies choose to rely in part on outside private contractors to prepare NEPA documents under the supervision of core agency staff. (40 CFR 1506.5). Under so- called "third party contracts" the agency may select and supervise the consultant, but the applicant -- whose interests are furthered by prompt action -- foots the bill. This works to mobilize the resources necessary to do the job promptly, especially when the agency lacks sufficient experienced personnel. It internalizes within the project cost the external cost of environmental evaluation.

--Well-trained and decisive agency personnel. The FAA, an agency with a particularly high record of success in court with its NEPA documents, says quite simply: "A highly skilled FAA EIS project manager is the greatest asset for a successful EIS." FAA, Best Practices Guide (in my experience the single best guidance put out by any Federal agency on expediting the NEPA process.) I would suggest several attributes that are needed for agency personnel to deal effectively with and appropriately expedite the NEPA process: >They must be trained such that they produce or review NEPA documents that fully implement the law's intent, that protect the public, and that will withstand legal challenge.

They must -- and this is difficult to legislate or to mandate, but is exceedingly important -- have the capacity to make decisions, to say "yes" as well as "no" (or "I need more information"). There must be agency incentives built in for agency officials to move quickly and decisively.

There must, as I said earlier, not only be qualified, decisive personnel, but there must be enough of them. (Generally see CEQ, The NEPA Task Force Report to the Council on Environmental Quality, Modernizing NEPA Implementation (Sept. 2003) for detailed recommendations prepared by experienced practitioners within the Federal government concerning how better to make the internal process work more smoothly.)

--Top-down direction to expedite. There must be command direction from above - within both the lead and cooperating agencies - to move the-NEPA process expeditiously. Wholehearted implementation of NEPA's mandates is essential, but timelines are also a vital ingredient of a successful process. (The newly-enacted SAFETEA, President Bush's Executive Order 13274 (Sept. 18, 2002), and guidance promulgated by DOT, the FAA, and the FHWA provides worthwhile examples of such top-down direction to expedite.)

--Early assurance of legal compliance. Delay can come from either an overreaction due to fear of litigation, which stymies decisive action, or from sloppy environmental analysis which results in having to go back and do the job over. Doing it right -- and legally -- saves time. A stitch in time does save nine. As the NEPA process progresses, an agency should be having its legal staff, which must be experienced with NEPA litigation and associated other environmental requirements, consistently giving prompt advice on what is needed for an adequate NEPA document -- neither too much nor too little. Again to quote an aviation industry reform proposal, what is needed by the agency are "procedures for very fast decisions by experienced litigators on legal risk associated with time-consuming elements of NEPA analysis...... (Airports Council International comments.) Quite simply, it is possible accurately to forecast the litigation vulnerabilities of a NEPA document and remedy the deficiencies to reduce those vulnerabilities (and at the same time to see that useless time and effort is not devoted to detailed study of issues not critical to the decision). I have participated in the preparation of many NEPA documents representing applicants (including among others energy companies, highway builders, land developers, airports, and Indian Tribes), and no document on which I have worked has ever been overturned by a court. It can be done. There is no trick. The message is to follow the law and the regulations faithfully. That will serve the law in the manner that Congress intended. Experienced NEPA litigators sometimes get the feeling that much of the carping about NEPA comes from those who have done inadequate jobs in preparing NEPA documents and would like to blame somebody else -- or the statute itself -- when their work is found unacceptable.

To the extent that agencies do not have qualified NEPA lawyers with litigation expertise available in house, the agencies could be required to consult with the U.S. Justice Department prior to finalization of NEPA documents in potentially controversial cases. It is, after all, the lawyers of Justice's Environment and Natural Resources Division who will ultimately be defending these NEPA documents in court. If they are afforded the opportunity to review the documents before their finalization (rather than after a potentially inadequate document has been finalized and becomes the subject of a lawsuit), much aggravation and delay can be headed off. Of course, time limits would be needed for DOJ review (as for every other part of the NEPA process).

By way of analogy, in the Carter Administration all Justice Department NEPA pleadings were reviewed by CEQ's legal staff to ensure consistency throughout the government and to ensure the views of the client agency responsible for interpreting NEPA were brought to bear as Justice crafted its pleadings (rather than simply reflecting the views of the agency being sued). CEQ was given a 48 hour turnaround to transmit its views to Justice. This salutary practice has not been followed, unwisely, I believe, by subsequent administrations.

--Headquarters personnel available to step in to expedite. Different agencies have different organizational means of doing their business, which is totally appropriate. But to the extent that an agency relies on a regional or district office to do its NEPA work, having somebody -- informed, empowered, and decisive - - at the headquarters level to whom recourse can be had to break logjams and get a project moving is extraordinarily helpful. -- Regular meetings. With complex projects no mechanism works more effectively to move the project along and to involve all the agencies which will ultimately be involved in the permitting than regular meetings -- usually led by the lead agency -- to set and achieve milestones and to evaluate progress.

I have personally been involved in such sets of meetings in projects ranging from a successfully completed expansion of the Philadelphia International Airport to a land development on the Potomac River in Maryland. This system can and does work. >The dynamics of every agency having to show progress every month -- to show what it has done, to state what further information it needs -- function to make projects move at a rapid clip.

That said, such meetings are resource-consumptive and are best used for complex projects with the potential for controversy. Needless to say, assigning a high priority to such projects -- which may be most appropriate given their importance - does result in less priority for the other projects.

--Get the right level of NEPA documentation. As you know, there are three possible levels of NEPA documentation - (1) a Categorical Exclusion (which, for a qualifying project -one of a type found by the agency (with the approval of CEQ) not to have significant environmental impacts either individually or cumulatively -- simply says no more NEPA documentation is needed); (2) an Environmental Assessment (EA) (which is supposed to be a brief study to see if a more extensive EIS is needed and which also functions, in the vast majority of cases, as the mini- analysis which is the only NEPA document and which builds environmental factors into decision making; and (3) an Environmental Impact Statement (EIS) (which is the most thorough analysis required under NEPA -- reserved by Congress for those proposals which may significantly impact the human environment). Getting the appropriate level of NEPA documentation right is important -- both to avoid a more complex, lengthier process than the action warrants, and, conversely, to be sure there is adequate analysis such that it will not be necessary to come back and start over.

Current agency practices are widely disparate. For instance, in one year the Federal Highway Administration categorically excluded 90% of its projects, prepared Environmental Assessments /Findings of No Significant Impact (EA/FONSI) on 7%, and EISs on 3%, while the Corps of Engineers prepares 75 to 100 EISs each year and 4,400 EAs, and the Department of Energy prepared 11 Final EISs and 49 EAs over a 2 year period.

Opportunities exist for improvement. For instance, the Food and Drug Administration used to require an Environmental Assessment for each new drug before it came on the market. This involved several hundred thousands of expenditure and several months delay in making the drug available to the public. The primary purpose of an EA, of course, is to determine whether an EIS is needed. Over many years in only one case did the FDA decide such an EIS was warranted (and adopted one prepared by another agency). That record established a firm basis on which the FDA was able to broaden its categorical exclusions to most new drugs. In brief, actual experience over a period of years showed a lack of significant environmental impact and therefore supported broader categorical exclusions.

--Insure maximum coordination with State NEPA analogues. About half of the states have some sort of statute or order based on NEPA, and a smaller number of these states have analogous laws whose reach is more pervasive than NEPA, including Chairwoman McMorris' home state of Washington and Chairman Pombo's and my home state of California. Many actions will be subject to both laws. Duplication can be avoided if the Federal and State (or local) agencies collaborate to prepare one document to comply with both laws. The CEQ NEPA Regulations require exactly that on behalf of Federal agencies. 40 CFR 1506.2. And, indeed, I drafted a comparable state provision for the Council of State Governments which became part of the Council's suggested model legislation and which was adopted by a number of states. Still -- agencies often avoid such cooperation. A firmer push to make them collaborate would be helpful.

I should note that some of the State enactments are considerably more demanding than NEPA. For instance, the California Environmental Quality Act (CEQA) requires not only identifying potential mitigation, but substantively adopting it to remove all significant impacts as a condition of project approval. California's "little NEPA" includes the provision that:

The Legislature finds and declares that it is the policy of the state that public agencies should not approve projects as proposed if there are feasible alternatives or feasible mitigation measures available which would substantially lessen the significant environmental effects of such projects, . . . .

Cal. Public Resources Code 21002. Also see the provisions from Massachusetts (Mass. Gen. Laws ch. 30, 61, requiring "a finding that all feasible measures have been taken to avoid or minimize said impact.") and New York (N.Y. Envtl. Conserv. Law 8-0109(8), requiring a finding that "adverse environmental effects identified in the environmental impact statement will be minimized or avoided"). These State requirements go well beyond NEPA in their requirements for the protection of the environment, but with flexibility Federal managers and their State and local counterparts can work successfully to meld the processes under both Federal and State laws. From the point of view of an applicant who must comply with both acts anyway, one process and one document is more efficient than two. --Expediting judicial review. As I discuss later, judicial review is essential to NEPA's effectiveness and should not be curtailed. That said, there are good reasons for expediting that judicial review. Potential measures include:

Statute of Limitations. NEPA has no statute of limitations -- no period within which judicial challenges must be filed. Many courts look to the general statute of limitations for civil suits against the United States, which is six years. The vast majority of NEPA actions are completed well before that time. Some agencies, however, have in their own authorizing legislation statutes of limitations for any challenge against the agency's action which then function as NEPA statutes of limitation. For instance, all actions challenging an Order by the FAA must be brought within 60 days. An action to challenge the decision of the Secretary of the Interior to take land into trust for an Indian Tribe must be brought within 30 days, which similarly equates to a NEPA statute of limitations. The newly enacted Safe, Accountable, Flexible, Efficient Transportation Equity Act provides a 180 day statute of limitations for transportation projects. My own State, California, has a 30 day statute of limitations for its NEPA analogue, the California Environmental Quality Act (CEQA). My own impression is that this relatively short statute does not imperil the opportunity for judicial review in that litigation under CEQA is both more frequent and more successful than that litigation under NEPA. I should note, however, that those experienced in working with citizens' groups in litigation make the valid point that it often can take such groups more than 30 days to get their acts together to bring a lawsuit. Finally -- a note of practicality. Judicial review under NEPA is "administrative record review," which is to say the judge usually does not take testimony or receive evidence but rather reviews the administrative record that was before the agency to see that it took a "hard look" at the environmental consequences of its proposal. That means there can be no judicial review until the administrative record (discussed below) -- often many thousands of pages -- is compiled by the agency. That usually is not completed within 30 days, so a statute that short is probably not practically effective in reducing delay. A statute in the 90 to 180 day range would be more realistic.

Administrative Record. I should add that expediting that compilation of the administrative record -- which is within the authority of the preparing agency, working with the Justice Department -- is an essential part of expediting judicial review. Specifically enabling the agencies to call upon applicants for assistance in expediting compilation of the administrative record would be a useful step (perhaps coupled with a provision ensuring that applicants can participate in the litigation affecting the future of their projects).

Priority to NEPA suits. Both District Courts and Courts of Appeal have dockets to manage and must assign priorities. Congressional direction to give priority to NEPA cases will expedite the disposition of those cases. California has such a legislative requirement for priority to CEQA cases. (It is worth noting, however, that the judiciary can be expected to oppose such a measure, preferring to control its own dockets.)

Joinder of NEPA and comparable State claims. In those states which have their own environmental impact assessment laws, the possibility exists for two judicial reviews -- in Federal court and in State court -- of what may be one document prepared to comply with both laws. There is no reason for a plaintiff to have two judicial bites at the apple. One makes sense. Two does not. While a State court lacks jurisdiction to apply a Federal law, such as NEPA, against a Federal agency, a Federal court can, using the concept of pendant jurisdiction, hear both the NEPA claim and the related State claim. While I am convinced this can happen under existing law, a Congressional clarification -- even encouragement -- would be useful.

Measures that should not be adopted to reduce delay.

I have discussed at length measures that can and perhaps should be adopted to reduce delay in the NEPA process. There are also other measures -- some embodied in legislative proposals -which should not be adopted to deal with issues of delay. These proposals cut not fat but muscle. They imperil NEPA and all the good that it does.

--Congress should not exempt actions from NEPA. A proposed action either does or does not significantly impact the environment. If it does not, under existing law no lengthy studies are needed. If the action does significantly impact the environment, that is what NEPA is there for. There is no reason to exempt actions from the scrutiny Congress has so wisely otherwise ordered.

--Congress should not eliminate or reduce the requirement to examine alternatives. The alternatives analysis is what NEPA is about -- looking for better ways of doing things, usually both enabling a project proponent to pursue its goal, but at the same time forcing a search for reasonable alternative means of accomplishing it. "Reasonable alternatives" is existing law -- no more and no less. To look at no alternatives or to look at fewer than "reasonable alternatives" or to focus on one alternative and skimp on others is to negate what NEPA is all about -- the search for better, less environmentally intrusive ways of doing things. For instance, you can build a highway, but look for the alternate route that avoids an endangered species habitat. You can meet an energy need, but find the least polluting alternative means of doing so. Alternatives are the heart of NEPA and should not be curtailed.

--Congress should not squeeze the public out of the NEPA process. The public plays a major role in the NEPA process -- commenting and suggesting and otherwise exercising its opportunity to make the Federal government more responsive to citizen concerns. NEPA, after all, provides the most conspicuous example of when the Federal government must explain the consequences of its actions to its citizens before undertaking those actions. And - - those citizens, often closer to the on-the-ground impacts that are to be evaluated than a geographically remote official or consultant, can have real-world observations to make which can beneficially influence the decision. Measures which are designed to exclude the public or to create time schedules which do not allow for meaningful public involvement further estrange the American public from those in Washington who are its servants. The public's role should not be curtailed.

--Congress should not curtail judicial review. Currently the courts -- as commanded by the U.S. Supreme Court -- review Federal agency actions under NEPA under the highly deferential "arbitrary or capricious standard," which gives the agency the benefit of the doubt. This opportunity for judicial review should not be curtailed. Congress, after all, provided no alternate enforcement mechanism for NEPA. Only judicial review under the Administrative Procedure Act (the same statute under which most Federal agency action is reviewable) insures the enforcement of NEPA. If judicial review were not there -- and in the absence of creating some gargantuan independent Federal bureaucracy to oversee the adequacy of other agencies' NEPA documents -- NEPA would be unenforced and would wither away. To remove or curtail judicial review would be to remove or curtail NEPA itself.

Conclusion and Summary

In conclusion, I suspect some of NEPA's critics treat the statute as the proverbial bearer of bad news with the "shoot the messenger" syndrome. Some are unhappy when a NEPA document shows significant adverse environmental impacts and their reaction is "shoot the messenger -- kill NEPA." But making public the bad news -- the adverse environmental impacts -- is NEPA's job. That is what it is supposed to do. The solution is not to shoot the messenger or to kill NEPA. The appropriate solution is to address the environmental problem.

In summary, NEPA is a statute which works well and which serves the American people immensely well. Sometimes, and often in cases involving applicants to the Federal government, its processes take too long. There are measures that could and should be taken to correct that. There are also measures which should not be adopted -- measures which would gut NEPA. It is time to adopt the former but not the latter.

Thank you for the opportunity to appear before the Task Force. I hope and trust my suggestions for improving but not undermining the NEPA process have been helpful, and I stand ready to be of assistance to the Task Force in any other way that might be useful.

LOAD-DATE: November 21, 2005

15. Federal Document Clearing House Congressional Testimony, “NATIONAL ENVIRONMENTAL POLICY ACT LITIGATION,” November 10, 2005

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Federal Document Clearing House Congressional Testimony

November 10, 2005 Thursday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1966 words

COMMITTEE: HOUSE RESOURCES

HEADLINE: NATIONAL ENVIRONMENTAL POLICY ACT LITIGATION

TESTIMONY-BY: ROBERT E. WINN, PARTNER

AFFILIATION: SESSIONS, FISHMAN & NATHAN, LLP

BODY:

Statement of Robert E. Winn Partner Sessions, Fishman & Nathan, LLP

Committee on House Resources

November 10, 2005

My home in New Orleans was (is) at ground zero for Hurricane Katrina. It is located at the northwest corner of New Orleans, facing Lake Pontchartrain. It is located about 100 yards from the levee constructed by the Corps of Engineers to protect New Orleans from flooding. My home is on the rim of the bowl where New Orleans is located.

Additionally, my home is about 1200 yards, as the crow flies, from the 300 foot breach in the 17th Street Canal floodwall. Facing the lake from my front steps, the breach in the 17th Street Canal floodwall was to the southwest of my home. Fortunately my family and I evacuated New Orleans for Alexandria, Louisiana in the early morning of Sunday, August 28, 2005. Katrina made land fall southeast of New Orleans the morning of Monday, August 29, 2005.

My home is in West Lakeshore, an area adjacent to Lakeview, about 6 blocks away from my home. Although a lot has been said about the devastation in the lower 9th Ward and in Eastern New Orleans, there has been relatively little mention of the devastation of the Lakeview area. Approximately 15,000 homes in Lakeview were flooded at depths up to 10 feet, and the entire area remains completely uninhabitable - a wasteland; most of the homes will have to be demolished. The damage to Lakeview resulted from the breach of the 17th Street Canal. Significantly, the flooding of mid-town and down-town New Orleans, and large portions of uptown and areas of Jefferson Parish was caused by the 17th Street Canal break. The water engulfing Charity Hospital and threatening the Superdome was from the 17th Street Canal.

I am here today not to recount the damage to New Orleans, but to provide you some history, from a personal viewpoint, about the hurricane protection for New Orleans and particularly the city's continuing vulnerability to catastrophic flooding, arguably the result of NEPA Litigation.

When I moved to the New Orleans Lakefront in 1977 there was a levee about 12 feet high, a hundred yards or so from my home. Standing at the front door, I could see over the levee to the park on the other side and see sailboats on the lake. A few years later, the early 80's as I recall, the levee size was substantially increased in height and width, to a height of approximately 22 - 23 feet. I regretted the loss of the view of the lake, but I was content with the idea that I was benefited by increased protection from flooding caused by a hurricane.

I remember hearing about a dispute between the U.S. Corps of Engineers and various environmental groups relating to the levee construction. The Corps wanted to construct a lock and dam project with floodgates to control the flow or the surge of water from Lake Borgne through the Chef Menteur and Rigolets passes into Lake Pontchartrain and into New Orleans. The environmentalists worried about damage to the ecology. It seemed they were particularly concerned about endangering the habitats of garfish and alligators.

Somehow the environmentalists prevailed, and the lock and dam project with the floodgates was abandoned and the Corps of Engineers opted instead for a "high barrier plan", whereby the levees would be strengthened and raised. Earthen levees protect against flooding from the Mississippi River and the lake. An essential and integral part of the system are the floodwalls bordering drainage canals running through the city and into the lake. It would be a mistake to say there are levees along the drainage canals. The canals are hemmed in by earthen walls, perhaps reinforced with sheet pile and sometimes topped with concrete. The breach in the 17th Street Canal which caused the great devastation occurred on the eastern or New Orleans side of the canal, about 600 yards from where the canal enters Lake Pontchartrain.

It wasn't until some years later, perhaps 1991, that I learned just how the environmentalists had prevailed in their dispute with the Corps of Engineers. They utilized provisions of the National Environmental Policy Act (NEPA) and its procedural requirements to stop construction of a lock and dam project designed to control storm surges into Lake Pontchartrain. The Corps had studied, planned, and in the mid 70s was in the process of constructing a series of locks, dams, and floodgates at the Chef Menteur and Rigolets passes connecting Lake Pontchartrain to Lake Borgne and the Gulf of Mexico. The project would control or at least mitigate any storm surge. Environmentalists sued using NEPA and sought to enjoin construction of the project. After a trial in the Eastern District of Louisiana, by order of December 30, 1977 the Corps was enjoined from any further construction at the Chef and Rigolets. The court's order specifically cited problems with the Corps' environmental impact statement as the reason for the injunction.

The Corps did not appeal and chose to abandon its lock and dam hurricane protection project. The Corps elected instead to increase the size of the levees even though the Corps acknowledged that increasing the levee size would not be sufficient to protect against a massive storm, what we would now refer to as a large category 3 or a category 4 or 5 hurricane.

In the early 1990s I enrolled in the Masters Program in Environmental Law at Tulane University Law School. I received my Masters in Environmental and Energy

Law in May of 1992. One of the courses taken involved NEPA, and the professor put a number of sample environmental impact statements on reserve in the library for students to review as models and guides. One of the environmental impact statements was the Corps' high barrier plan. The Corps readily admitted that the increased levee size would not protect the city from a large category 4 or 5 storm and it seemed that the Corps' rationale for proceeding with the high barrier plan was simply that it had $100 million to spend and it might as well use it to increase levee size. I remember feeling that I had lost my view of the lake for no good purpose - the old levee was sufficient for all ordinary hurricanes, but not "the big one". I lost my view of the lake and experienced the inconvenience, noise, and dirt and dust of the levee construction for no real purpose because the increased levee size would not protect against "the big one".

Would the lock and dam project undertaken by the Corps have prevented or lessened the devastation caused by Katrina? Obviously the Corps of Engineers thought so because it was proceeding with construction until it was enjoined by the United States District Court For the Eastern District of Louisiana in 1977. The precise reason assigned by the trial judge was that the final environmental impact statement presented by the Corps of Engineers was inadequate because of omissions and procedural inadequacies. The court specifically found in its concluding paragraph, highlighted no less, that its opinion enjoining further work on the Corps' project "should in no way be construed as precluding the Lake Pontchartrain Project as proposed or reflecting on its advisability in any manner". The court's opinion was strictly limited to its finding that the environmental impact statement of August 1974 for the project was legally inadequate. The district judge continued "Upon proper compliance with the law with regard to the impact statement this injunction will be dissolved and any hurricane plan thus properly presented will be allowed to proceed". For some reason, as is apparent from the judge's opinion, the Corps failed to adequately address the court's concerns about the environmental impact statement. For some reason the Corps, even after the injunction, failed to remedy the deficiencies in the Final Environmental Impact Statement (FEIS). What is clear is that the high barrier plan implemented by the Corps in lieu of the lock and dam plan did not work, resulting in the horrendous consequences to the City of New Orleans and its people.

The court's opinion in civil action 75-3710, consolidated with civil action number 77-976, is not a published opinion but it is available at http://www.saveourwetlands.org/77-Schwartz.htm. The action is entitled Save Our Wetlands, Inc. et al vs. Rush et al.

The opinion presents a very readable and straight forward discussion of how a project so potentially important to the welfare of the City of New Orleans was sidetracked by environmentalists using procedural objections to the environmental impact statement submitted by the Corps of Engineers. Indeed the Corps, its lawyers, and environmental staff may deserve some blame. The law should be reconsidered to provide protection against the misuse of procedural provisions. At the very least, the required cost/benefit analysis should require a broader and more comprehensive weighing of costs and benefits. At the trial of the injunction the economic benefit of development and urbanization was weighed against potential harm to the ecology of the Lake Pontchartrain estuary. Somewhere, somehow, the law must insure a full assessment of damages and potential consequences to include such potential benefits as the protection of the lives and property of the people of New Orleans.

We do not know if the Corps' plan or any such plan for locks, dams and flood gates would work. We do know that the Corps thought it would work and was in the process of investing millions of dollars of taxpayer funds when its construction was stopped. In recent weeks there have been references to a floodgate system that protects the Netherlands. I have also heard that Italian engineers are considering a system of flood gates to protect Venice.

One thing should be evident. Although larger and stronger levees and floodwalls should be part of any hurricane protection system, no system of levees and floodwalls can ever be fully adequate. Just as it would be impossible to have enough police patrols to protect against any terrorist attack, anywhere, it is submitted that levees and floodwalls cannot afford adequate protection to New Orleans. A chain is only as strong as its weakest link. In addition to the levees on the Mississippi and Lake Pontchartrain there are 200 miles of floodwalls flanking drainage and navigation canals in New Orleans. There are 2 sides to every canal, 400 miles of floodwall. The wall on the western side of the 3 to 4 mile long 17th Street Canal could just as easily have failed as the wall on the eastern side which did fail. Subsidence and the unusual qualities of Louisiana soils make for a dynamic and ever changing situation which would require constant monitoring and revision of floodwalls and levees.

Another system, perhaps the one decided upon by the Corps of Engineers being constructed in the 1970's until enjoined by environmentalists using NEPA, should be employed along with the upgrading of levees and floodwalls to protect New Orleans. The people of New Orleans and the American people should not be expected to just hope that it will be a hundred years before another "big one" strikes New Orleans.

The subject under consideration by your committee is "NEPA Litigation: The Causes, Effects and Solutions". The Save Our Wetlands vs. Rush case is an example of NEPA Litigation wherein one judge, a group of environmentalists and lawyers for environmental organizations and the Corps of Engineers were able to scuttle a long studied project of the Corps for hurricane protection of New Orleans. Is the massive devastation caused by Hurricane Katrina an effect of that NEPA Litigation?

LOAD-DATE: November 15, 2005

16. Federal Document Clearing House Congressional Testimony, “WATER RESOURCE NEEDS FOLLOWING HURRICANES KATRINA AND RITA,” November 9, 2005

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Federal Document Clearing House Congressional Testimony

November 9, 2005 Wednesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2393 words

COMMITTEE: SENATE ENVIRONMENT AND PUBLIC WORKS

HEADLINE: WATER RESOURCE NEEDS FOLLOWING HURRICANES KATRINA AND RITA

TESTIMONY-BY: SCOTT FABER, WATER RESOURCES SPECIALIST

AFFILIATION: ENVIRONMENTAL DEFENSE

BODY:

Statement of Scott Faber Water Resources Specialist, Environmental Defense

Committee on Senate Environment and Public Works

November 09, 2005

Hurricane Katrina was a terrible tragedy that has touched the lives of every American. As we rebuild, we must rebuild in a fashion that provides devastated communities with a higher level of flood protection when the next hurricane strikes. In particular, we must quickly engage experts to consider ways to improve existing levees and other flood control infrastructure, seek opportunities to move vulnerable homes and businesses from harm's way, and begin the long overdue restoration of coastal Louisiana's vanishing wetlands and barrier islands.

Nothing less than the future of New Orleans and surrounding parishes is at stake. A meaningful rebuilding package must above all provide assurance that people and property will be secure in the future - or there is little hope that business and community leaders will invest in the region's future again.

To be successful, flood loss reduction efforts must be integrated - efforts to rebuild or expand levees must be integrated with decisions to build the diversions and pipelines needed to restore lost wetlands as well as local decisions to redevelop flooded neighborhoods.

Most importantly, Congress and the Corps of Engineers must treat flood protection and wetland restoration efforts with far greater urgency than we have in the past. Before Katrina struck, Congress and the Corps envisioned that we could replace lost wetlands and barriers islands in decades, not years. Before Katrina, Congress and the Corps envisioned we could provide a higher level of structural flood protection in decades, not years.

Today, in the wake of Katrina, every American recognizes the unique vulnerability of New Orleans and it surrounding parishes, and understands the role that federal flood control and navigation projects have played in the loss of costal wetlands.

Every year, more than 25 square miles of Louisiana's coastal wetlands are lost because Mississippi River sediments that once spread out and replenished the river's coastal delta are now funneled into the Gulf of Mexico by federal flood control levees and navigation training structures. More than 1 million acres of coastal wetlands -- or 1,900 square miles -- have been lost since 1930, and more than 300,000 acres of additional wetlands will be lost by 2050 if nothing is done. These wetlands and barrier islands play a critical role in the protection of our homes, businesses and critical infrastructure, reducing storm surge and absorbing wave energy.

One of the lessons reaffirmed by Katrina is that altering the natural movement of sediment and water often has severe unintended and unwanted consequences. Lining the Mississippi River with levees has reduced the flood threat posed by the river - but has, by contributing to the loss of coastal wetlands, made the flood threat posed by hurricanes far greater. Destroying 20,000 acres of wetlands that once acted as a natural hurricane barrier to create the Mississippi River Gulf Outlet has instead created what local officials call a "hurricane highway" that increased Katrina's storm surge by 20 to 40 percent and velocities more than three-fold.

Katrina also demonstrated that building levees to intentionally encourage development in harm's way - and using the projected "benefits" of induced development in these wetlands to help justify the construction of levees - have catastrophic consequences when these levees fail. To justify the Lake Pontchartrain and Vicinity Hurricane Protection Project, for example, the Corps extended levees to the east of New Orleans to encourage the development of wetlands, according to a 1974 Corps report to Congress. Tragically, many of the homes built in these reclaimed swamps were filled to their rooftops when Katrina struck. Because so many Corps flood control projects induce development in harm's way, flood damages have more than tripled in real dollars in the past 80 years - even as the Corps has spent more than $120 billion on flood control projects.

In the wake of Katrina, we also recognize the importance of subjecting costly or controversial water projects to independent review. Levee design failures - design failures that might have been detected by independent experts - and the "surge funnel" created by the Mississippi River Gulf Outlet contributed to this tragedy. According to Peter Nicholson, a civil engineering professor testifying on behalf of the American Society of Civil Engineers before the Government Affairs Committee last week, the "funneling of the surge" into the MRGO and, ultimately, the Inner Harbor Navigation Channel caused widespread overtopping of levees. Other levees, according to Nicholson, experienced a wide range of damage that could be attributed to the materials used in their construction, "transitions" between different sections of levees, and "obvious soil failures within the embankment or foundation soils at or below the bases of the levees." In particular, three levee failures along the 17th Street and London Avenue canals were most likely caused by failures in the foundation soils underlying the levees, according to a preliminary report by the ASCE.

This is not the first time the Corps of Engineers has relied on faulty science, engineering or economics. The Government Accountability Office has in recent years found that Corps studies have overestimated the number of vessels that would use an expanded waterway, overestimated the number of vessels that would use an expanded inlet, overestimated the number of homes and businesses protected by an expanded levee, and largely failed to mitigate for the environmental impacts of completed projects. The Army's own Inspector General found that senior Corps leaders intentionally exaggerated the benefits of longer Mississippi River locks, and both the National Academy of Sciences and the Congressional Research Service concluded that Corps studies overestimated expected traffic on the river. Last year, the NAS called for sweeping reforms and modernization of the Corps' project planning process, including independent review of many studies.

Until now, Congress and the Corps have largely failed to address the Corps' use of faulty science and economics, have largely failed to reform our flood control and insurance programs to discourage development in harm's way, and have largely failed to make the protection of population centers and critical infrastructure our highest civil works priority. Critical flood protection construction and maintenance have been delayed or abandoned so that the Corps could build or maintain projects that return little benefit to the taxpayers. Projects designed to protect farm fields have received no greater priority than projects designed to protect people and critical infrastructure.

Corps spending in Louisiana illustrates this problem. Congress invested nearly $2 billion on Louisiana water projects over the past five years. But, much of these funds were invested in questionable projects that did nothing to avert the destructive impacts of Hurricane Katrina. While nationwide spending on the Corps projects grew steadily during the past decade, from $3.2 billion in FY 1996 to $4.7 billion in FY 2005, annual spending on levees designed to protect New Orleans from a Category 3 storm declined from roughly $15 million a year to roughly $5 million a year, extending the project completion date for the city's structural hurricane protection project to 2015. A $12 million study to evaluate the benefits and costs of protecting New Orleans from a Category 5 storm has been delayed for years. This serious lack of prioritization is not limited to Louisiana. At the same time that the nation's civil works infrastructure faces a multibillion dollar backlog of critical maintenance needs, Congress continues to commit 30 percent of our waterway maintenance funding to waterways that carry approximately 3 percent of nation's waterborne commerce.

Our organizations make the following recommendations:

First, Congress must act quickly to require the development of a comprehensive plan to raise existing levees, to relocate vulnerable structures, and to restore lost wetlands and barrier islands. This comprehensive plan should be developed by a team of hydrologists, scientists, and engineers, led by an independent commission of three experts of national reputation appointed by the President after consultation with the Governor. An independent commission will reassure business leaders that efforts to improve our natural and man-made flood protection infrastructure will be undertaken quickly and competently. Promises of future funding will not provide business and community leaders with appropriate assurances.

The U.S. Army Corps of Engineers must play a central role in the design and construction of flood control and restoration projects, and we recommend that the commission be headquartered in the office of the Secretary of the Army. But, the commission should have the power to contract private engineering firms and institutions to supplement the Corps' capacity and expertise. A task force of state and federal officials should also be created to guide the commission's efforts.

Second, Congress should appropriate, in the next disaster supplemental, $5.5 billion to begin the restoration of lost coastal wetlands and barrier islands and $5 billion to enhance existing flood control infrastructure to protect New Orleans from a Category 5 storm. As you know, the Corps and the State of Louisiana have already developed an ambitious, peer-reviewed plan to begin the construction of diversions, pipelines and other projects that will restore our natural hurricane protection system. Many of these critical restoration projects can be constructed immediately with no impact on traditional uses of the Mississippi and Atchafalaya rivers. Indeed, some restoration projects offer the chance to dramatically improve navigation on the Mississippi River and flood protection. A summary of these and other restoration opportunities is attached.

Third, Congress should immediately close the Mississippi River Gulf Outlet. Traffic on the MRGO has fallen by more than 50 percent since 1986. Today, less than one oceangoing vessel per day, on average, uses this man-made short cut, which costs approximately $13 million annually to maintain. Like many waterways constructed by the Corps, the MRGO has failed to attract as much traffic as the Corps predicted when the project was constructed. In fact, only two of 14 waterways constructed since World War II have attracted as much traffic as the Corps predicted. Rather than rebuilding the levees along the MRGO, the Corps should immediately close the channel and devise a plan to prevent salt water intrusion and ongoing channel erosion.

Fourth, Congress should reform FEMA mitigation and relocation programs to move flood victims from harm's way. Many flood victims would move their homes and business from harm's way, but current law requires state or local government to share 25% of the cost of hazard mitigation - a requirement that no state or local agencies can meet in the wake of Katrina. Congress should waive the cost-sharing requirements for these hazard mitigation programs, and should reinstate FEMA's authority to use up to 15% of disaster assistance for these efforts.

Finally, Congress should reform the civil works planning process to ensure that urgent, worthy civil works projects are given the highest priority by the Administration and Congress.

To meet this goal, Congress should subject costly or controversial Army Corps projects to independent review and should require the Corps to periodically update the agency's planning tools to reflect the best available science and economics. Independent reviews could be undertaken at the same time as public review of draft studies, thereby ensuring that studies would not be delayed. Both of these reforms have been proposed by the National Academy of Sciences.

Congress should also direct the Corps to meet state standards for the replacement of wetlands and other habitats destroyed by worthy water projects - that is, Congress should direct the Corps to meet the same standards as private developers. The GAO recently found that the Corps failed to mitigate for nearly 70 percent of the civil works projects constructed since 1986, when modern mitigation laws were enacted. Our failure to mitigate for impacts of public and private water projects in the past have set the stage for the damage wrought by Katrina.

Congress should direct an interagency council to establish priorities for the nation's civil works spending. Although funds for the construction and maintenance of Army Corps water projects have steadily increased over the past decade to $4.7 billion annually, the backlog of authorized projects may soon exceed $70 billion. Many of these projects no longer address national priorities. Congress should direct an interagency council to set priorities for flood control spending so that scare resources are used to meet the nation's most critical flood damage reduction needs, to protect developed areas and critical infrastructure from flooding, to provide net economic benefits, and to avoid the needless destruction of wetlands and other environmental resources that serve as our first line of defense against hurricanes and floods. Critical flood control projects designed to protect people and public infrastructure should no longer take a back seat to projects designed to promote new development in frequently flooded floodplains.

As we rebuild, we must also prepare for the next hurricane. We must restore our coastal wetlands and barrier islands, but faster and with more urgency than has been proposed in the past. We must enhance our levees and other flood control infrastructure to protect New Orleans from a Category 5 storm. We must ensure that the Corps of Engineers uses the best available science and economics, subjected to independent review, to plan and prioritize future water projects. And, we must take steps to avoid the needless destruction of our natural flood reduction system.

LOAD-DATE: November 14, 2005

17. Federal Document Clearing House Congressional Testimony, “CONTRACTOR LIABILITY AND ENVIRONMENTAL LAWS,” November 8, 2005

154 of 687 DOCUMENTS

Federal Document Clearing House Congressional Testimony

November 8, 2005 Tuesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4477 words

COMMITTEE: SENATE ENVIRONMENT AND PUBLIC WORKS

SUBCOMMITTEE: SUPERFUND, TOXICS, RISK AND WASTE MANAGEMENT

HEADLINE: CONTRACTOR LIABILITY AND ENVIRONMENTAL LAWS

TESTIMONY-BY: BEVERLY WRIGHT, DIRECTOR

AFFILIATION: DEEP SOUTH CENTER FOR ENVIRONMENTAL JUSTICE

BODY:

Statement of Beverly Wright Director, Deep South Center for Environmental Justice

Committee on Senate Environment and Public Works Subcommittee on Superfund, Toxics, Risk and Waste Management

November 08, 2005

Good morning Mr. Chairman. I am Dr. Beverly Wright, Director of the Deep South Center for Environmental Justice at Dillard University, formerly at Xavier University. Regrettably, both of these Historically Black Colleges are underwater now and temporarily closed due to Hurricane Katrina. I am also here today representing the National Black Environmental Justice Network (NBEJN).

Thank you for the opportunity to testify before the Subcommittee on critical issues of concern in the aftermath of the hurricanes. My professional and personal experiences of growing up, living and working in the City of New Orleans greatly influence my perspective and testimony.

Who We Are

The Deep South Center for Environmental Justice (DSCEJ), at Dillard University in New Orleans, formerly at Xavier University of Louisiana, is now temporarily relocated in Baton Rouge, Louisiana.

The Deep South Center was launched in 1992 in collaboration with community environmental groups and other universities within the southern region to address environmental justice issues. DSCEJ provides opportunities for communities, scientific researchers, and decision makers to collaborate on programs and projects that promote the rights of all people to be free from environmental harm as it impacts health, jobs, housing, education, and general quality of life. A major goal of the Center is development of minority leadership in the areas of environmental, social, and economic justice along the Mississippi River Chemical Corridor. The Deep South Center for Environmental Justice is a powerful resource for environmental justice education and training.

DSCEJ has developed and embraces a model for community partnership that is called "Communiversity." The essence of this approach is an acknowledgement that for effective research and policy-making, valuable community life experiences regarding environmental impacts must be integrated with the theoretical knowledge of academic educators and researchers. The Deep South Center for Environmental Justice has three components in terms of reaching our objectives: (1) research and policy studies, (2) community outreach assistance and education; and (3) primary, secondary, and university education.

The National Black Environmental Justice Network was founded in New Orleans, LA in December 1999. NBEJN members founded the organization in New Orleans because we felt then, as now, that Louisiana and the Chemical Corridor between the City and Baton Rouge are under siege from and epitomize environmental and economic assaults. These assaults are costing Black people their very lives. NBEJN believes in the sacred value of every human life regardless of race, ethnicity, religion or socioeconomic status. We see in the tragedy of Hurricane Katrina, Hurricane Rita and the aftermath a unique opportunity to shape the conversation and dialogue about rebuilding of New Orleans and the Gulf Coast region with the goals of environmental and economic justice for everyone.

Target Area and Population Served

DSCEJ is national in scope with emphasis on the Mississippi River Chemical Corridor and Gulf Coast Region and global emphasis on communities impacted by the petrochemical industry. The major populations served include people of color with special concentration on African Americans and the African Diaspora, students and faculty at Historically Black Colleges And Universities/Minority Serving Institutions (HBCU/MSI) and public school teachers in urban areas. DSCEJ has forged collaborations with other major research institutions and governmental agencies that can assist in the development and implementation of the center's work.

Center Objectives

DSCEJ principal objectives include: (1) development of minority leadership in the field of environmental justice; (2) development of culturally sensitive training models for minority residents in at-risk communities; (3) development and distribution of culturally sensitive environmental justice education materials and training modules; (4) increasing environmental justice literacy among college students at HBCU/MSI's; (5) development of a pipeline creating a new generation of environmental justice leaders at HBCU/MSI's; (6) development and implementation of a K- 12 teacher training program in environmental justice; (7) conducting research to determine the impact and extent of toxic exposure for minority communities as it affects health and the environment; (8) investigating means of addressing these problems (i.e., brownfields redevelopment, toxics use reduction, climate change, clean production and green chemistry, and economic development; and (9) creating linkages between impacted communities, scientific researchers, and government officials to address environmental justice issues as they impact health, jobs, housing, and overall quality of life.

The Katrina Aftermath

As the floodwaters recede in New Orleans and the Gulf Coast region, it is clear that the lethargic and inept emergency response immediately following this devastating storm was the real disaster that nearly overshadowed the actual storm. We were all left nearly paralyzed in front of our television sets completely unable to continue with our daily lives watching the unbelievable events unfold right before our eyes. Americans were shocked beyond belief that this could happen in America, to Americans. It also raised lingering questions and doubts about our overall security. Is government equipped to plan for, militate against, respond to, and recover from natural and manmade disasters? Can the public trust government's response to be fair? Does race matter?

Examination of historical data reveals that emergency response reflects the pre-existing socioeconomic and political structures of a disaster area and is based on race and class differentials. Generally communities of color receive less priority in response time than do their white counterparts where emergency response is required. We can assume that this differential response will occur in all areas relative to the resolution of the aftermath of Hurricane Katrina.

Environmental Damage

New Orleans and outlying areas suffered severe environmental damage during Katrina, the extent to which has yet to be determined. The post-Katrina New Orleans has been described as a "cesspool" of toxic chemicals, human waste, decomposing flesh and surprises that remain to be uncovered in the sediments. Massive amounts of toxic chemicals were used and stored along the Gulf Coast before the storm. Literally thousands of sites in the storms path used or stored hazardous chemicals, from the local dry cleaner and auto repair shops to Superfund sites and oil refineries in Chalmette and Meraux, La, where there are enormous stores of ultra-hazardous hydrofluoric acid. In the aftermath of the storm some sites were damaged and leaked. Residents across the Gulf Coast and the media reported, "oil spills, obvious leaks from plants, storage tankards turned on end and massive fumes."

Short-term rebuilding objectives must not outweigh long-term public health protection for all Americans and the environment they depend upon. Some of the legislative proposals now under consideration in the aftermath of Katrina do not adhere to this principle. Congress must act now to protect our most vulnerable populations and preserve our most unique and irreplaceable resources. It is imperative that Congress responds quickly and effectively to the devastating aftermath of Hurricanes Katrina and Rita. It is also important, to temper our haste to rebuild with a strong commitment to public health and the environment. Moreover, the public has a right to clean air and water and it must be protected. No law should ever move forward that would in any way sacrifice these principles.

Have we learned anything over the last 40 years, since Hurricane Betsy struck, that should guide our decisions after Hurricanes Katrina and Rita? Much of the proposed legislation concerning rebuilding the Gulf Coast region strongly suggests that we have not. In fact, it seems that some are using the crisis of Hurricane Katrina to advance their political and policy agenda, including weakening, waiving and rolling back public health, environmental justice and environmental laws and regulations.

It is ironic that the tragedy of Hurricane Katrina is being used to justify sweeping waivers of public health, safety and environmental laws. The Gulf Coast Recovery Act (S.1761) would leave many citizens without a remedy against contractors that cause irreparable harm to the air and water. The bill gives unprecedented legal protection to contractors being paid for work related to Katrina in areas of rescue, recovery, repair and reconstruction. The bill is far reaching in that these protections do not only apply to Katrina contractors; under the bill, they will also apply to contractors in all future disasters that result in at least $15 billion dollars of federal assistance.

The Gulf Coast Recovery Act, while designed to help victims of Katrina, could very well end up helping everyone but the victims in the long run. S.1761 is particularly egregious to low income and minority communities in the Gulf Coast Region. All of the limitations apply only to actions brought by private citizens. The section 4 limitation on filing a lawsuit is specifically limited to "private parties" and section 5(e) specifically provides that nothing in that section limits an action that any governmental entity may bring. I thought that the government's role was to protect the citizenry. This bill (S.1761) seems designed to do just the opposite.

By eliminating the threat of liability for contractors you in effect remove an essential protection for the public. Where there are no consequences there are high risk and general disregard for the public's safety.

This bill seems to not be so well thought out. The actions taken by this bill in my opinion, aptly depicts the moral of the old adage of "throwing out the baby with the bathwater." We should remember that, in this case, it is not the contractors who are the victims. Powerful corporations with huge government contracts will make millions in profit from the Katrina tragedy. The payments will be made with our tax dollars. This bill S.1761 should be rejected by the Senate. In essence it will ultimately defeat the overall purpose of cleaning up the Gulf Coast and setting the road for its recovery. If contractors no longer fear legitimate legal liability, where is the incentive to do good work? And, when the dust settles with possibly untold numbers of properties improperly cleaned up, debris inadequately disposed of with personal injury due to contractor's negligence, who will then pay the bill?

The victims of Katrina have suffered immensely from first an inadequate response that caused the lives of many citizens, the loss of property, family members and their communities. Now, the government will hold harmless contractors who may further injure the citizenry through neglect and irresponsibility.

These citizens of the United States and victims of the worst natural disaster ever in North America have been placed in double Jeopardy by this event. And in each instance the government has played a major role. First, with the slow and inadequate response to Katrina and now with a quick response that fails to adequately protect citizens in the aftermath of the storm.

I would like to put into context exactly what has happened here, and who it has happened to, in an attempt to explain why S.1761 is so objectionable.

Before Hurricane Katrina - Pre Existing Vulnerabilities

Katrina struck a region that is disproportionately African American and poor. For example, African Americans make up twelve percent of the United States population. New Orleans is nearly 68 percent black. The African American population in the Coastal Mississippi counties where Katrina struck ranged from 25 percent to 87 percent black. Some 28 percent of New Orleans residents live below the poverty level and more than 80 percent of those are black. Fifty percent of all New Orleans children live in poverty. The poverty rate was 17.7 percent in Gulfport, Ms. And 21.2 percent in Mobile, Al. in 2000. Nationally, 11.3 percent of Americans and 22.1 percent of African Americans live below the poverty line in 2000.

New Orleans is prototypical of environmental justice issues in the Gulf Coast region. Before Katrina, the City of New Orleans was struggling with a wide range of environmental justice issues and concerns. Its location along the Mississippi River Chemical Corridor increased its vulnerability to environmental threats. The City had an extremely high childhood environmental lead poisoning problem. There were ongoing air quality impacts and resulting high asthma and respiratory disease rates and frequent visits to emergency rooms for treatment by both children and adults. Environmental health problems and issues related to environmental exposure was a grave issue of concern for New Orleans residents.

The African American community in New Orleans was already grappling with the nationally identified health disparities for minorities reported by the National Institutes of Health (NIH). These conditions were exacerbated by environmental conditions triggering asthma and exposing children to lead. High blood pressure, diabetes and cancer were also prevalent in the African American community.

Displacement Post Katrina

Residents in the Gulf Coast region fled the hurricane zone. More than a million Louisiana residents fled Hurricane Katrina. An estimated 100,000 to 300,000 Louisiana residents alone could end up permanently displaced. Nearly 100,000 Katrina evacuees are in 1,042 shelters scattered in 26 states and the District of Columbia. Katrina has left environmental contamination in Gulf Coast neighborhoods that will have to be cleaned up before residents can move back. An estimated 150,000 houses may be lost as a result of standing in water from Katrina. We are still grappling with understanding the full impacts of both Hurricanes Katrina and Rita.

Thousands of hurricane survivors along the Gulf Coast must now cope with the loss of relatives and friends, homes, and businesses and, what we term, loss of community. Katrina displaced just under 350,000 school children in the Gulf Coast. An estimated 187,000 school children have been displaced in Louisiana, 160,000 in Mississippi and 3,118 in Alabama. Katrina closed the entire New Orleans school system indefinitely. One hundred and twenty-five thousand New Orleans children alone are attending schools elsewhere. Over 93 percent of New Orleans schools students are African American. Evacuees' children are being enrolled in schools from Arizona to Pennsylvania, including almost 19,000 who will be attending schools in Texas.

For the survivors who lost everything, it involves coping with the stress of starting all over. Two weeks after Katrina struck, more than 2,500 children were still separated from their families. One can only imagine the mental anguish these families are going through. On the heels of this disaster, Hurricane Rita struck the coastal areas again.

There is much speculation about what the new New Orleans will look like: whether the Mississippi Gulf Coast should now consider land-based Casinos versus riverboats; the social economic and political structure of "New" New Orleans; rebuilding a green and sustainable Gulf Coast region that embraces innovative green building technologies and principles; construction of a levee system that will protect New Orleans; and development of environmentally and economically sustainable communities must all be explored simultaneously. None of these concepts are relevant unless the cleanup in the region is properly conducted and completed. This conclusion is not based on speculation. The community of Agriculture Street Landfill in the City of New Orleans has lived the nightmare of discovering that their homes were built on top of a landfill that was reopened to dispose of the tons of debris resulting from Hurricane Betsy.

Hurricane Betsy - New Orleans, Louisiana

Hurricane Betsy struck the State of Louisiana and the City of New Orleans in 1965. Betsy was then the "most destructive hurricane on record to strike the Louisiana coast." The damage and flooding throughout the State covered 4,800 square miles, killed 81 persons, caused the evacuation of 250,000 persons, and disrupted transportation, communication, and utilities services throughout the eastern coastal area of Louisiana for weeks. Betsy hit the mostly Black and poor New Orleans Lower Ninth Ward especially hard. This is the same neighborhood that was inundated by floodwaters from Katrina and then suffered the indignity of a second flooding by Rita. Over 98 percent of the Lower Ninth Ward residents are Black and a third live below the poverty level.

Many Black New Orleans residents still believe that white officials intentionally broke the levee and flooded the Lower Ninth Ward to save mostly white neighborhoods and white business districts. In 1965, a disproportionately large share of Lower Ninth Ward residents did not receive adequate post-disaster financial assistance in the form of loans and other support to revitalize the area. Betsy accelerated the decline of the neighborhood and out-migration of many of its longtime residents. Debris from Betsy was buried in the Agricultural Street Landfill- -located in a predominately Black New Orleans neighborhood. Over 390 homes were built on the northern portion of the site from 1976-1986. The Agricultural Street Landfill neighborhood was added to the National Priorities List as a Superfund site in 1994. ii

New Orleans Agriculture Street Landfill Community

Dozens of toxic time bombs along Louisiana's Mississippi River petrochemical corridor, the 85-mile stretch from Baton Rouge to New Orleans, make the region a major environmental justice battleground. The corridor is commonly referred to as Cancer Alley. Black communities all along the corridor have been fighting against environmental racism and demanding relocation to areas away from polluting facilities. iii

Two largely Black New Orleans subdivisions, Gordon Plaza and Press Park, have special significance in terms of environmental justice and emergency response. Both subdivisions are built on a portion of land that was used as a municipal landfill for more than 50 years. The Agriculture Street Landfill, covering approximately 190 acres, was used as a city dump as early as 1910. Municipal records indicate that after 1950, the landfill was mostly used to discard large solid objects, including trees and lumber, and it was a major source for dumping debris from the very destructive 1965 Hurricane Betsy. It is important to note that the landfill was classified as a solid waste site and not a hazardous waste site.

In 1969, the federal government created a home ownership program to encourage lower income families to purchase their first home. Press Park was the first subsidized housing project of this program in New Orleans. The federal program allowed tenants to apply 30 percent of their monthly rental payments toward the purchase of a family home. In 1987, seventeen years later, the first sale was completed. In 1977, construction began on a second subdivision, Gordon Plaza. This development was planned, controlled, and constructed by the U.S. Department of Housing and Urban Development (HUD) and the Housing Authority of New Orleans (HANO). Gordon Plaza consists of approximately 67 single-family homes.

In 1983, a portion of the Agriculture Street Landfill site was purchased by the Orleans Parish School Board as a site for a school. The fact that this site had previously been used as a municipal dump prompted concerns about the suitability of the site for a school. The school board contracted engineering firms to survey the site and assess it for contamination and hazardous materials. Heavy metals and organics were detected.

Despite the warnings, Moton Elementary School, an $8 million state-of-the-art public school opened with 421 students in 1989. In May 1986, EPA performed a site inspection (SI) in the Agriculture Street Landfill community. Although lead, zinc, mercury, cadmium, and arsenic were found at the site, based on the Hazard Ranking System (HRS) model used at that time, the score of 3 was not high enough to place them on the National Priority List (NPL).

On December 14, 1990, EPA published a revised HRS model in response to the Superfund Amendments and Reauthorization Act (SARA) of 1986. At the request of community leaders, in September 1993, an Expanded Site Inspection (ESI) was conducted. On December 16, 1994, the Agriculture Street Landfill community was placed on the NPL with a new score of 50.

The Agriculture Street Landfill community was home to approximately 900 African American residents. The average family income is $25,000 and the educational level is high school graduate and above. The community pushed for a buy-out of their property and to be relocated. However, this was not the resolution of choice by EPA. A cleanup was ordered at a cost of $20 million, the community buy-out would have cost only $14 million. The actual cleanup began in 1998 and was completed in 2001. iv

The Concerned Citizens of Agriculture Street Landfill filed a class action suit against the City of New Orleans for damages and relocation costs. It took nine years to bring this case to court. The case was still pending before Katrina struck. It is ironic that the environmental damage wrought by Katrina may force the cleanup and relocation of the Agriculture Street Landfill community. But nothing can give them back their health and well being, or replace the family members and friends who might still be with them were it not for the health effects of living on a landfill.

The Most Vulnerable

The majority of households and businesses in the 12 Hurricane Katrina -affected counties in Alabama, Mississippi, and Louisiana do not have flood coverage. FEMA estimates that 12.7 percent of the households in Alabama, 15 percent in Mississippi, and 46 percent in Louisiana have flood insurance. Similarly, on 8 percent of the businesses in hurricane-affected counties in Alabama, 15 percent in Mississippi, and 30 percent in Louisiana have flood coverage.

Generally, people of color have higher levels of physical damage than whites largely due to segregated housing in older, poorly built homes. Black households are less likely to have insurance to cover storm losses and temporary living expenses. Because of racism and racial redlining, blacks are more likely than whites to receive insufficient insurance settlement amounts. Blacks are less likely than whites to have insurance with major companies as a result of decades of insurance redlining.

Because of the legacy of "Jim Crow" segregation, many African American consumers in the Louisiana, Mississippi, and Alabama Gulf Coast region may be concentrated in the secondary insurance market--smaller and less well-known insurance firms. This could prove problematic for Katrina victims. Nearly a dozen small insurance companies collapsed after Hurricane Andrew, which cost the industry about $23 billion in today's dollars. Andrew was the most expensive single hurricane until Katrina. The same thing could happen after Katrina. Many, if not most, Katrina low and moderate-income victims may not have resources to hire lawyers to fight the insurance companies.

Cleanup-up Standards and Protection of Public Health

Hurricane Katrina has left environmental contamination in Gulf Coast communities that will have to be cleaned up. In the New Orleans area alone an estimated 22 million tons of debris must be cleaned up and 145,000 cars ruined by hurricane floodwater will have to be disposed of. How, when, and at what level (methods of clean-up and clean-up standards) contaminated neighborhoods get cleaned up is a major environmental justice concern for African American communities.

Where the hurricane debris and waste end up is another issue that causes concern because of pre-existing power arrangements and the historical legacy of unequal protection and differential treatment provided to communities of color. It is important that government officials not repeat the mistakes made in 1965 with debris from Hurricane Betsy disposed in an African American area- -later to become the Agricultural Street Landfill Superfund site community. Black communities in the South, as documented in Dumping in Dixie: Race, Class, and Environmental Quality, are dotted with landfills, toxic waste dumps, and hazardous waste disposal sites.

Katrina toppled offshore oil platforms and refineries sending shock waves throughout the economy with the most noticeable effects felt at the gas pump. Katrina and Rita temporarily closed all oil operations and most natural gas operations in the Gulf region that supplies 29 percent of U.S.-produced oil and 19 percent of U.S.-sourced natural gas.

Katrina caused an unprecedented environmental and health crisis. The powerful storm caused 11 oil spills releasing 7.4 million gallons of oil. It also hit 60 underground storage tanks, five Superfund sites, and numerous hazardous waste facilities. More than 1,000 drinking-water systems were disabled and lead and e. coli in the floodwaters have far exceeded the EPA's safety levels.

Tests from the U.S. EPA and independent sampling conducted by the Louisiana Environmental Action Network (LEAN) in several New Orleans areas exceed federal standards for residential communities. LEAN sampling found high levels of polynuclear aromatic hydrocarbons (PAHs) exceeding residential standards. Many PAHs are known or suspected of causing cancer. The testers found 12 PAHs in sediments the Lower 9th Ward. One, benzo (a) pyrene, was at 195 parts per billion, three times greater than the EPA residential standard of 62 parts per billion. Arsenic, another known cancer-causing agent, was found at concentration 75 times higher than residential standards. Tests revealed elevated levels of heavy metals and volatile organic chemical associated with petroleum products. Ten PAHs were found on Agricultural Street, designated a Superfund site, with benzo (a) pyrene at concentration 2.7 times higher than EPA residential standards. The arsenic level in the Morrison Road area was 13.3 times higher than EPA residential standards.

LOAD-DATE: November 11, 2005

19. FD (Fair Disclosure) Wire, “Event Brief of Q3 2005 SCANA Earnings Conference Call – Final,” October 28, 2005

204 of 687 DOCUMENTS

FD (Fair Disclosure) Wire

October 28, 2005 Friday

TRANSCRIPT: 102805sa.741

LENGTH: 5540 words

HEADLINE: Event Brief of Q3 2005 SCANA Earnings Conference Call - Final

BODY:

PARTICIPANTS

. John Winn, SCANA, Director, IR, Shareholder Services . Kevin Marsh, SCANA, SVP, CFO . Steve Fleishman, Merrill Lynch, Analyst . Paul Patterson, Glenrock Associates, Analyst . Jeff Covello, New Capital, Analyst . Michael Weinstein, Zimmer Lucas, Analyst . Eric Beaumont, Copia Capital, Analyst

OVERVIEW

SCG reported 3Q05 earnings of $100m or $0.88 EPS. Mgt. expects GAAP adjusted net earnings from operations for 2005 will be in previously announced range of $2.65-2.85 per share.

FINANCIAL DATA

A. Key Data From Call 1. 3Q05 earnings = $100m 2. 3Q05 EPS = $0.88 3. 2005 EPS guidance = $2.65-2.85

PRESENTATION SUMMARY

S1. SCG Overview (K.M.) 1. Earnings: 1. 3Q05 reported earnings $100m or $0.88 EPS. 2. 3Q04 GAAP adjusted net earnings from operations were $80m or $0.71 EPS. 3. For 3Q04, GAAP adjusted results exclude: 1. After-tax impairment charge of approx. $15m, or $0.13 per share related to the telecommunications investments. 2. After-tax charge of $11m or $0.10 per share related to litigation associated with sale of propane assets in 1999. 4. Including those prior-period items, reported earnings in 3Q04 were $54m, or $0.48 EPS. 5. The $0.17 EPS overall improvement in 3Q05 results was attributable to increase of $0.25 per share in margin on sales of electricity. 1. Warmer weather accounted for $0.10. 2. Retail electric rate increase effective last January contributed $0.07. 3. Customer growth and higher all system sales each contributed $0.04. 6. Partially offsetting positive factors were: 1. Increases in operating and maintenance expenses of $0.03. 2. Higher depreciation expense of $0.02 per share. 3. $0.01 per share from higher interest expense. 4. $0.02 per share of dilution reflecting issuance of common stock, proceeds of which are being applied to debt reduction. 2. Sales: 1. In contrast to milder weather experienced in 1H05, weather during 3Q05, specifically September, was unseasonably warm, having a positive impact on sales of electricity. 2. Temperatures across electric service area as measured by cooling days were 16% warmer than 3Q04 and 10% warmer than normal. 3. Segments: 1. Retail kilowatt hour sales of electricity in 2Q05 were up 6.2% compared to 2Q04. 2. Weather sensitive residential sales increased 11.1%. 3. Commercial sales were up 7.5%. 4. Sales to industrial customers declined 1%. 5. Wholesale or all system sales were up 4.8%. 4. Total kilowatt hour sales of electricity in 3Q05 were up 6.1% compared to 3Q04. 5. Total dekatherm sales of natural gas were up 8% in 3Q05, but margins on those sales were unchanged compared to 3Q04. 3. First Nine Months: 1. GAAP adjusted net earnings from operations were $242m, or $2.13 EPS, compared to $241m or $2.16 per share for 3Q04. 1. $0.03 per share decline due in part to impact of milder weather on electric margins during 1H05. 2. Other negative impact factors YTD were increases in operating and maintenance expenses, higher depreciation and interest expense, and dilution. 2. 3Q05 results exclude after tax gain of $4m or $0.03 per share in 2Q05 related to sale of telecommunications assets. 3. 1H04 results exclude previously mentioned after-tax charges totaling $26m or $0.23 per share. 4. Including these items in both periods reported earnings for the first nine months of 2005 were $246m or $2.16 per share compared to $215m or $1.93 per share in 2004 first nine months. 4. SCE&G: 1. South Carolina Electric & Gas Co. reported earnings were $106m or $0.93 per share. 1. Compared to $85m or $0.76 per share in 3Q04. 2. Improvement due primarily to higher electric margin resulting from warmer weather, higher retail base rates, and customer growth. 2. SCE&G was serving approx. 597,000 electric customers and 283,000 natural gas customers, representing year over year increases of 2.8% and 2.5% respectively. 3. In July, SCE&G set several all-time records for electricity consumption in response to hot summer weather. 1. Allowable generation and distribution systems performed well during these periods of record demand and were able to meet customer needs with no major problems. 4. SCE&G had a comprehensive and ongoing planning process to ensure enough generating capacity to meet growing customer demand. 1. Goal is to maintain a reserve margin between 12-18%. 2. Current integrated resource plan indicates co. will not need new base load generation until around 2015. 3. Already began process of evaluating options available to provide additional capacity. 5. In August, announced joined with Santee Cooper to study feasibility of constructing nuclear generating facility to meet generation needs. 1. Santee Cooper is partner in the VC Summer nuclear station, so makes sense to team with them to analyze next increment of base load generation for customers. 2. As always, will carefully analyze and understand cost and impact of all generating options before making a final decision. 3. Factors that evaluation process will consider include construction operating costs, fuel cost and availability, generating capacity, site selection and environmental impact. 4. Considering progress made by the Nuclear Regulatory Commission in streamlining licensing process, significant increases seen in price of fossil fuel and financial and other incentives provided in the new Energy Policy Act, mgt. believes the nuclear option is viable and should be seriously studied. 5. Given long lead time required to build a major base load generation facility, plan to reach final decision in next six months. 5. PSNC Energy: 1. Natural gas distribution company in North Carolina reported a seasonal loss in 3Q05 of $6m or $0.06 per share, unchanged compared to 3Q04. 2. Slightly higher sales margin driven by customer growth was offset by increased expenses. 3. PSNC Energy was serving approx. 407,000 customers, representing a growth rate of better than 4% over past 12 months. 6. South Carolina Pipeline Corporation: 1. Interstate natural gas transmission subsidiary, reported 3Q05 earnings of $2m or $0.02 EPS compared to $1m or $0.01 EPS in 3Q04. 2. Higher margins on sales of natural gas to industrial interruptible customers accounted for improvement. 3. Continuing to work through major issues related to proposed merger of South Carolina Pipeline and SCG Pipeline into company called Carolina Gas Transmission Corporation. 1. New transmission company will operate as an open access interstate pipeline that provides transportation services only. 2. Operations and rates will be subject to federal regulation and earnings will be tied to long-term capacity sales rather than day to day volumetric sales. 3. Currently expect to file application with the FERC for approval of merger early next year. 4. Once application is filed, timeline for completing merger will be largely determined by FERC. 5. Don't expect final decision on merger until middle of next year. 4. While merging these two companies is not expected to have a significant impact on earnings in the short term, believe it will help stabilize future earnings and expand opportunities for growth. 7. SCANA Energy: 1. Retail natural gas marketing business in Georgia, recorded a seasonal loss of $3m or $0.03 per share in 3Q05 compared to a loss of $1m or $0.01 per share in 3Q04. 2. Decline was due to lower margins reflecting significant price increases and wholesale cost of natural gas. 3. Entering winter heating season, focused efforts on securing sufficient supplies of natural gas to meet expected needs of Georgia customers. 4. Do expect wholesale natural gas prices will remain high relative to historical prices during winter months and will be working closely with customers, especially low income and senior citizens to manage higher bills. 5. Customer base in Georgia continues to hold steady, approx. 460,000 customers, maintaining position as second largest natural gas marketer in Georgia. 8. Corporate and Other: 1. Corporate and other businesses include Primesouth, SCANA Communications, ServiceCare, SCANA Energy Marketing, SCG Pipeline, SCANA Services and the holding company reported earnings of $2m or $0.02 EPS in 3Q05, compared to 3Q04 GAAP adjusted earnings of $1m or $0.01 per share. 1. 3Q04 GAAP adjusted result excludes aforementioned after tax charges totaling $26m or $0.23 per share. 2. Including those items, companies had combined reported loss of $25m or $0.22 per share in 3Q04. 9. Synthetic Fuel Tax Credits: 1. In 3Q05, recognized $17m in accelerated depreciation related to Lake Murray project. 2. Amount reflects synthetic fuel tax credits generated during the quarter net of partnership losses and tax benefit of depreciation and partnership losses. 3. For the first nine months of 2004, recognized approx. $201m in accelerated depreciation related to this project. 1. Leaves approx. $98m of unrecovered investment as of September 30. 2. Also recorded non cash carrying costs of approx. $8m through September, 2005. 3. Will continue to record carrying costs quarterly until net book value of investment has been reduced to zero through the accelerated depreciation process. 4. Impact of these entries to income statement and balance sheet is provided in footnote in press release. 5. Under a phaseout provision of the Federal Tax Code, ability to fully utilize the Synfuel Tax Credits may be impacted by increases in average annual domestic wellhead (phonetic) price per barrel of crude oil as published by the US government. 1. If this reference price of oil which typically runs several dollars below the ninex (phonetic) price, rises to an inflation adjusted phaseout range, the Synthetic Fuel Tax credits that have been generated may be reduced or in the worst case eliminated. 2. Phaseout range for this reference price for 2005 has been estimated at between $52-65 per barrel. 3. While ninex price has risen to mid $60 level for portions of 2005, estimate based on actual price through September 30, the ninex price would have to average $67 per barrel for the remainder of the year for SCG to approach bottom phase out range. 6. Since actual 2005 reference price of oil will not be known until April, will continue to record net Synfuel Tax Credits for the remainder of 2005 as generated and apply credits quarterly to offset equal amount of accelerated depreciation related to dam costs. 7. Volatility recently in oil and gas markets raises uncertainty as to continued availability of credits particularly in 2006 and 2007. 8. Will continue to estimate the reference price of oil and adjust strategy. 9. If it is determined that available credits are not sufficient to fully recover the construction costs of the dam project, have the option of seeking regulatory action to obtain recovery of any remaining cost. 10. Regulatory Arena: 1. October 12, Public Service Commission of South Carolina approved an increase of $22.9m or 5.69% in SCE&G retail natural gas base rates. 2. Commission's order was consistent with settlement agreement reached in August with company, regulatory staff, and all of the other intervenors in the case and that was presented to the Commission at a hearing on September 19. 1. This is the first increase in SCE&G's retail natural gas base rate since 1989. 2. Largely associated with recovering costs related to expanding and operating SCE&G natural gas distribution system, expenditures that are necessary to ensure safe, reliable and efficient service to customers. 3. 10.25% ROE approved by Commission will provide opportunity to earn a reasonable ROI. 4. Also, will allow company to make additional capex to support future growth and economic development in natural gas service area. 5. New rates will be effective with the first billing cycle in November of this year. 3. Both the Public Service Commission of South Carolina and the North Carolina Utilities Commission have recently approved increases in the purchased gas adjustment component of retail natural gas rates for SCE&G and PSNC Energy respectively. 1. Rate adjustments reflect significant increases in wholesale price of natural gas seen this year as well as increases in the projected cost of natural gas going forward. 2. The purchase gas adjustment factor reflects only the cost of gas portion of rate. 3. It is a direct pass through of those costs to customers and does not provide any additional profit to the company. 4. Cost of gas is reviewed by each commission at least annually and if necessary, adjusted up or down to reflect changes in the commodity cost of natural gas purchased by the company. 5. Increase was effective in October for PSNC customers while SCE&G's customers will see increase beginning with November bills. 4. Issue of rising natural gas prices have received a tremendous amount of national and local media attention. 1. Much of expected increase in gas prices is a result of an ongoing imbalance between supply and demand which was intensified by the damage caused by Hurricanes Katrina and Rita in the Gulf Coast region. 2. Cost of gas comprises more than 75% of a typical residential customer monthly bill during winter months. 3. With the 50%+ increase projected for gas costs this winter, co. is sensitive to impact higher gas costs will have on customers, especially those on low and fixed income. 4. Increases in gas cost of this magnitude are challenging for everyone, but SCG will continue to hold prices as low as possible to help customers manage higher bills this winter. 11. Guidance: 1. Expect GAAP adjusted net earnings from operations for 2005 will be in previously announced range of $2.65-2.85 per share. 1. Considering $0.03 per share gain on sale of telecommunication investment in 2Q05, co. anticipates reported or GAAP earnings in 2005 will be $0.03 per share higher than GAAP adjusted net earnings per share from operations. 2. 2005 guidance assumes normal weather in electric and natural gas service areas during 4Q05. 3. Other factors that may impact future earnings are discussed in the company's Securities and Exchange Commission filings. 4. Still assessing potential impact record high energy prices may have on future operations and earnings. 1. Therefore, decided to defer providing specific earnings guidance for 2006 until reporting year-end earnings in February. 5. As part of budgeting process, will also review long term earnings growth expectations which currently target an average annual earnings growth of 4-6% over three to five years. 1. Important to remember this range is average annual growth target which means that some years earnings growth may be in above and some years may fall below that range. 6. Mgt. takes a long-term perspective on earnings growth, not focused on generating annual earnings growth. 1. On average growth will fall within the targeted range.

QUESTION AND ANSWER SUMMARY

OPERATOR: [OPERATOR INSTRUCTIONS] Our first question comes from the line of Steve Fleishman of Merrill Lynch. Please proceed.

KEVIN MARSH, SVP, CFO, SCANA: Good morning, Steve.

STEVE FLEISHMAN, ANALYST, MERRILL LYNCH: Hi, Kevin. To the degree that you have a impact from higher energy prices, would the likely areas be basically impact on demand growth and I guess bad debts, is that the main two areas to watch for your gas business?

KEVIN MARSH: I think the immediate risk that we see is on bad debts since the cost of gas flows through those bills in the form of the revenue that we bill. To the extent that we have the same bad debt write-off percentages we had last year, that amount was -- mathematically go up just because of the increase in the cost of gas. So you will see some near term pressure on that. From a long-term perspective, I think we are -- we are definitely heading into a period that we've not seen before with these unprecedented increases in gas prices and we're trying to measure now what we think the long-term impact will be on demand growth in the future. So those are two areas we are watching very closely.

STEVE FLEISHMAN: Okay. And then secondly, you may have answered this question already, but year-to-date, what would you say the net weather impact versus normal has been?

KEVIN MARSH: On a year-to-date basis, it's been down $0.02 a share from normal.

STEVE FLEISHMAN: Okay. Any update on your FERC pipeline process?

KEVIN MARSH: No. We're continuing to work with customers. We have signed confidentiality agreements with the major customers on the pipeline system are into the process of working with all of those now, trying to resolve any open issues they may have before we take the filing to FERC. The FERC has encouraged us and we agree to work with those customers to try to resolve as many of the issues as we can before we bring that filing to them. As we estimate, we think that'll be sometime next year, hopefully we will get an order back from them by the middle of next year.

STEVE FLEISHMAN: Okay. And then finally on this whole issue of the synthetic fuels and how you manage that against the Lake Murray expenses?

KEVIN MARSH: Yes.

STEVE FLEISHMAN: To the agree that oil is right around the range of a phase-out as you go into next year, my guess might be you might not want to be producing any synfuel in the event that you'd lose credits?

KEVIN MARSH: We--.

STEVE FLEISHMAN: Or--.

KEVIN MARSH: Keep in mind when you hit the bottom end of the range they start to limit the credits. That doesn't mean they go away when you hit that range. So we could still produce -- if we were slightly in or slightly above.

STEVE FLEISHMAN: Right.

KEVIN MARSH: That range and--.

STEVE FLEISHMAN: But if you produce and then it ends up prices go up further throughout the year, there is no ability to get that -- those operating losses back.

KEVIN MARSH: That's correct. If you can take the credits to offset those losses, it would still be a net benefit to -- and that's how we'll measure that as we move through the year.

STEVE FLEISHMAN: Okay. So just, though -- let's say to the degree that strategically you decide not to produce at the beginning of '06, because oil's at $70, how accounting wise would this be addressed during 2006.

KEVIN MARSH: That's a good question. Nothing would happen in 2006 to the cost of the dam, it would basically stay on the books at its recorded cost. The only thing that happens to the cost of the dam is we accelerate depreciation as we're able to generate the tax credits.

STEVE FLEISHMAN: Okay.

KEVIN MARSH: If here are no tax credits that balance will stay the same.

STEVE FLEISHMAN: Okay. So from an earnings standpoint, it would still be earnings neutral.

KEVIN MARSH: It will absolutely be earnings neutral and you would not see any true-up in that until we got to the end of 2007, when the credits expired and if we had an unrecovered balance at that time we would have to develop our strategy to recover any remaining cost. It would be earnings neutral through '06 and '07.

STEVE FLEISHMAN: Okay. Thank you very much.

KEVIN MARSH: Thank you.

OPERATOR: Our next question comes from the line of Paul Patterson of Glenrock Associates.

PAUL PATTERSON, ANALYST, GLENROCK ASSOCIATES: Steve asked a lot of my questions. I guess what I just want to follow up on is, at the end of -- you said at the end of September it looked like it was $98 million of unrecovered dam costs, is that right?

KEVIN MARSH: That's right.

PAUL PATTERSON: What do you think it'll be by the end of the year?

KEVIN MARSH: It'll probably be close to that same number. There's a little extra work to be completed and then we got the carrying costs that go with that. So we expect that number to be below 100 million -- we don't expect it to be over 100 million. It should be about the same at the end of the year, which will leave -- you've got two years to recover the remaining cost, we're generating about 35 -- 30, 35 million in credits each year, which would give you 7 million when you gross that up for the tax impact that puts you a little over 100 million. So we've got just a slight cushion at this point.

PAUL PATTERSON: Okay. I see what you're saying. So the other thing I was wondering is what are the operating expenses versus the percentage of credits? In other words, 100% of the credits you don't get because you've got an operating loss associated with the plans. As a percentage of the credits, if you follow me, how much of those are used to get the operating costs? I'm trying to get an idea what the break-out -- what the break-even point would be, I guess, if you follow me.

KEVIN MARSH: Paul, I don't have that number right here in front of me but I can tell you the operating costs are very small in relation to the overall credits that are generated.

PAUL PATTERSON: Really.

KEVIN MARSH: But you could generate well into the range, I think, and generate some credits that would benefit the cost of the plan.

PAUL PATTERSON: Okay. So in other words, just from a strategic perspective, which is what I think Steve was touching on, the issue of a big spike up in the latter part of the year, because this is what some of the companies are concerned about, would in general most cases pretty much push the production of synfuels for many companies in the back half of the year. Would that happen with you guys? Do you see what I'm saying?

KEVIN MARSH: Well, we're producing as much as we can right now based on the operational limits of the plant.

PAUL PATTERSON: Sure.

KEVIN MARSH: Our concern at this point is in the price of the oil which would have to be -- average $67 to us to get us into the end of the range.

PAUL PATTERSON: Okay. But I mean when you go into 2006 -- unfortunately we don't know what the future price will be at the end of 2006. I guess going back to that question, the question that comes up is are you guys going to be producing -- I mean do you guys feel confident looking at the forward curve that you guys -- beginning of 2006 are going to be producing the same amount that you were in 2005, if you follow me, or would you hold off -- because that's what we've seen some companies do that they're holding off to the latter part of the year is what it looks like they're going to do before they start producing it because they're concerned that -- you might be in a situation where the price goes up and you don't have enough of a credit to cover the costs if you follow me.

KEVIN MARSH: Well, that is part of the challenge and that -- we've got models that we look at to help us determine where the point would be that we would stop production and where we would try to increase production. When you're close to the bottom end of the range or as you move into the range we'll have to watch that a lot more carefully because that is the challenge we've got in front of us is to manage that as we go forward.

PAUL PATTERSON: Okay. Thanks a lot.

OPERATOR: Our next question comes from the line of Jeff Covello of New Capital. Please proceed.

KEVIN MARSH: Good morning.

JEFF COVELLO, ANALYST, NEW CAPITAL: I just wanted to see if you could speak a little bit more about the potential of looking at a nuclear plant, the first time I heard that and -- it was interesting to me. I was wondering if this is something that given -- where the other commodity prices are that you kind of decided on your own and you'll be -- I assume discussing with Santee Cooper and the commission or is this something that the commission is kind of pushing you towards as well and if it is something you're going to be looking into, what the time frame is for making a decision and what -- I guess in a little more detail what factors you're going to be looking at.

KEVIN MARSH: Okay. First of all, this is not something the Commission has pushed us to do. Under its present policy the Commission leaves those decisions to the utilities to bring before them for review an approval prior to any construction being authorized or approved by the commission for the Company. We look at our generation needs on a consistent basis and we're always looking out into the future to figure out exactly what we may need. We just completed our Jasper plant, which came on-line last year as a result of that our reserve margin is right at the top of our 12 to 18% target range. So we're fortunate in that we don't need any new base load generation until the year 2015.

JEFF COVELLO: Okay.

KEVIN MARSH: However, if you start backing up the timetable it would take to build a nuclear plant, you're probably looking around 10 years to start that process and go through the whole cycle. Or if you're looking at the new technology on coal, that's -- that life cycle's probably about eight years. So to make a decision is in the pretty near future for us and that's what we're about doing now.

JEFF COVELLO: Got it.

KEVIN MARSH: We feel strongly that nuclear energy is going to be a big component of what the nation needs in the long term to address the cost of fuel as well as environmental concerns. We've had a great experience in our partnership with Santee Cooper and the nuclear plant that we operate today. It has an excellent operating record and it serves our customers well. We thought it made sense to explore the possibility of looking at a nuclear plant with some of the new technology that's come out and we think the risk of destruction are reduced, the process you go through with the Nuclear Regulatory Commission now to get a combined operating license we think is streamlined and will help the whole industry bring those plants on as they're approved. From a time perspective, you're looking at a two-year time frame on nuclear to go through the evaluation of potential sites and gather all the information, do the test and documentation that's necessary to actually file for approval.

JEFF COVELLO: Yes..

KEVIN MARSH: Get a combined offering license from the Commission. That's about a two-year process. After that, you're looking at three to four years for the Commission to complete its evaluation and make a final determination on the approval of the license and then once that was proved you're probably looking at another four to five years' construction period. So you're looking right at ten years for the whole process. That will be the same for us as it will be for other utilities.

JEFF COVELLO: Got it.

KEVIN MARSH: We'll have to get to that process. We are looking at that question very hard right now. We are evaluating potential sites in South Carolina that we think would work for us. And we hope to have that decision in the next six months. If it is going to be nuclear, if it's going to be some other option, we're trying to make that decision in that six-month window so we can go ahead and get started.

JEFF COVELLO: Got it. And do you believe that -- I guess you do, you believe that you have the right regulatory environment where you can recover those costs and recover that cash in a way that protects your investors and protects the Company and let's you get a fair return on them without a big prudency issue or?

KEVIN MARSH: Our commission has been very supportive of nuclear power. They've got more than one utility, Duke Energy and Progress also have nuclear facilities viewed and approved by our commission in the past and we've had a very favorable experience in the state with those plants in the low-cost fuel that goes along with that to serve customers' needs. I believe the Commission would look at our recommendation fairly.

JEFF COVELLO: Yes.

KEVIN MARSH: Consider the proposals we would put forth for recovery of the cost in a fair fashion and make the right decision. They've done that consistently. The Commission made some very tough but very fair decisions back in the '70s as we were bringing the last wave of nuclear plants on-line and I think were fair to us, they were fair to the customers and we had some phase-in plans, there were different things that were put into place that minimize the impact on customers. And we will certainly explore all those options with the Commission as we decide to move forward.

JEFF COVELLO: Got it okay. Well, I appreciate your time. Thank you.

KEVIN MARSH: Thank you.

OPERATOR: Our next question comes from the line of Michael Weinstein of Zimmer Lucas. Please proceed.

MICHAEL WEINSTEIN, ANALYST, ZIMMER LUCAS: Hi. How are you doing. My questions have actually been answered already so thank you very much.

KEVIN MARSH: Thank you.

OPERATOR: Our next question comes from the line of Eric Beaumont of Copia Capital. Please proceed.

KEVIN MARSH: Hi, Eric.

ERIC BEAUMONT, ANALYST, COPIA CAPITAL: Good morning. A quick question. We've heard from several other companies now talking about the retail marketing. I want to touch on SCANA Energy and just kind of get your view for what we're looking at with the high-commodity environment for the fourth quarter and just any comfort level you can give us that that margin compression shouldn't be too significant.

KEVIN MARSH: We have seen some margin compression year to date as I reported earlier. I think with the high natural gas prices we see in the spot market today that will be a challenge for everyone in the natural gas business, not just what we see in Georgia. Our purchasing practices involve a combination of hedging the cost of natural gas, as well as keeping natural gas supplies in storage and buying on the spot market when we need that gas to meet the needs of customers. Our strategy has been to blend the prices of those three sources together so that we could go to the market and offer a competitive price and still earn a reasonable return on our margins. I think we're positioned to do that based on the gas we've got in storage. And certainly we understand it'll be a -- it'll be a challenge in the marketplace, even more so from a customer perspective because of the high gas prices, but I'm confident now that we can maintain the business in Georgia.

We have the ability to adjust prices monthly since it is deregulated, those prices can be adjusted as necessary. That gives us a little more flexibility than we might have in the regulated markets and I think we'll be able to use that to our benefit as we try to address the challenge. I don't want to undermine that it will be a challenge and the high gas prices are tough for us as well as for the customers and making sure we can recover those costs at the same time be competitive in that marketplace.

ERIC BEAUMONT: Just a quick follow-up there. With respect to switching the deregulated, would -- with the high commodity price, given your program of hedging basically put you in a better position to get more customers or would you even want to get more customers during this particular period?

KEVIN MARSH: Well, certainly we want to maintain the customer base we've got and are always looking forward to customer growth on that system. I think we've been competitive with the marketplace. We're not the highest cost provider in George nor are we the lowest. And I think the market has been fairly stable as we've seen prices go up, I think the major competitors in that business have also moved up to recover their cost.

ERIC BEAUMONT: Thanks for your time.

KEVIN MARSH: Thank you.

OPERATOR: [OPERATOR INSTRUCTIONS] Ladies and gentlemen, this concludes the question and answer portion of today's conference. I will turn it back to Mr. Marsh for closing remarks. Sir.

KEVIN MARSH: Thank you very much. We appreciate your interest in the Company and certainly your questions. I'm sure you may have some follow-up questions you would like to ask. If you have those, please feel comfortable to call John Winn at Investor Relations and we'll do our best to address your issues. Thanks again. Have a good day.

OPERATOR: Thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day

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LOAD-DATE: November 11, 2005

20. Federal Document Clearing House Congressional Testimony, “HURRICANE RECOVERY AND ENERGY POLICY,” October 27, 2005

212 of 687 DOCUMENTS

Federal Document Clearing House Congressional Testimony

October 27, 2005 Thursday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 5431 words

COMMITTEE: SENATE ENERGY AND NATURAL RESOURCES

HEADLINE: HURRICANE RECOVERY AND ENERGY POLICY

TESTIMONY-BY: GALE A. NORTON, SECRETARY

AFFILIATION: UNITED STATES DEPARTMENT OF THE INTERIOR

BODY:

Statement of Gale A. Norton Secretary, United States Department of the Interior

Committee on Senate Energy and Natural Resources

October 27, 2005

Mr. Chairman and Members of the Committee, thank you for the opportunity to appear today to discuss energy policy and hurricane recovery, especially the Department of the Interior's activities and responsibilities in bringing the offshore oil and gas production in the Gulf of Mexico back on line.

Hurricanes Katrina and Rita clearly demonstrated we have no margin to mitigate the impacts of natural disasters on our energy supply. The wake-up call being sounded for the past decade has reached the point where it must be heard. The President recognized, in his National Energy Policy, that we need to increase our energy supply and invest in our energy infrastructure. The President's National Energy Policy report envisioned a long-term energy strategy. As the report stated "America's energy challenge begins with our expanding economy, growing population, and rising standard of living. Our prosperity and way of life are sustained by energy use. America has the technological know-how and environmentally sound 21st century technologies needed to meet the principal energy challenges we face: promoting energy conservation, repairing and modernizing our energy infrastructure, and increasing our energy supplies in ways that protect and improve the environment. Meeting each of these challenges is critical to expanding our economy, meeting the needs of a growing population, and raising the American standard of living." In fact, in recent testimony presented to the Senate Interior Appropriations Subcommittee by the Industrial Energy Consumers of America stated that "[s]ince 2001, natural gas prices have significantly contributed to the loss of 3.0 million manufacturing jobs and the shifting of future investment overseas."

Therefore, we must not lose sight of this fact: Diversification of our Nation's energy supply is a key goal for this Administration and must remain a top priority for our Nation's economic and national security. Achieving the goal of secure, affordable and environmentally sound energy will require diligent, concerted efforts on many fronts on both the supply and demand sides of the energy equation.

Hurricane Katrina and Rita Recovery

The oil and gas produced from the Gulf of Mexico are vital to the American economy and way of life. Production from the Gulf of Mexico provides 27% of oil and 20% of natural gas produced domestically. However, it took two major hurricanes back-to-back to drive home the importance of this region to our Nation's energy security. As a country we face tightening oil and gas supplies and higher prices. It is time to take a closer look at the full impact of Hurricanes Katrina and Rita.

The attached map shows that Hurricanes Katrina and Rita moved through a core area of offshore operations. Of the approximately 4,000 platforms, 2,900 were in the path of Katrina and Rita. One platform in the path of Katrina clocked sustained winds of 170 mph for 5-6 hours with gusts of over 200 mph. At Rita's peak on September 25, 100% of daily oil production and 80% of daily gas production in the Gulf was shut-in. Prior to Hurricane Katrina, the Gulf of Mexico produced approximately 1.5 million barrels of oil per day, and 10 billion cubic feet of natural gas per day. In the wake of these two devastating hurricanes, a significant portion of our Gulf production has been curtailed: as of October 21, 2005, some 65 million barrels of oil and 327 billion cubic feet of natural gas have not been produced due to shut-in wells. We do, however, want to note that additional facilities were shut- in due to Hurricane Wilma, resulting in an approximately four percent increase in shut-in production. These facilities did not sustain any damage and therefore, are expected to come back on line in the next few days.

There is good news regarding offshore operations. Katrina and Rita - both reaching Category 5 strength as they spun through the Gulf and the heart of the offshore energy production - caused no loss of life among offshore industry personnel or significant spills from any offshore wells on the Outer Continental Shelf (OCS). This bears repeating: We faced down two of the most devastating hurricanes ever to hit the Gulf of Mexico without one significant spill from any offshore well on the Outer Continental Shelf. Although there were some minor pollution events from lines or equipment, all subsurface safety valves installed beneath the seafloor successfully prevented uncontrolled releases of hydrocarbons into the Gulf of Mexico.

The Department of Commerce's National Oceanic and Atmospheric Administration (NOAA) has been collecting fish samples in the aftermath of the hurricanes to determine exposure to contaminates resulting from the storms. On September 29, 2005, NOAA announced the results of the first sample tests of Gulf of Mexico fish two weeks after Hurricane Katrina. The latest tests found no elevated exposure to hydrocarbon contaminants, which can be present at elevated levels in marine life after exposure to oil spills. The first round of samples were from Pensacola, Florida, along the coastlines of Alabama and Mississippi and then around the southern tip of Louisiana at the mouth of the Mississippi River and back. NOAA has advised that samples from two subsequent cruises are currently being analyzed and NOAA will continue to assess impacts throughout the year. The Department's Minerals Management Service (MMS) regulates all exploration, development and production activities on over 8,000 leases in the Gulf of Mexico alone. Since human and environmental safety are two of MMS's major goals, we are very pleased with this result.

At the same time, significant damage has been reported regarding facilities in the OCS. Katrina destroyed 47 platforms and 4 drilling rigs; extensively damaged 20 platforms and 9 drilling rigs; and shut in 95% of Gulf oil production and 88% of Gulf natural gas production. Production had not fully recovered post Katrina when Rita hit the Gulf. Rita destroyed an additional 66 platforms and 4 drilling rigs; extensively damaged 32 platforms and 10 drilling rigs; and shut in 100% of Gulf oil production and 80% of Gulf natural gas production.

Today, we are seeing incremental progress in the Gulf oil and gas production. As of October 21, 2005 shut-in numbers are 66% of the oil and 53% of the natural gas production. Again, these percentages are slightly higher post Hurricane Wilma but we expect that portion of production to resume quickly. It is fair to say, however, that oil production in the Gulf of Mexico will not be back to 100% for many months. Recovery is dependent on repairs to onshore facilities, offshore and onshore pipelines transportation systems, and offshore platforms. Generally Industry must conduct the necessary inspections of these networks, determine the repairs required, and then perform any necessary repairs. It is evident from reports received from Industry to date that this work will take approximately several months to a year. For example, we estimate, based on Industry reports, that approximately 30 percent of pipelines have not been leak tested and approximately 60 percent of underwater/riser inspections have not been completed.

Industry has reported billions of dollars in damage and we expect the figure to grow as inspections are complete. The oil and gas industry continues to use all available resources to board, assess damage, re-man and begin repair of OCS facilities, concentrating on the high-producing operations first. Even as production repairs are made, however, problems with dislocated employees, onshore support facilities, terminals, refineries and pipelines could delay the resumption of supply to market.

The industry is exploring various alternatives to restore transmission of oil and gas from the OCS while repairs are being carried out on pipelines and onshore facilities. Concerning pipelines in the area impacted by Katrina and Rita, we estimate that 45 percent of the pipelines are operational, 30 percent need repair, and 25 percent are undamaged but cannot flow due to downstream problems. In some cases, oil is being barged to shore until pipelines and other facilities can be repaired, inspected and judged safe for operation. The MMS, along with the U.S. Coast Guard, has approved these requests resulting in 33,000 barrels of oil per day being brought back online that had been shut in due to downstream refinery problems. The MMS is evaluating such applications on a case by case basis.

Both onshore natural gas processing facilities and oil refineries suffered extensive damage from the storms. In fact, some onshore production in the states of New Mexico and Texas was also shut-in due to the lack of refining capacity. Following Katrina, the Mount Bellevue plant could not accommodate any refinery product from the Dukes plant in New Mexico, where some of the natural gas produced from federal oil and gas leases in New Mexico is sent for processing. Consequently, the Dukes plant could not accommodate any raw product for approximately 24 hours resulting in some production having to be shut-in. This example serves as an illustration of the ripple effect that occurred oil and gas production and refining. It will take multiple months to repair processing plants.

A number of variables are impacting this restoration process. Industry personnel, for both offshore and onshore operations, have been and continue to be affected by the storms and must ensure their families' well-being and safety first. Onshore infrastructures suffered significant damage. For example, 16 natural gas processing plants in Louisiana and Texas are inoperable due damaged from the hurricanes.

MMS Actions

As directed by the MMS's Continuity of Operations Plan (COOP), the Gulf of Mexico Regional Office, which is located in the New Orleans area moved its COOP team to Houston, Texas, in advance of the evacuation triggered by Katrina. As Hurricane Rita bore down on Houston, the COOP team evacuated once more to the MMS's offices in Herndon, Virginia, and continued collecting and evaluating data on the status of operations in the Gulf. In addition, the MMS also moved its Lake Charles District Office operations to other district office sites in the region.

In September Johnnie Burton, the Director of the Minerals Management Service, and I visited our New Orleans staff recently relocated to Houston where we witnessed the dedicated employees hard at work to bring facilities back on line and resume normal operations. The dedication of these public servants - many of whom had their homes destroyed or severely damaged - is beyond words.

The MMS has notified all 530 MMS Region employees that they will be back to work on October 31, 2005, at one of four office sites, three in the New Orleans area and one in Houston. The top five floors of the Region's headquarters building were severely damaged and are being renovated. The bottom five floors are habitable and employees will be using this space as of October 31, 2005. All administrative and health procedures have been put in place to ensure our employees will be working in a safe and healthy environment.

The Department is also taking other actions to help bring production back online. After Katrina, it was apparent that there was massive disruption to not only the producing, transporting and processing infrastructure, but also the supporting infrastructure including the companies' land-based operations essential to repairing damage. Hurricane Rita amplified this impact by disrupting operations which had been recently reconstituted after Katrina and significantly expanded the coastal area that was disrupted. The culmination of the two storms created Herculean challenges for the industry and based on prior experience, the MMS immediately began the following:

1) streamlining processes for various permit approvals to resume production,

2) expediting reviews of requests for the temporary barging of oil until pipelines are repaired, and

3) accelerating the process to approve pipeline repairs.

MMS is also providing regulatory relief to those companies hardest hit by Hurricanes Katrina and Rita. This relief eliminates undue burdens on companies at a time when the focus must be maintained on repairing and restoring infrastructure. For example, MMS extended the time to report and pay royalties for companies that certify that they cannot report or pay due to the hurricanes' impact on their offices and staff. Finally, the effective dates for two regulations have been extended in order that we do not place additional burdens on industry at this time.

Gulf oil and gas operations account for a significant portion of our domestic production and the Department is determined to bring production back on line as quickly as possible. This is truly a vital issue, which we are pursuing every day. MMS is always striving to ensure that appropriate technology is used in the design and operation of offshore facilities and MMS assesses all potential improvements for withstanding hurricane-force wind and waves. I have been working closely with Energy Secretary Bodman and Transportation Secretary Mineta on these important issues.

Lessons Learned

Damage reports post-Rita have highlighted a problem with Mobile Offshore Drilling Units (MODU). Nineteen MODU's broke loose from their moorings and were set adrift; some causing damage to pipelines as anchors dragged along the ocean floor. To address this issue, I have called for a Conference on Mobile Offshore Drilling Units to be held at the Department, here in Washington, D.C. on November 17, 2005. During this conference we will assess lessons learned and we will define a path forward.

What lessons have we learned from the past month? Major new facilities, constructed to meet MMS's 1988 updated design standards, fared much better than their older counterparts. Typhoon was the only platform built under the 1988 standards that was destroyed. I have asked MMS to work together with the U.S. Coast Guard to investigate the destruction of the Typhoon tension leg platform. The MMS has commissioned studies that are assessing the actual wind, wave and current forces that were present in Hurricane Ivan, analyzing the consequential damage to structures and pipelines, determining the effectiveness of current design standards and pollution-prevention systems and developing recommendations for changes to industry standards and MMS regulations. If funding permits and it is practical to do so, these studies will be expanded to include information from Hurricanes Katrina and Rita.

Hurricanes Katrina and Rita confirmed that our offshore oil and gas industry produces environmentally safe energy for America. Even in the face of two back-to-back major hurricanes, all subsurface safety valves held on the OCS and there was no significant spill from production. The small amounts of oil observed in the water surrounding platforms may have come from damaged pipelines or petroleum supplies for running platform machinery, but, as stated, it did not come from OCS production wells.

In addition, the Katrina/Rita scenario has confirmed that our domestic offshore oil and gas resources are key components in the energy mix which provide some of the basic necessities Americans have come to expect - gasoline for our cars, heating fuel for our homes, natural gas to cook our meals, to power our factories, and to generate the electricity that is critical to our way of life and critical to powering our advanced economy. At present, more than 25% of America's total domestic oil and natural gas production comes from only 10% of the total OCS acreage.

Energy Development and Diversification

ANWR

President Bush's National Energy Policy report laid out a comprehensive, long-term energy strategy for securing America's energy future. That strategy recognized that to reduce our rising dependence on imported oil and gas, we must also increase domestic production while pursuing conservation and development of alternative and renewable energy sources. The President proposes to open a small portion of the Arctic National Wildlife Refuge (ANWR) to environmentally responsible oil and gas exploration using newly available, environmentally friendly technology. ANWR is by far the largest potential untapped source of onshore resources in the country. Had ANWR been opened in 1995, it is possible that today we could have oil from the area, which may have helped mitigate the effects of the hurricanes. I would like to thank you and the rest of the Congress for taking up this important issue as we continue to try to provide additional energy resources in an environmentally responsible way.

OCS 5-year plan

Under the OCS Lands Act, the MMS is required to prepare a new 5- year leasing plan that specifies the size, timing and location of areas to be considered for Federal offshore natural gas and oil leasing. The 5-year planning process provides several opportunities for MMS to work with stakeholders, including Federal and State agencies, local communities, private industry, and the general public to develop a program that offers access in an environmentally responsible manner to those areas with potential for discovery of natural gas and oil. Not every area analyzed in a 5-year plan is recommended for leasing consideration. In addition, public participation through input and comments is an integral part of preparing the environmental impact statement (EIS) in conjunction with the 5-year program, and there are multiple opportunities for public comment during the EIS process as well.

The MMS announced in late August that it is seeking initial public comment on the development of its 2007-2012 five-year leasing plan for energy development on the Outer Continental Shelf (OCS) and accompanying environmental impact statement. In seeking public comment, MMS asked the public to comment specifically on whether the existing withdrawals or moratoria should be modified or expanded to include other areas in the OCS; and whether the Interior Department should work with Congress to develop gas-only leases. Throughout the process of developing a new 5 year program, MMS requests comments from states, local and tribal governments, American Indian and Native Alaskan organizations, the oil and gas industry, Federal agencies, environmental and other interest organizations, as well as the general public. Consultation with affected parties also occurs at the local level through MMS regional offices. Of all of the comments received to date on the 5-year plan, MMS has received 8,998 comments for opening additional areas of the OCS and 2,276 against.

We have received several letters from senior citizens expressing their "strong support" for opening additional areas of the OCS. One senior citizen wrote "I'm writing to express my strong support for developing more domestic oil and natural gas resources off our coasts - in the country's Outer Continental Shelf (OCS) - by providing for more acreage for lease in the government's next five-year leasing program for 2007-2012. . . Higher energy prices of the past two years have forced me to make hard choices. And I worry that high energy prices will harm our economy affecting the value of pensions and making it more difficult for Social Security to help make ends meet."

We have also received several letters from Chambers of Commerce throughout the country. The Indiana Chamber of Commerce wrote "The Indiana Chamber of Commerce and our members are experiencing high energy costs, resulting in a negative impact on production and transportation in Indiana." The Arkansas Chamber of Commerce stated "Over the last five years the price of natural gas has risen 140%. There is no doubt this increase has played a role in the reduction of manufacturing jobs available to Arkansans."

Onshore Mineral Development

The Bureau of Land Management (BLM), an agency within the U.S. Department of the Interior, administers 261 million surface acres of public lands, located primarily in 12 Western States. The BLM sustains the health, diversity, and productivity of the public lands for the use and enjoyment of present and future generations. The BLM continues to balance the energy needs of the country while working within its multiple use framework and is mindful of alternative uses of the land it manages.

Within areas designated for appropriate mineral development, the BLM has been making a concerted effort to help bring additional oil and gas supplies to the market. Domestic production of natural gas has been increasing over the last three years. In Fiscal Year 2002, 2.1 trillion cubic feet (Tcf) of natural gas and 107.5 million barrels of oil (bbl) were produced from Federal (non-Indian) lands. In Fiscal Years 2003 and 2004, 2.2 Tcf and 3.1 Tcf and 101 million bbl and 98.2 million bbl, respectively, were produced. In addition to the Federal onshore leases, the BLM supervises the operational activities of 3,700 producing Indian oil and gas leases.

Permitting and Leasing

Processing Applications for Permits to Drill (APDs) and operating an efficient federal oil and gas leasing program continues to be a major priority for the BLM. Increased funding provided by Congress and management improvements have enabled the BLM to make significant progress in responding to the greatly increased number of APDs being submitted by industry. In FY 2004, the BLM processed 7,351 APDs, approving 6,452 (on both Federal and Indian lands). In FY 2005, the BLM had processed approximately 7,736 APDs (about 400 ahead of FY-2004's pace), approved 7,018 APDs (about 600 ahead of FY-2004's pace).

Also, as directed by the Energy Policy Act of 2005, BLM is implementing a pilot project to better coordinate APD processing. The BLM has entered into a Memorandum of Understanding with the Fish and Wildlife Service, Bureau of Indian Affairs, Army Corps of Engineers, Environmental Protection Agency, and United States Forest Service to provide staff and expertise to better coordinate activities in order to improve efficiency while maintaining environmental protection. The pilot offices will be aggressive and innovative in finding better and more efficient ways to manage the oil and gas program and within 18 months, we will have identified best management practices that can be implemented bureau wide. New money from rental revenue will help BLM accomplish this task. With more efficient processes and additional funds, we anticipate BLM could process more than 9,600 permits in FY 06 and 11,400 permits in FY 07.

The Energy Policy Act of 2005 also gives us a valuable tool for improving our NEPA compliance related to the exploration or development of oil and gas by providing a legislative determination that a set of defined and very minor development activities do not need further site specific NEPA review and if proposals meet certain conditions, they should be deemed to be categorically excluded from further NEPA review.

It is important to note the dramatic increase in the number of protests that the BLM has experienced in recent years, which create processing delays. For example, in 1999, approximately 4.5 percent of leases offered were protested; BLM received approximately 166 protests on 3,628 leases offered. In 2005, 50 percent were protested; 1,291 protests on 2,342 leases offered. The State of Utah provides a clear illustration of the impact of protests on the oil and gas program. In 2004, every lease sold in Utah was protested resulting in delays in issuing them of up to 18 months. The real challenge for BLM is that the same personnel who process protests also process APDs, conduct leasing, inspection and enforcement, land use planning, and a range of other activities.

National Petroleum Reserve-Alaska (NPR-A)

BLM is also working to make oil and gas resources in Alaska available through its leasing, exploration and development activities in the NPR-A, an area covering more than 23 million acres in the northwest corner of the state. Development of these oil and gas resources is an important component of the President's National Energy Policy. It is estimated that NPR-A contains 10.6 bbl and 61.4 Tcf undiscovered resources for the entire assessment area. The first significant commercial production from the NPR-A is expected as early as 2008.

Oil Shale

The United States holds significant oil shale resources underlying a total area of 16,000 square miles. This represents the largest known concentration of oil shale in the world and could contain the equivalent of 2.6 trillion barrels of oil. More than 70 percent of American oil shale is on Federal land, primarily in Colorado, Utah, and Wyoming. The Energy Policy Act directs that public lands in these three States be made available for research, development, and demonstration (RD&D) leasing within six months of the measure becoming law. In response to its announcement of an oil shale RD&D program, the BLM has received 20 nominations for parcels of public land to be leased in Colorado, Utah, and Wyoming. BLM intends to offer RD&D leases for the viable nominations early in 2006. BLM will also be conducting a programmatic Environmental Impact Statement and will develop a commercial leasing program by mid 2007.

Coal

The BLM is doing its part to ensure that the Nation has an efficient, affordable, and reliable domestic energy supply of coal. Bonus bids are up 177%; existing lease production is up nearly 24%; and the royalty and estimated rent income is up nearly 33%. During this time period, 2001-2004, nearly 1.8 billion tons of coal were produced from Federal leases. In addition, the Energy Policy Act of 2005 gives the Department the authority to increase the number of acres per lease, which we are working on implementing. The Office of Surface Mining Regulation and Enforcement (OSM) works with coal operators to ensure that land that has been mined is restored to its previous condition. OSM has a successful working relationship with the States and mining industry to ensure sites are properly reclaimed. OSM brings a level of regulatory stability to the benefit of all stakeholders.

Conservation and Renewable Energy

Fossil fuel development is only a part of the solution to our Nation's energy issues. We also must increase energy conservation and the use of alternative and renewable resources. The Department echoes Secretary Bodman's call for an increase in conservation measures. Most media coverage of the President's National Energy Policy and the recently enacted Energy Policy Act of 2005 focused on the parts dealing with production of traditional energy. However, both call for increased energy conservation and alternative and renewable sources as critical components to a balanced energy program. Good stewardship of resources dictates that we use energy efficiently and conserve resources. Americans have already made great strides in using energy more efficiently.

Since 1973, the United States economy has grown nearly three times faster than energy use, in part due to more efficient use of energy. Efforts over the past 20 years have proven that simple conservation actions by individuals and businesses can yield impressive results in demand reduction.

Alternative and renewable sources of energy can also play an important role in helping meet our increased energy needs. To this end, the President and the Energy Policy Act of 2005 encourage development of a cleaner, more diverse portfolio of domestic energy supplies, and include measures to aid in the development and expansion of renewable energy technologies in use today, including geothermal, wind, solar, and biomass, as well as continued research into using hydrogen as an alternative energy carrier. Such diversity helps to ensure that Americans will continue to have access to the energy they need.

With that in mind, the Department has been working hard to establish conditions that will permit the development of renewable sources both on and offshore. We are proud of our record of results. We are increasing permitting, improving land use planning, and establishing policies that emphasize the use of renewables. In fact, since 2000, we have approved 200 geothermal leases and 92 wind energy permits. To further encourage wind energy development, the BLM has prepared a national EIS, which will assist the BLM in expediting wind energy permitting across our public lands. In addition, offshore we are developing a process to implement new authority provided for in the Energy Policy Act of 2005 that allows MMS to permit alternative energy- related uses such as wind, current, and wave technology on the OCS.

Hydropower is also a key renewable energy source. The Bureau of Reclamation's 58 power plants make it the 10th largest producer of electricity in the Nation. Those plants have an exemplary record of reliability, with a forced outage rate of about one- half of the industry standard. We are continually expanding generation at our facilities by upgrading turbines. In addition, the Fish and Wildlife Service is involved with Federal Energy Regulatory Commission licensing of private hydroelectric facilities. We are working to make that process more streamlined, predictable and effective.

For solar energy, last fall the BLM issued a solar energy development policy, which, among other things, establishes the authority and procedures for BLM field offices to use when processing applications for solar projects. It helps establish solar markets by encouraging BLM field offices to consider the use of solar power for BLM facilities and field stations. More than 650 facilities owned and operated by the Department are equipped with solar systems. These include office buildings and remote systems such as weather stations and water pumps. Many other Federal agencies often use solar for power at isolated facilities as well.

Finally, the Department of the Interior continues to explore ways to encourage the use of wood biomass created as a result of wildfire prevention and healthy forest treatments. Most people think of ethanol from corn when they think of bioenergy, but wood is the source for 72 percent of all U.S. bioenergy production. Two Presidential initiatives, one to prevent catastrophic wildfires and the other to restore rangeland and forest health, encourage the removal of excess or diseased wood debris from forests and rangelands. This wood debris can be used as a renewable source of biomass energy.

The Department is working to reduce regulatory barriers and encourage the development of markets for the material produced from biomass and are actively working with other stakeholders on ways to use this resource. For instance, we will be hosting, along with the Departments of Agriculture and Energy, a conference on bioenergy. The Department will also provide training to local communities in biomass utilization.

Conclusion

Hurricanes Katrina and Rita brought devastation and destruction to a wide area of our Nation. The road to recovery after these storms will be long and, at times, very difficult. However, it is in these instances more than ever that humanity comes together as one to begin the journey toward recovery, rebuilding, and restoration. I am proud of the commitment and dedication shown by the employees of the Department of the Interior during this difficult period. Our resolve to assist in recovery and restoration activities remains strong. We will do all that we can to assist those affected by these storms as they begin the process of rebuilding. Our agency is not alone in this endeavor. We are working shoulder to shoulder with other Federal, State, local agencies, and industry in these efforts.

The disruption to our energy production in the Gulf is significant but we have learned lessons that will serve us well into the future. Most importantly, we have learned that the systems in place have worked. Modern oil and gas production techniques are effective and environmentally sound even in the most challenging and unpredictable of environments.

Thank you for the opportunity to be here today to discuss the Department's role in hurricane recovery and energy development. I will be happy to answer any questions members of the Committee may have for me.

LOAD-DATE: October 27, 2005

22. FD (Fair Disclosure) Wire, “Q3 2005 McMoRan Exploration Earnings Conference Call – Final,” October 20, 2005

244 of 687 DOCUMENTS

FD (Fair Disclosure) Wire

October 20, 2005 Thursday

TRANSCRIPT: 102005aj.762

LENGTH: 6994 words

HEADLINE: Q3 2005 McMoRan Exploration Earnings Conference Call - Final

BODY:

OPERATOR: Welcome to the McMoRan Exploration third-quarter 2005 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to Kathleen Quirk, Senior Vice President.

KATHLEEN QUIRK, SVP, TREASURER, MCMORAN EXPLORATION CO.: Good morning, everyone, and welcome to McMoRan Exploration's third-quarter 2005 conference call. Our results were released earlier this morning, and a copy of the press release is available on our website at McMoRan.com. Today's conference call is being broadcast live on the Internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. We also have several slides to supplement our comments this morning, and we will be referring to those slides during the call. You can access the slides using the webcast link on McMoRan.com. In addition to analysts and investors, the financial press has also been invited to listen to today's call, and a replay will be available on our website later today.

Before we begin today's comments, we would like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. Please refer to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.

Also on the call today are McMoRan's Co-Chairmen, Jim Bob Moffett and Richard Adkerson. I will briefly summarize our financial results and then turn the call over to Richard, who will review our operations and outlook. As usual, after our remarks, we will open the call for questions.

Today, McMoRan reported net income of 6.7 million, $0.21 per diluted share, for the third quarter compared with a loss of 8.2 million, $0.48 per share, for last year's third quarter. Diluted net income per share for the third quarter of 2005 reflects assumed conversion of McMoRan's 5% convertible preferred stock and 6% convertible senior notes, resulting in the exclusion of 0.4 million of preferred dividends and 2.1 million of interest expense and the inclusion of 15.3 million shares. These securities were not dilutive in the prior period.

Our third-quarter results included 5.8 million of exploration expense, 2.7 million of startup expenses associated with the Main Pass Energy Hub and 2.8 million of estimated repair costs associated with damage from Hurricanes Katrina and Rita. Our oil and gas revenues increased substantially during the third quarter of 2005 to 41.4 million, compared with 3.7 million during the third quarter of 2004, reflecting substantially higher oil and gas sales volumes and prices than in the year-ago period. Our third quarter of 2005 production averaged 41 million cubic feet of gas equivalents per day, including approximately 1,800 barrels of oil per day from Main Pass 299, compared with 7 million cubic feet of gas equivalents in the year-ago quarter. Prior to Hurricane Katrina on August 29th, our third-quarter production averaged approximately 55 million a day, including 2,900 barrels of oil from our share of Main Pass Block 299.

Our realized gas prices improved by 82% to an average of $10.31 per Mcf in the third quarter of 2005, from 5.65 in the year-ago period. For oil excluding Main Pass, it improved by 41% to an average of 61.18 per barrel in this year's third quarter from 43.25 last year. Our average oil realizations for Main Pass 299 during the third quarter of 2005 was $55.64 per barrel.

During the quarter, as we mentioned, our production was affected by Hurricanes Katrina and Rita, currently in the process of restoring production, which currently approximates 14 per day. We expect pending repairs to our Main Pass Block 299 and China properties and availability of third-party downstream facilities at our production to increase to 60 to 70 million a day by the end of the year, including 2,900 barrels from Main Pass 299.

We ended the quarter with $172 million of unrestricted cash, and we're in a good position as we go forward through the balance of the year.

I'd like to turn the call over to Richard, who will be referring to the slides and cover our operations and outlook.

RICHARD ADKERSON, CO-CHAIRMAN, MCMORAN EXPLORATION CO.: Good morning, everyone. This is a very active time, as we have been talking about all year, with our exploration activity and our $500 million multi-year program that we have with our private partner. We had very positive news about our drilling at one of our prospects recently, at Long Point, where we have a potentially significant discovery and significant further drilling opportunities at that prospect. We have four exploratory wells in progress, two additional wells to spud by year end.

Of the 15 prospects that we have drilled and evaluated in the program, we have had seven discoveries. And with the focused work we have done over the past five years, beginning with feed gas on the shelf and continuing with exploration there and onshore in South Louisiana, we have a significant exploration position to fit in with our strategy of drilling wells in the 15,000 to 25,000 feet depth range, and we're continuing to see a flow of very exciting opportunities because of the success that we have had and the leadership position that our company established in this area.

We have development activities underway at four of our discoveries to prepare them for production, and we have had significant growth in our capacity to produce. Prior to Katrina, we were producing in line with the guidance that we had given to you at the end of the second-quarter earnings, when we were producing at a rate of 55 million a day average through August. As Kathleen said, our production, like the rest of the industry in the Gulf, has been affected by the hurricanes, and we averaged 41 million per day for the quarter. And just as a footnote, we were only producing 7 million a day in the third quarter of '04.

We were fortunate in many ways, considering the nature and size of these storms and where they struck, that our own facilities were not more significantly affected. We had one of our exploratory drill sites flooded. We are preparing that for drilling. Our production facilities are being repaired; those repairs are nearing completion. And, depending on the availability of downstream facilities and progress that has been made in that area -- and, of course, it's affecting companies throughout the industry -- by the end of the quarter we expect to be producing at a rate of 60 to 70 million a day. And in our own fixed production, we'll see the benefits of our recent discoveries as we bring them on-stream. We have made progress despite the hurricanes in establishing our offshore LNG port at the Main Pass Energy Hub, and I'll be talking about that in a few minutes.

Page four summarizes the impact of the hurricanes. As I said, we had no major damage to our facilities. Repairs in the Main Pass area, Main Pass 299 and Main Pass 86, are nearing completion, and pipeline connections are being established. And we expect production there from the effects of Katrina to come on-stream in the fourth quarter. And by the end of the quarter, we expect full production in our producing properties west of there.

The eye wall of Katrina passed within 50 miles of the Main Pass Energy Hub platforms. Last year, Ivan was similarly very close, to the east of the Main Pass facilities. These structures were built to withstand major storms, and we have seen no apparent damage. And we are doing subsurface evaluation, but we expect these platforms to be okay, as they were designed to undertake storms.

Page five gives a location of both our production -- producing properties as well as our development properties and exploration properties that we have in progress. You can see the sheer number of properties is growing as we have had success in our program. And with continuing exploration, we expect to have production from a spread of properties as we go forward. Based on the exploration activities that we have undertaken, you can see that our company has participated in properties that have really established significant amounts of production levels and our share of production, based on our interest in our drilling arrangements, is increasing substantially.

The deep gas opportunity, for those of you who follow us know it is one that we really focused on beginning in 1998, based on Jim Bob and his team's experience in working in this area. We began a more concentrated effort to gain exploration prospects and raise the capital that was necessary to pursue those prospects. We initially assumed large acreage positions from Texaco prior to the Chevron merger and from Shell and since then, through relationships with other major oil companies and independent oil companies, have continued to build a very significant exploration position. With our success that we have had and our commitment and interest in drilling wells to these deep horizons, we continue to see partnering opportunities developing and an ongoing flow of exciting opportunities for us that we see going forward for the future.

Page seven shows the trend, the Miocene trend, where our prospects are located, as I said, 15,000 to 25,000 feet, located generally in the shallow waters, generally within the 100-foot boundary range in the shallow waters offshore and onshore. We have rights now to 275,000 gross acres in this position, and we continue to have abilities to add to that as we go forward with our exploration prospect.

The Long Point discovery was recently announced. We have just under a 27% net revenue interest in this shallow water discovery, a significant acreage position, the prospect itself going into drilling. We had an unrisked potential of 250 Bcf equivalents. It was drilled to 19,000 feet. Our wireline logs indicated 150 foot of gross interval, with a significant producing span within that interval that had excellent velocity (ph) and indicating the ability to have very high rates of production when we bring it on-stream. Within that prospect, we have significant additional drilling opportunities that have significant potential to add to this initial well discovery. Expectations are it will be a multi-well field, as many of our fields will be as we drill them.

We have exploration activities currently with four wells drilling. An important well is the JB Mountain Deep well on the South Marsh Island Block 224 area. This is a well that's located to the southeast of the producing wells at JB Mountain that were drilled under our program in that area. This acreage is not part of that program. It was acreage that we negotiated rights to, to drill separately. So the interest is not subject to the 100 Bcf payout that applied to the JB Mountain/Mound Point program in general. The well was spudded in mid-July. It's currently drilling below 20,000 feet with a targeted total depth of 23,000 feet. One of our wells, which are typically wells in the federal waters, are available for royalty relief. This well has very significant potential, and its results will be known as we reached total depth and test it.

We have additional wells drilling on prospects, Cane Ridge prospects in Vermilion Parish. The Elizabeth prospect is a separately farmed-out prospect that's located on South Marsh Island Block 230 -- again, not part of the JB Mountain/Mound Point area but separately negotiated. And in West Cameron Block 95, we have the Cabin Creek project, which was acquired by El Paso during the third quarter. And it will be testing to 19,000 feet.

We have established production on three of the seven discoveries that we made in our program, and we have development activities under way at King Kong, with two wells expected to be on production in the fourth quarter. The development well in Hurricane is currently in progress. Two wells at West Cameron 43 expect to be on production by the first quarter. Our Long Point discovery is -- completion is underway. And, like many of our prospects, because of the nature of where they are drilled, discoveries can be brought on-stream very quickly. And we expect that to come on early in 2006.

Our Blueberry Hill prospect, which is in the JB Mountain/Mound Point area -- completion equipment is ordered. It will be evaluated during 2006, and the Dawson Deep prospect has now been sanctioned by the operator, and development activities are underway with production expected by mid-2006.

Our production has been increasing significantly, of course, with these discoveries and with these development activities. The chart on page 11, we tried to show what we expect our actual averages to be, constrained by the conditions principally downstream of our facilities, resulting from the hurricanes. We averaged just over 40 million a day in the third quarter. We expect to average 30 to 40 million a day, depending, again, on when we can get access to markets during the quarter. But with our capacity with full access, we would be up to substantially higher rates, in the 60 to 70 million equivalents a day by the end of the fourth quarter.

In the JB Mountain/Mound Point activity program area, there are three wells that have been on production in the third quarter. They averaged 40 million a day from the two wells at JB Mountain and the producing well at Mound Point. Under this program, after 100 Bcf are produced, the program's interest we would back in for 50% of the program's revenues and costs, and the timing of that will depend on the well performance and future drilling activity. And our company does believe that there is significant further exploration and development activities in this area. The wells at JB Mountain and Mound Point were not damaged by the hurricane, but they are shut in because of the downstream facilities. They are expected to come on-stream in the fourth quarter.

The chart on page 13 gives a summary of our exploration prospects, and you can see that it does fit the strategy that I described. Shallow water working interest reflects our interest net of our partners' interest, depths in the 15,000 to 25,000 foot range and significant potential for each of these prospects.

Within our inventory, we have unrisked potential net to our interest of over 1.5 trillion cubic feet, so our company is getting exposed to some very significant reserve opportunities, which the story of our situation has always been exposure to significant reserves in a company that had the limited current reserve base and market capitalization with, obviously, the resulting very significant effect of the leverage of exploration.

The Main Pass opportunity is also one that gives significant leverage to our shareholders. This is using our former sulfur mine facilities at Main Pass Block 299, where we produced sulfur in significant fashion from early 1990s until August of 2000. We have dismantled the facilities there that are not used to produce oil, which -- this was a joint production facility, and the facilities that we plan to use for our energy hub activity, most significantly our planned LNG port. This is a schematic that's shown there. If anyone is new to this call, I would refer you to our website, where we have a video that shows how the LNG ships would dock at these facilities and offload LNG to be revaporized. Unique to our project is the existence of a salt dome, which provided our opportunity to mine sulfur. And our plans are to develop standard industry storage caverns within that salt dome to initially be able to store 28 Bcf, which would make this a very significant and reliable supply of gas.

The pictures of the old Main Pass sulfur mine is shown on page 15 in the upper left-hand corner. This was the largest production facility in the Gulf of Mexico when it was operating. The current configuration of the existing platforms are shown in the right-hand corner. The sulfur mine was designed to produce over 70 million tons of sulfur at a rate of 2 million tons a year. So the facilities which are located in just over 200 feet of water were designed to last for decades, and were built to withstand major storms. And now we have been tested over the past two years with that, and the facilities are withstanding those kinds of major storm activity.

The key parts in getting this project going, of course, is getting the permit. Under federal law, the permit is administered by the Coast Guard and the MARAD organization. The permitting process is nearing completion. We had, earlier this year, a Draft Environmental Impact Statement published. That was published by the Coast Guard, and its conclusion was that there were no significant adverse environmental effects. Under the process as established by law, the next steps would be for the publication of a final environmental impact statement by the Coast Guard and conducting a final round of public hearings, and with the permit decision reached 90 days after the conduct of those final hearings.

After the initial EIS or the draft EIS was published, in response to a request by the Coast Guard, we provided additional information that they felt was necessary for the final EIS. Following Hurricane Katrina and Rita, the Coast Guard has suspended the licensing processes for all offshore projects because of the state of emergency in the region. The Coast Guard has stated that their intent is to begin this process as soon as it's practical, and the Coast Guard seems to be very focused in seeing that these projects move forward. Clearly, LNG facilities are needed, as evidenced by the current shortage of natural gas production following the shut-ins with the storm and the general conditions affecting the industry.

As we have gone through the permitting process, which is the key to proceeding with this, we have initiated commercial discussions, both for supplies of LNG to the facility and also for off-take arrangements into the marketplace. And there are a number of potential opportunities for us in this area, including the possibility of leveraging this facility into upstream activities. It does provide our company very attractive business opportunity. Its location in the eastern Gulf of Mexico is very advantageous. Our permitting process includes the proposed construction of a new 36-inch pipeline to go into the region just west of Mobile Bay, which would give us access to markets in Florida and on the East Coast. And through existing access through South Louisiana, this project would have access to roughly two-thirds of the US natural gas market.

The (indiscernible) significant cabin storage, is opportunity for our project to become a reliable supplier. And just think of where we would be right now if we had had the ability to deliver 2.5 B's per day from this project, following the shortages of this storm. And it also gives us the opportunity, because of the ability to produce LNG in the storage and then to deliver in the marketplaces and advantageous times to earn margins well beyond those that would be available to us if it was just an LNG tolling facility. With the positive outlook for the gas markets and increased volatility in the market, the commercial access for our projects becomes even more viable.

The permit itself will allow us to develop and finalize these options. At this point, we have not committed to any particular arrangements, either on supply or downstream delivery, and so that would allow us to structure those in the context of today's marketplace. And we believe that's something that can be very advantageous to our company. And, as I said, the use of this project could give us potentially the opportunity to leverage that into ownership of upstream production opportunities. So, like our oil and gas exploration, this is a high potential value opportunity for our company that gives us great leverage for our shareholders.

From a financial standpoint, as Kathleen said, we have substantial amounts of unrestricted cash at the end of the quarter, $172 million. Our cash from our operations is increasing significantly; it has more than doubled since the third quarter of -- well, it's up to $62 million for the nine months, $25 million in the third quarter, even with our limited production for the Hurricane. We expect to spend total capital of around $175 million for this year, and that would include roughly $45 million in the fourth quarter for exploration and 25 million for development. Of course, our actual capital expenditure is going to be depending on the activities in our exploration and development activities

In summary, our company continues to have significant exposure to high-potential exploration prospects. It's based on the experience of our exploration team and the success that we've had and the recent success, the success over the years as well as a recent success, and our significant acreage position because of the focus, the leadership that we have had in this area. We continue to have partnership opportunities that are coming to us, and the LNG project is also an exciting new project for us.

Following the hurricane, we were up and running a day after the storm. Our operating team has temporary facilities in Houston, and our financial administrative group is here in Baton Rouge, where we are calling to you today. Our office facilities are being repaired in New Orleans, but in terms of running our business, both in terms of planning, managing and administering our operations, that has not been an issue for us. We have been able to operate effectively from these temporary offices.

So with that, Jim Bob is on the line to respond to questions. And we appreciate your interest and look forward to your questions.

KATHLEEN QUIRK: Operator, we will take questions now.

OPERATOR: (OPERATOR INSTRUCTIONS). Andrew O'Connor, Wells Capital.

ANDREW O'CONNOR, ANALYST, WELLS CAPITAL: I wanted to know, Richard, you may have stated this. When would you expect to reach total depth at JB Mountain No. 224?

RICHARD ADKERSON: Well, we are just under 20,000 feet, and drilling is proceeding. So it will be something that will be tested in the reasonably near future.

JIM BOB MOFFETT, CO-CHAIRMAN, MCMORAN EXPLORATION CO.: Assuming no mechanical troubles, we are drilling at 20,500 feet, and we are getting down to the location where we will start to see the big fall (ph) block. That's the so-called JB Mountain Deep compartment that represents the deeper image of the shallower JB -- shallower being 19,000 to 20,000 feet -- and the original El Paso well. As Richard said, this acreage is 100% controlled by us, and El Paso is not participating. But we continue to refer to this as JB Mountain Deep, because this is one big feature, about six miles wide. And we are literally drilling the deeper stratigraphy or sands that were deeper than the known production at JB Mountain Deep. So, assuming no mechanical problems, we have an exploration intermediate liner that we just set at 20,150 feet, which gives us a cased hole down to that depth. And we are going to go see if we can find some big sands like the JB Mountain. Let's hope we don't lose our rabbit's foot.

ANDREW O'CONNOR: So the current depths shown in the press release -- are they for the end of the quarter, September 30th?

JIM BOB MOFFETT: Well, the current depth in the press release, I believe, is our current depth.

ANDREW O'CONNOR: As of today?

KATHLEEN QUIRK: Right. That's correct.

ANDREW O'CONNOR: And I know there's a lot of work to be done in the fourth quarter, but at this point, is it possible to take a stab at or guesstimate capital expenditure plans and priorities for next year, 2006?

JIM BOB MOFFETT: A lot of that is going to be controlled by some of the deals that we are continuing to negotiate. As we said, we have 275,000 gross acres (indiscernible) potentially maybe double that, in terms of the amount of exposure we've had in 2006. We have several major deals that we are continuing to negotiate on in this same deep Miocene trend, which would increase the exposure we have had, along with the acreage we already hold.

So 2006 will be another big year for us, exploration-wise, based on the way the model, the Long Point discovery -- the most important part about it is it was a deep seismic feature in an area that had a lot of production at what we call the Diskarvis (ph), which is younger, Miocene and the Safadavisi (ph). That was a huge producing trend, Log Block Field (ph), North Freshwater Bayou Field (ph), Deep Lake to the west of us. So you had a tremendous production in the Miocene, just shallower than this Safadavisi, as we have done in the immediate (ph) offshore. We have gone below the depth of the existing trend in proving that the deeper Miocene -- in this case, the Safadavisi -- has similar structure and has the big force in turbo (ph) sands, similar to Diskarvis. So, as we sought to do that, this opens up a whole new trend of exploration potential for us in these deeper Miocene, and then we are going to go to the North, as you can see from the wells. Liberty Canal is just to the north of Long Point; it's another one of the deals we acquired from El Paso that we will go to the Planyalana (ph), which is just below the depth of the Safadavisi and the Long Point well.

So the momentum we are getting and the amount of data we get from the drilling and execution of our current program, with the success we are having -- as you know, success breeds success. And the momentum we are building from this discovery plus the discovery we have made in the past is really starting to snowball on us. So we look forward to a very active 2006 drilling exploration and development wells. Because the development sightedness, which will sort of be really exploitation, since we have got deeper sands to drill in all of the areas where we find these discoveries, as well as trying to expand the area of production in the original sands.

So, assuming we won't count our chickens before they hatch, assuming this well tests as well as we think it will at Long Point, which, following the big test at King Kong, which flowed 20 million a day and 3,000 plus barrels of condensate (ph), with these kinds of flow tests it's given us a tremendous incentive and given us a great opportunity to get some multiple development programs going along with our exploration activity in 2006. You add those too together, Andy, I think you'll see a very aggressive 2006 out of (indiscernible).

RICHARD ADKERSON: Andy, our exploration spending for the year in '05 will be 100, 125 million. And with what Jim Bob just said, you can expect spending to be at least that, and we will have opportunities to do more than that and then development will follow on with whatever the opportunities give us.

OPERATOR: Frank Bracken, Jefferies & Co.

FRANK BRACKEN, ANALYST, JEFFERIES & CO.: E&P stocks are weak, and Gulf of Mexico stocks have been weaker, I think, as it relates to uncertainty about startup of production and day rates getting out of control. You have outlined for us the timetable upon which your production will recover, and that should satisfy the market.

One of the bigger issues might be your availability of rigs. I think you have got a pretty unique position. Could you talk to us about the extent to which you are able to use cheaper and more available barge rigs than the big 350-foot independent cantilever rigs and just give us your own opinions on how that might possibly influence your drilling program next year?

JIM BOB MOFFETT: All of the drilling that we have been discussing this morning has been in 10 to 20 feet of water and onshore. Long Point, as some of you may have gotten, is actually an onshore well. It's in a body of water called La Blanc (ph), which is a shallow lake that has no exposure to the Gulf of Mexico because it's not open to it. It's really like drilling in a marsh. Liberty Canal, which is the (indiscernible) test to the North that we will be drilling next, is actually going to be drilled with an onshore rig. Cane Ridge that we are drilling in the Miocene is an onshore rig.

So those rigs are completely separately priced from the jackups and the jackups that were lost in the recent storms. So that plus the barge rigs -- the difference between a jackup and a barge is -- most of you may or may not know, is the barge actually is a rig that is mounted on a barge that is sunk as opposed to being jacked up. So it has a much smaller infrastructure, in terms of the amount of money to build it, and therefore the rig rates are much lower. And all of our prospects that we have been discussing can be developed, both the exploration and the development wells, with the barge rigs we have currently under contract. We have four of those, and will continue to keep those busy. We actually have just contracted for an additional potential rig that can get in and operate in these waters at depths of 20 to 40 feet. That's a semi-submersible that is much cheaper than the big jackup rig.

So the fact that we're in shallower water means that we are using shallow water rigs, and the fact that we're onshore means that we are using onshore rigs. And to give you some idea about that, the onshore rigs would have a day rate of somewhere $25,000 a day; the jackup rigs would run in excess of $100,000 a day, the big ones. So it is a significant difference. And of course, all the other costs associated with it, as you have read, with all the construction that's going on, the price of offshore boats has been doubling, quadrupling. We don't use boats in the onshore at all, and the size of the boats that we have used in our shallow water drilling operations are much less priced because they are smaller. They don't have to make these big two-day runs out to multi-hundred-feets (ph) of water, especially in the deepwater above -- it's below 600 feet.

So it's not just the rigs themselves, but all of the third-party services that you have to have -- the tugs, et cetera, et cetera -- that are not part of the cost of drilling these new Miocene wells onshore and in water depths of less than 50 feet.

OPERATOR: Phillips Johnston, JP Morgan.

PHILLIPS JOHNSTON, ANALYST, JP MORGAN: It looks like your DD&A unit cost in the quarter was significantly lower than the previous run rate. Can you comment on that, and give us a feel for what the rate might look like going forward?

RICHARD ADKERSON: Well, the DD&A rate is significantly influenced by which wells are producing, since it's calculated on an individual well-by-well basis. And our DD&A rates are a bit unusual, as I think you know, because of the situation at Main Pass versus the other prospects. So it is going to be, really, a function of when these wells come on-stream, as the quarter progresses. So it is not something that we can give you a really clearcut answer on, unfortunately, because it depends on that factor.

And then, our rates were effected in the quarter by these reversionary interests that we had from the properties that we had sold earlier that came back on-stream because, obviously, with the reversionary interests, we had no costs associated with those. I wish I could give you specific answers, but it's just not something that comes out with a clearcut deal. I'll tell you what -- we'll give some thought to it and see if we can get back to you and put something in our 10-Q so that everybody can see it.

PHILLIPS JOHNSTON: That makes sense. Assuming you can get your (indiscernible) rate for the year to the targeted 60 to 70 million a day, looking out to first quarter, what do you think the rate will look like with the addition of the new production from the three recent discoveries you have had?

RICHARD ADKERSON: Those depend on the tests that we have, you know. And as Jim Bob said, we are very optimistic based on the analysis of the log. But it will depend on the tests which we will be doing. So, as we get more information, we'll update you on that. But right now, it's going to depend on looking at that, but we're very optimistic about it.

OPERATOR: David Heikkinen, Hibernia Southcoast Capital.

DAVID HEIKKINEN, ANALYST, HIBERNIA SOUTHCOAST CAPITAL: Just kind of following on Frank's question a bit about offshore valuations, and given the Spinnaker transaction and how the market seems to not want to provide value for companies that have exploratory inventory and your success rates year to date, have you guys considered engaging someone on the valuation of your properties? Or how do you start receiving value? Can you talk about where your reserves may be at the end of this year? It's just definitely something that has left your valuation below where we think it ought to be, but wanted to get your perspective on that.

JIM BOB MOFFETT: David, as you have said, most of the reserve potentials that we're going to be studying at year end will be surrounding the new discovery we've made. Depending on what the Ryder Scott people would be willing to assign to discoveries like King Kong, we have geophysics, we have a lot of well control -- not only the well we drill, but all wells to the north, Amelia (ph) north of King Kong in the field, old (ph) depleted field called Vermilion 16. We have identical pays that they had that produced about 150 Bcf.

But, as you know, following the shadow of some of the write-downs of the companies which I don't need to mention, you all are aware of, people are pretty conservative in terms of assigning acreage to wells. And we don't have the bright spots in our prospects that people were using in some of the Pliocene. So, depending on how many of these development wells we can get drilled, like we immediately drilled the No. 2 well as an acceleration well at King Kong; that's given us some additional information. At this point, if we have the positive bids (ph) that we believe we're getting at Long Point, we're going to move in there and drill some wells right away. If we can get some of that down and get it into our technical base so that the Ryder Scott people will have some more aerial extent to deal with, we should be able to print some numbers. Absent getting that kind of data for proved reserves, we can do the probable and possible. We will try to be sure that what doesn't get delineated into a proven category -- we will try to use our in-house probable and possible reserves and state them to you in a way that you understand which is the difference between the Ryder Scott and the 3P (ph). I think the Spinnaker transaction gave everybody a pretty good insight into that. I saw where the street had estimated what the Spinnaker price was based on proved, based on proved and probable, based on proved, probable and possible. And I think one of the things that most of you have said is you were pretty well surprised by how much the buyer was willing to pay for the other two P's. And I think a lot of that is because of the ability to have 3D (ph) give you a lot more comfort about the early extent of some of these reservoirs, even without the bright spot.

So, again, as would get our development wells drilled and get some more aerial extent and get these wells on production, we should be able to start to define the reserves which will be reportable by Ryder Scott or those kinds of scrutinies. And we look forward to being able to report that to you.

RICHARD ADKERSON: We understand and appreciate the problem that you're talking about. And one thing when you step back and look at when we started on this, it is in some ways an unusual, unique sort of a way for a company like ours to approach itself. From the outset, we have been about building assets, and we have had momentum in doing that and we continue to build assets. We have not looked at trying to meet some of the criteria, which, of course, have changed over time, that the market uses in valuing smaller E&P companies. We're exposing ourselves to these very high-reserve potential prospects, and we are confident that the market will recognize those values as these prospects are evaluated in the process that Jim Bob talked about and as they are delineated and production comes on-stream. But from the outset, we have been about building values in a way that's different from the strategies that others have followed.

JIM BOB MOFFETT: And I might just emphasize the exploration acreage, the 275 that we have actually reported -- Richard had referred several times to additional acreage that we're negotiating for, and I mentioned it briefly. But let me say that because of the ability for us to have the extraordinary exposure to the deep Miocene trend in the shallow waters and Amelia onshore, as we make these discoveries, it actually is a calling card for us to get additional opportunities. We're in the process on some large acreage positions of trying to get some negotiations finalized so we can disclose them to you. They may or may not come to fruition, but the very fact that we have got our database and the wells and the experience of being able to pick the locations that have these big potential reserves has really given us the chance to open the doors to a lot of people who have held back production acreage who can't continue to sit on them. And that acreage is starting to show up, much like the Texaco/Shell deal that we did back in 1999 and 2000. So we would look forward in 2006 and the last of 2005 to having an additional portfolio of prospects to add to what we already have in-house, to allow us to continue to upgrade the quality of the prospects that we have to drill and expose the Company to for these big reserves.

OPERATOR: (OPERATOR INSTRUCTIONS).

JIM BOB MOFFETT: I think we have given you a lot of information this morning. I know we have probably left some questions unanswered about both our exploration program and about the Main Pass Energy Hub. But we will continue to try to get you a continuous flow of information, to the extent that we can disclose, of agreements and other things that are semi-confidential with our participating partners.

I'll just close by saying we began, in 1999 and 2000, with the Texaco/Shell (indiscernible). We had some significant discoveries are. Probably the biggest was the A-19 Shell well over in Brazos that we have eventually sold our 35% interest for approximately $100 million including interest (ph) proceeds. And then we participated in the JB Mountain discovery with El Paso, and now we're starting to develop our own projects, where instead of having to let other people drill our prospects and wait for reversionary interest, we have gotten enough of our capital base so that we can participate on the front end.

Then let me emphasize that all of the El Paso deals that we will be talking about -- Long Point, which El Paso had a quarter interest reversion option on, Liberty Canal, Ziegler (ph) Canal, Cane Ridge -- none of those prospects are subject to the original JB Mountain deal. And we participate with El Paso and our private partner from the initial production.

But with all those arrangements starting to come to fruition -- and significantly, discoveries like Long Point, where we have big seismic 3D buried structure with basically no stratigraphic control for the depth that we're going to go drill, the model that gives you the ability to have the confidence to go drill one of these buried mountains without having the bright spot to assure you that the thickness or aerial extent of the sand will be there, but that if you have the right type of growth on these deep features, which we can see with 3D, that this model is working and continues to work. And that bodes well for the future, because after a string of these things, it's certainly pretty obvious that it is a science. And some people might say an art more than a science. But the art is working, and I think that is going to bode well for us as we move forward into the fourth quarter of 2005 and 2006 and beyond.

Thank you, everybody, for being on the call. And we will keep you updated on the ongoing results, since we have a lot of wells drilling.

OPERATOR: Thank you. Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Have a good day.

[Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

LOAD-DATE: November 5, 2005

23. Federal Document Clearing House Congressional Testimony, “STREAMLINING REFINERY PERMITTING PROCESS,” October 18, 2005

263 of 687 DOCUMENTS

Federal Document Clearing House Congressional Testimony

October 18, 2005 Tuesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1769 words

COMMITTEE: SENATE ENVIRONMENT AND PUBLIC WORKS

HEADLINE: STREAMLINING REFINERY PERMITTING PROCESS

TESTIMONY-BY: ERIC SHAEFFER, DIRECTOR

AFFILIATION: ENVIRONMENTAL INTEGRITY PROJECT

BODY:

Statement of Eric Shaeffer Director, Environmental Integrity Project

Committee on Senate Environment and Public Works

October 18, 2005

Thank you, Mr. Chairman, for the opportunity to testify today about S. 1772, the "Gas Petroleum Refiner Improvement and Community Empowerment Act." My name is Eric Schaeffer, and I am director of the Environmental Integrity Project, a nonprofit organization dedicated to improving enforcement of the Clean Air Act and other environmental laws.

S. 1772 is aimed at increasing the supply and reducing the price of gasoline and refined products by fast-tracking environmental permits. While this legislation tries to address a real problem, the solutions it offers could increase environmental risks without making much difference to the availability or cost of gasoline. More specifically, I am concerned that S. 1772 would:

Result in poorly written permits that could increase the likelihood of accidents that could shut down refinery capacity;

Delay refinery startups by encouraging litigation over vague new standards;

Shut communities out of decisions that affect their health and property values;

Subsidize the construction of refineries on government property for some of the richest companies in America;

Reward refineries that locate or expand in hurricane zones;

Have little effect on refinery investment decisions that are ultimately driven by profit margins and conditions in the world market.

I would like to address each of these concerns in turn.

Haste Makes Waste: Badly Written Permits Increase the Risk of Shutdowns

Refineries are inherently hazardous operations, and I have nothing but respect for the men and women who work hard to keep these facilities safe while meeting America's need for fuel. But setting artificially short deadlines for reviewing applications to build or expand refineries will only increase the likelihood of accidents or violations that could ultimately lead to shutdowns. And after seeing how vulnerable our refiners are to hurricanes and high winds, we ought to take more time reviewing their design, not less.

It is also a mistake to assume, as S. 1772 does, that refinery expansions are relatively minor events that should require only a few days to permit. Such projects are a major enterprise, requiring the commitment of hundreds of millions of dollars in capital. Motiva is reportedly considering doubling the size of its existing refinery in Port Arthur, increasing current capacity by 325,000 barrels a day. An expansion on that scale is equivalent to adding two brand new refineries to the nation's capacity. The engineering judgments required to complete such projects successfully are extremely complex, especially when they involve retooling existing capacity to process sour instead of sweet crudes, as most U.S. refiners are doing today.

Permit reviews provide a critical opportunity to make sure these modifications meet environmental and safety requirements, and don't make air pollution worse in surrounding neighborhoods. Requiring hard-pressed federal and state regulators to approve or deny every permit for a major refinery expansion in ninety days is just not realistic. S. 1772 does not even require that permit applications be complete before the 90 day review period begins, which may force agencies to rubber stamp permits that are plainly inadequate.

Nor would S. 1772 give regulators the time for careful review of accident-prone or particularly hazardous operations. For example, in March of this year, an explosion at BP's Texas City refinery killed fifteen workers and injured many more. Why should regulators face an artificial deadline for approving the next expansion of this plant, unless they can be sure that it will be more safely managed? Many refiners are investing in coking capacity that allows processing of higher sulfur crudes into gasoline. But cookers are prone to accidents, which require lengthy shutdowns for repair. Rubber-stamping such operations only increases the likelihood of malfunctions that can injure or kill workers while curtailing gasoline supplies.

Rushed Permits Could Mean More Litigation and Delayed Startup

Poorly written permits seem likely to spawn the kind of legal challenges that this bill seeks to avoid. The problem is compounded when vague language is used that implies a shift in legal standards. For example, S. 1722 says that EPA "shall use State permitting and monitoring procedures to satisfy substantially similar Federal requirements under this title." Speaking from experience, I can testify that lawyers love to fight over what words like, "substantially similar" really mean. The bill requires participating agencies to consolidate permits, but then appears to allow piecemeal approval of components, which could further add to the confusion. Permits that are rushed through review with ambiguous language left unresolved are more likely to face court challenges, which could add to the delay in starting up new capacity.

The Public Needs a Voice in Permitting Decisions that Affect their Health and Property

Refineries are major sources of pollution and, with few exceptions, are situated right in the middle of heavily populated residential neighborhoods that must breathe the exhaust from the refining process every day. Communities like Port Arthur, Texas, and Lake Charles, Louisiana, suffer from chronic air pollution and high asthma rates, and are already overwhelmed with refinery expansions. In 2002, more than 207,000 children in Texas attended school within two miles of a refinery or chemical plant.

These are the very people hardest hit by Hurricanes Katrina and Rita which, in Louisiana alone, spewed more than 8 million gallons of oil across the state. The recent spill from the Murphy oil refinery contaminated as many as 1,000 homes, some of which may have to be bulldozed. The USEPA's own sampling shows that sediments in some neighborhoods are soaked with diesel oil and gasoline far above the state of Louisiana's cleanup standards.

The Clean Air Act has always allowed for public review of major permitting decisions, on the reasonable assumption that those who live next to large refineries have an obvious stake in decisions that affect their health and property. These communities are not against refineries, but do expect that they will be built and managed as safely as possible. The rubber-stamp permit process authorized under S. 1722 will eliminate any real public involvement, especially among those people still digging out after the hurricane. There is something fundamentally unfair about telling residents still scraping oil off their houses, some of whom may be suffering from asthma, that they had better make way for an even bigger refinery and be quick about it.

Oil Companies Do Not Need our Tax Dollars to Build Refineries

S. 1722 would shift tax dollars to some of the richest industries in America, by subsidizing the construction of refineries on military property. The top five oil companies have reported a quarter of a trillion dollars a year since 2001. While the stock market has been flat for almost everyone else this year, at least three refiners (Valero, Conoco-Phillips and Sunoco) have offered stock splits in the last six months. Valero, now the nation's largest refiner, has reported eight successive quarters of record earnings, and Citgo paid its shareholders a $400 million dividend earlier this year. I would respectfully suggest that this is not an industry that ought to qualify for a handout from hard-working taxpayers.

Will our Refineries Stand Up to the Next Hurricane? Almost half of the nation's refining capacity is in Gulf Coast states, which is also where the largest expansions are underway. In fact, Citgo and Murphy Oil in Louisiana had just completed such expansions before the recent hurricanes forced their shutdown. Katrina literally ripped oil tanks off their moorings, spewing their contents for miles around. The government of Jamaica recently announced that the expansion of a major aluminum refinery in that country would have to meet construction standards designed to withstand hurricanes and high winds. If Jamaica has figured out that its energy infrastructure must be designed for its climate, why can't we?

Even if you don't believe global warming is the cause, meteorologists agree that we are entering a weather cycle in which tropical storms and hurricanes will be more severe. If Congress is going to encourage construction of more refineries, surely we should ask whether so much of our energy infrastructure ought to be situated where natural disasters are most likely to strike. S. 1722 does not address this problem.

Profit Margins Determine Refinery Capacity, Not Environmental Rules

Ultimately, the bill may rest on a shaky premise, as Clean Air Act permitting provisions seem to have only a marginal effect on decisions by oil companies to invest in new refining capacity. The President of the American Petroleum Institute informed Congressman Barton's subcommittee last year that, "We have not said that environmental costs are responsible for the higher prices." The Department of Energy tells us that low sulfur gasoline and diesel fuels are not expected to affect refining costs over the next few years. Industry and government analysts alike agree that profit margins are the most significant factor, and record profits from high gasoline prices have encouraged a major investment in added refining capacity. Projects already reported or announced are expected to add nearly 600,000 barrels a day to our existing capacity over the next several years.

The Public Wants a More Fuel-Efficient Economy

Of course, the surest way to secure enough gasoline at a reasonable price is to reduce our consumption. New automotive technologies, even for heavier vehicles, are achieving much higher fuel efficiency without compromising safety. Data from the Department of Energy shows demand had begun moderating in response to high prices even before the hurricane, as consumers shop for more energy efficient choices. Last December, energy analysts at Booz-Allen cautioned refiners that demand for gasoline would "plummet" below supply as easily as 2007, if inflation adjusted prices remained at $2 per gallon, well above today's levels.

A recent poll by the Pew Charitable Trusts shows that eighty-six percent of respondents would support tighter fuel economy standards. I hope that Congress will find time to consider a solution that the public is so clearly ready to embrace.

LOAD-DATE: October 19, 2005

25. Federal News Service, “DEFENSE DEPARTMENT SPECIAL BRIEFING RE: HURRICANES KATRINA AND RITA CLEAN-UP BRIEFER: LT. GEN. CARL STROCK, USA, COMMANDER, U.S. ARMY CORPS OF ENGINEERS MODERATOR: BRYAN WHITMAN, PENTAGON SPOKESMAN LOCATION: PENTAGON BRIEFING ROOM, ARLINGTON, VIRGINIA,” October 6, 2005

308 of 687 DOCUMENTS

Federal News Service

October 6, 2005 Thursday

SECTION: DEPARTMENT DEFENSE BRIEFING

LENGTH: 5863 words

HEADLINE: DEFENSE DEPARTMENT SPECIAL BRIEFING

RE: HURRICANES KATRINA AND RITA CLEAN-UP

BRIEFER: LT. GEN. CARL STROCK, USA, COMMANDER, U.S. ARMY CORPS OF ENGINEERS

MODERATOR: BRYAN WHITMAN, PENTAGON SPOKESMAN

LOCATION: PENTAGON BRIEFING ROOM, ARLINGTON, VIRGINIA

BODY:

MR. WHITMAN: A quick announcement before we get started here, and that is with respect to our briefing this afternoon with Larry DiRita and General Ham giving you an operational update. We're going to have to move that just a little bit. We're going to have to shift it to the right by about 30 minutes. And so we will be doing that one at 3:30 p.m. today. It'll give you a little more time between this one.

Today we have with us again General Carl Strock, somebody that doesn't need any introduction to you. He's been kind enough to come here on a periodic occasion and give you an update on what the Corps of Engineers has been doing down in Louisiana. And without anything further, I think I'll just turn it over to him. And he's got some things that he wants to open with, and then we'll get into some questions.

Thank you.

GEN. STROCK: Thank you, and good afternoon. I really do appreciate this opportunity to spend a little time with you all, and what I'd like to do is just remind you of some of the elements of the Corps of Engineers role in response and recovery to Hurricanes Katrina and Rita, and then answer any questions you might have of us.

Before I start, I'd like to clarify one thing that's a bit confusing to some folks. When you see me up here in uniform and I talk about the U.S. Army Corps of Engineers, there are really two Corps of Engineers. One is the branch of the Army, and that branch as about 80,000 soldiers which are active Guard and Reserve, and then you have a major command of the Army called the U.S. Army Corps of Engineers, which is what I command. And that is comprised of 34,000 people. All but about 500 are civilians, career civilians, in all fields of endeavor. So when we talk about the Corps of Engineers response here, it's mainly those people that I'm talking about. So in the past you've seen me as a military officer and I refer to, well, that's what the military's doing, that was some of the confusion in previous occasions when I've spoken with you. So that's who I am and what we do.

We have standing missions in civil works. We're responsible principally for the nation's water resources. We do inland and deep draft navigation. We do flood control, hydroelectric generation, a lot of recreation, and a lot of things in the civil community. And those skills then come to bear when we respond to disaster.

We also have a large military construction mission, which is worldwide, where we support military forces and provide the facilities they need for training and readiness.

In terms of our response to hurricanes Katrina and Rita, again we're doing three ways: direct support to FEMA; we're in support of the Department of Defense response, which is also in support of FEMA; and we're doing our inherent mission responsibilities mainly related to flood control and navigation.

Where FEMA is concerned we are responding as part of the National Response Plan, which is based on the old Federal Response Plan, which used to be just directed at response to natural disaster. With the creation of the Department of Homeland Security and putting FEMA under the department, they've broadened the response plan to include response to terrorist attacks with the idea that the cause of the catastrophe, while important, is not really relevant in terms of our response. Because what you have is the same results: you have displaced people in need of food and water and shelter and medical attention and all those things. And so FEMA now responds to -- regardless of the nature of the incident -- responds in pretty much the same way, and that's the theory behind the National Response Plan.

We are responsible for what is called Emergency Support Function 3, which is ESF3; that's public works. There are 15 of these ESFs and -- for which different branches -- or different departments have responsibility. Under that, we have missions to provide the bulk ice and water. We provide temporary power, temporary roofing, debris removal, which is our biggest mission in this one. We're doing technical assistance, and we're responsible for inter-agency coordination of infrastructure requirements in the response and recovery. We also do special missions like the unwatering of New Orleans that I'm sure you're very familiar with.

In terms of support to the Department of Defense, it's mainly through staff augmentation. Both the Joint Task Force has stood up in response to Hurricane Katrina under General Honore, and the similar one that stood up under General Clark from Fifth Army to respond to Rita. Both of those had personnel from the Corps of Engineers; general officers who are in command of our divisions that went forward to become the engineer and took with them military and civilian staff members to help coordinate the activities of military forces -- federal military forces that were responding. Air Force, Navy, Marines and sea -- and Army Engineers were out there responding to the disaster.

In terms of our own inherent missions, there's a public law called 8499, which gives us authority to do flood fighting without doing it under FEMA control, without being directed to do so, because we have a responsibility in those instances.

So we are now using those authorities to respond to this, and that mainly takes the form of doing the actual flood fights during the emergency and then repairing the systems back to their original configuration following the emergency. We use these funds to do that.

The other big mission is restoration of navigation. And we've now had two very successful occasions to get involved in that, first under Katrina and then under Rita. And in both cases we've worked very closely with the National Oceanographic and Atmospheric Administration to do surveys of the ports and channels, and with the Coast Guard to restore navigation aids. And then, where necessary to move obstructions or shoaling, the Corps of Engineers goes in and takes care of that mission. So we've done that in both cases.

Just a quick update. As you know, Rita did not have the catastrophic impact that we thought. But like Katrina, we were prepositioned. We had response teams ready to go and then move into the disaster area, once the weather cleared, in all the areas that I talked about.

One of the more challenging aspects of Rita for us has been the response to -- the need to respond to power requirements. There was some significant damage to the fixed power production in Texas and so there's been a very heavy reliance on temporary generation. We're talking fairly significant generators here. We're not talking little Honda things; we're talking generators that can power up whole hospitals or administrative facilities. So generation has been a big role here.

We also had a significant roofing mission in Katrina -- I mean in Rita, much like in Katrina. Right now we're looking at -- we estimate about 70,000 roofs in Louisiana and about 35,000 in Mississippi, and about 5,000 in Texas. So a big mission to go in and allow people to reoccupy their homes until they can put permanent repairs in place. This is critical to solving some of the housing shortages we see, is to put people back where they live.

The debris mission is also one of the most significant ones for us. Right now we estimate that we have somewhere between 40 (million) and 70 million cubic yards of debris to move. And again, to put that in perspective, if you can all remember Hurricane Andrew, about 18 million yards of debris then, and it took about nine months to clean up. So this is a huge effort on this. The range there has to do with whether or not we do removal of private debris. Typically we just remove debris from public rights of way, and we will take private citizens' debris when they bring it to those rights of way. That's about 40,000 (sic/40 million) cubic yards of debris. If we get involved in demolition and removal of residential and structural debris, then it could go up to 70 million cubic yards. We have been very successful so far. We've moved about 8 million cubic yards in the last 30 days. Again, think back to Andrew, 18 million, nine months. We've moved 8 million in 30 days here. And the reason we were able to do that is we put very large contracts in place and we surged on this mission because it really is the way that we set the conditions for recovery by getting people access back into their homes and towns and allowing the recovery to begin to take place.

So debris has been a big part of this mission.

Associated with that -- well, before I get into that piece, the other things we're doing right now that are related to our inherent responsibilities are conducting project condition surveys. And we do this for a couple of reasons. First of all, we need to put the projects back in their condition that they were pre-landfall, and so we got to go out and figure out what needs to be done there and then make those needs known to Congress and the administration for resourcing.

But the second is, we also need to make sure the decision makers are aware of the level of risk associated with the condition of the projects, especially our flood and hurricane protection projects. And as you know, Mayor Nagin, in his decision on when and how to reoccupy the city of New Orleans, has to understand those risks. And we characterize the risk to the citizens of New Orleans in two ways. First of all, risk to normal rain events because the city's pumps which normally pump down the rainwater are at significantly reduced capacity. So, for example, in central New Orleans, the pumps are only operating at 40 percent capacity, so it's conceivable if you get a prolonged rain event you could get another six feet of water back in there that the pumps simply can't contend with.

The other risk has to do with the integrity of the levee systems around New Orleans. We saw that in Hurricane Rita we had some overtopping of the repairs that we made following Katrina. We anticipated a storm surge of anywhere from three to six feet in Lake Ponchartrain, and in the Inner Harbor part of the city we got about eight feet of storm surge. So we were not prepared for that, so we saw elements of St. Bernard's Parish, specifically the Ninth Ward, got reflooded during Rita.

Just to give you an idea of the kind of forces we're dealing with here, Rita was over 200 miles away, but it caused a surge of that magnitude in the Inner Harbor of New Orleans, eight feet of additional water from a system that passed that far away. So these are tremendously powerful events we're dealing with here.

The other thing, of course, we're doing is assessing the performance of the system because we want to put it back in shape as quickly as possible. It is our goal that by the beginning of next hurricane season, which is around the 1st of June of next year, we will have the Category 3 protection that existed prior to Katrina back in place. And that's an ambitious goal, but we think we can make it.

One of the critical things there is if there's some problem with the design we had there, if there was some reason why we had breaches in the flood walls in the inner part of the city that had to do with a design error or anything like that, we want to find that out so as we rebuild the system we can incorporate those fixes into it.

So just real sense of urgency at understanding exactly what happened out there is a big part of our effort right now.

Let me close by just talking a little bit about contracting, because I know there's a lot of interest about that. We have used, in some cases, sole-source contracts, but I would say that that is -- only as a last resort and only with full justification do we do that.

The federal acquisition regulations allow you to use sole- sourcing in emergency situations. We certainly faced that in the early days. And we did a number of both small business and large business sole-source contracts to get things going.

Since that time, though, all of our contracts have been competitive. And we are trying very hard to create opportunities for small and local business, so that we can stimulate the economy in the impacted areas.

One of the most notable areas I mentioned earlier was the debris, about a $2 billion mission assignment from FEMA to do that.

We have given all of our debris contracts so far to large businesses, because we face that tension of a rapid response and getting things going quickly, which you can do with large firms that can mobilize and bring resources to bear very quickly, versus the need to stimulate the economy through use of small and local businesses. A small and local would require the more dispersed effort on our part and would have been much more difficult to get the kind of traction we've gotten on the debris effort.

So unfortunately, we have given out $2 million of capacity in the -- or $2 billion worth of capacity in debris contracts.

I want to underscore the word "capacity." What we do is, we advertise these. We had 22 contractors that bid on these. We found 17 to be acceptable, and we awarded to four. We awarded four $500 million capacity contracts, and we will start then issuing task orders against those.

At the same time, though, we'll be looking for opportunities, now that the crisis is largely past, to create opportunities in debris and roofing and other areas for small and local business to get involved.

So in summary, we feel like we are at the early stages of setting the conditions for recovery. We think we have a good plan and a way ahead. We feel like we're certainly adequately resourced through FEMA to carry out what we need to do to do our ESF-3 responsibilities.

And we're also now standing up and reconstituting our capability to respond to any other natural or terrorist attack -- natural disaster or terrorist attack that might be looming on the horizon.

Well, thank you very much for your patience, and I'd be happy to entertain any questions you might have. Yes, ma'am.

Q On the levees, could you walk back through that in a little more detail for a second?

GEN. STROCK: Sure.

Q You're rebuilding to category 3 --

GEN. STROCK: Yes.

Q -- which is what you had. Why not -- just for us laymen, why not go ahead and, number one, rebuild to 4: is it a question of finances or risk benefits? And what's your feeling about this possibility of a design error? Do you think there is one? What's -- what's your initial analysis?

GEN. STROCK: (To staff.) If I could have the slide that shows the levee system? Can you pop that up here for me?

First of all, why not go to cat 5. The principal thing is authorities. We must have authority to do that. We must be directed through legislation to put that level of protection in. So that's the first thing that's necessary.

We have been studying the feasibility of a category 5 protection for a number of years. In 1999 we were directed to begin that study. We do a thing called a reconnaissance study, and essentially that's a study to look at whether or not it would be feasible to provide level 5 protection to the city. And a very important aspect of that is whether there's a federal interest in doing so, because the federal government does not get involved unless there's a federal interest. And all of these projects are done with a local sponsor who provides a cost share.

The levee system we're talking about here -- and it's mainly -- well, there are a number of projects here. Most of the levees you see depicted here are part of the Lake Ponchetrain hurricane protection system, funded 70 federal, 30 percent local. And once we build the thing, we turn it over to the locals for ownership, operation and maintenance.

So part of it is the authority to go to category 5. That reconnaissance study indicated it was feasible, and there is a federal interest. The next step is to go to a feasibility study, where you begin to get into detailed planning. This, again, is cost-shared. Reconnaissance is all federal; feasibility is 50-50 cost share, and the cost of that study is probably about $12 million to get that study complete. So that's the next step, would be to move into that phase with the local sponsor. And I'm sure there will be a lot of interest in moving that ahead as quickly as we can.

Q And it's -- the design there? By the way, do you need that also to go just to 4 or only to go to 5?

GEN. STROCK: Four or 5. Right now our authorization is to category 3.

Q And what's your instinct on the question of a design error? Is it a design error, or maybe the storm was stronger than anybody thought?

GEN. STROCK: Well, that's -- that's what we have to find out, ma'am. What I -- I'm being very careful to describe these as breaches and overtopping where we know overtopping occurred. But in the canal sections, where we had flood walls that were breached, I'm not calling those failures yet, because a failure is when something doesn't operate as designed. And what we have to go down and look at, what forces were put against these structures.

We know that the hurricane was a Category 4 when it made landfall in Louisiana, which was away from New Orleans. And then we know that it was a Category 3 when it made landfall in Mississippi. These storms are characterized by wind speeds, by storm surges, and by the barometric pressures associated with them -- all of them have an influence in the pressures and stresses put on our structures. So we're going to go through a very detailed engineering analysis to find out what stresses those projects were subjected to; whether it was a question of overtopping, erosion -- just why it is that those flood walls breached.

I really don't have any intuitive response to that, except to say that we know that down in here -- this is St. Bernard's Parish here -- that the levees back here were clearly overtopped, overtopped by a storm surge coming out of Lake Borgne. We saw the same thing further to the south in Plaquemines Parish. Breton Sound, we think the storm surge coming out of there caused the overtopping of those levees.

Up here in Lake Ponchatrain, we're not sure whether it was overtopping or whether it was simply the hydraulic impact there. And the thing that we're really looking at here of interest is that you have flood walls all along the lake front here. The flood walls that breached were in these canals in narrow areas. So perhaps there's something associated with the hydraulic activity inside those narrow canals, and that's what we're really focusing our efforts on here at the 17th, here in the London Avenue, and also in the inner harbor of New Orleans. And here we have the Missouri River Gulf Outlet which could have forced waters into here. We have a Gulf Intracoastal Waterway, and then we have a navigation channel coming out of the lake here. So we're going to look at how that water moved in there, what impact that might have had on the structure.

Q So sorry, very quickly. When you say hydraulic, do you mean mechanical issues?

GEN. STROCK: Hydraulic in terms of moving water.

Q Oh, but not mechanically at all? Just how the water itself moves --

GEN. STROCK: No, ma'am, no, it's just the moving water. Yes, ma'am.

Q Right. Okay.

GEN. STROCK: Sorry for that lengthy -- it's a very, very complex task to take on here.

Q No. Thank you.

GEN. STROCK: Yes, ma'am?

Q Can you be a little -- can you give us a little bit more detail on the contracts that have been issued to date? Can you just say about how many total there have been issued for what, generally, total amount of money, and then of that, how much were sole-source contracts?

GEN. STROCK: Yes. That's a constantly moving thing, and there's all kinds of ways to look at how much -- how many task orders have actually been delivered versus a contract in place. Debris, for example; we have $2 billion of capacity, but we haven't issued a lot of task orders against that, I mean not in a relative sense.

Just some figures I have, the latest I have right now is we have awarded, through a competitive -- through contracting, about $500 million of contracting. About -- and this is not -- this does not include those debris contracts, aside from those; $500 million, about half of that has gone to small business. And of those 18 contracts to small business, eight of those were awarded sole-source as a relatively small part of that. On the large business side, 28 contracts to large business. So that's a total of 46 contracts; 28 of those have gone to large business, for about $240 million, and of those, five were sole-source based on emergency situations.

We also have a lot of simplified acquisitions. And there was some discussion about the level of authority for simplified acquisition. And these are when we can simply issue letter orders for products and services. We've done about $28 million worth of simplified acquisitions, a total of about a hundred, and 60 percent of those have gone to small business. And about 40 percent of that hundred have been sole-source, without a competitive -- simplified acquisition process. So we have --

Q What are these things for if they're not for debris?

GEN. STROCK: Well, they're for services like data gathering, dump trucks, things that can be provided that are not -- not more complicated projects. Also there's a dollar threshold associated with this, and I can't recall what it is. I think it's about $250,000. It was raised to that for this particular event.

Q And can you project out how much you think this will cost?

GEN. STROCK: The overall response? Well, we have over $3 billion worth of mission assignments from FEMA, which includes the debris, the ice, the water, the power and the roofing. So that part, about $3 billion. We think that the restoration of the levee system in Plaquemines Parish and in the parishes around New Orleans is probably going to cost about an additional $1.6 billion. And we have already received around $450 million in funding to carry out our work on navigation and flood control. So you're talking about $2 billion there probably associated with the repair and restoration of the levees and navigation systems. So all together, the Corps of Engineers, probably about $5 billion in this effort.

Yes, sir?

Q You mentioned last time that there was a study that showed, as you remembered, it would cost about $2.5 billion -- a minimum of $2.5 billion to bring these levees up to 4 or 5. Have there been any concrete steps taken toward that? I mean, you mentioned earlier that you-all would need authorization to do that. Have there been any concrete steps?

GEN. STROCK: No, not to move ahead to the Category 5 protection, no, sir. That still remains an initial estimate, and it's somewhere between $2.5 and $3.5 billion, depending on what you decide to do.

Q And also, to use that terrible Pentagon word, has the city been unwatered? How close is it to being unwatered?

GEN. STROCK: Today -- it should be unwatered today, and I believe it is. I think we're pretty well down. There may be some small pockets here and there, but the city is essentially dry now. And we have restored -- I mentioned earlier, prior to Rita, we had a 7 foot level of protection; that's 7 feet above the normal level of Lake Pontchartrain. That's now at 10 feet at all the breached sites in and around the city. So we have gotten that level of protection restored.

We use the unwatering term because once water gets into a structure, you have to unwater it. Dewatering is keeping water out of a structure or construction site, so sorry for that little twist of words there.

Q Well, correct me if I'm wrong. You say that you're going to 10 feet now --

GEN. STROCK: Yes, sir.

Q -- (inaudible) -- going to 10 feet, and you hope to go to 14 feet by -- 14 feet, I think, was --

GEN. STROCK: There are various levels depending on where you are in the system. Some of these flood walls are as high as 17 1/2 feet. The initial -- the system is designed to handle a surge in Lake Pontchartrain up to 11 1/2 feet, and then we build above that for wave action and the factor of safety. But that would all come prior to next hurricane season.

Yes, sir?

Q I'm sorry. You mentioned you needed legislation to move to Category 4 or 5. Is that congressional, or is that at state level?

GEN. STROCK: It would require congressional legislation. I mean, the state could do it on their own, but obviously they'd like some federal assistance here. But that would be congressional legislation.

Q And walk me through the process. The next step would be a feasibility study, and then how long does that take? And what happens after that?

GEN. STROCK: Yes. Well, in normal times a feasibility study of this complexity and magnitude would probably take us 24 to 30 months just to complete and get to what is called a chiefs report. And the chiefs report says is it technically feasible; is it economically justified; and is it environmentally acceptable. We clearly -- if directed to continue with this Category 5 study, we need to compress that timeline. One of the challenges we have -- there are certain blocks of time which you must into a schedule. These are typically associated with the National Environmental Policy Act. The NEPA processes of public notification and comment, which require you to have a period of time that can be -- that things can be scrutinized by the public and interested parties.

Q Are local governments going to have to hold hearings on -- if the Congress says, yes, you can upgrade 4 and 5, are there going to have to be public hearings at the local government level, from people who live nearby where they can object if they feel that live near it, but they don't want it to go up to 4 or 5?

GEN. STROCK: Yes, and that's the NEPA process. It allows people to have their say. It allows people to look at it from all aspects, from environmental, social, economic, and it allows them to have their say, which we consider in making our recommendation.

Q Do you know how long that process takes?

GEN. STROCK: Well, that's why I say a feasibility study to get to a chief's report and get through all those processes is 24 to 30 months, normally. Again, we'll try to compress that.

And then the actual construction is the other limiting factor, the physical business of constructing the project. Depending on what we decide to do, it could be years before we get it. Again, if we are given the go-ahead to implement, then we will look for ways to fast- track that construction and get it in place as quickly as possible.

Yes, ma'am?

Q You were talking about the problem with the pump, the fact that a large number of them are incapacitated. Are they broken, or are they -- you can't get to them because of debris? What is the problem? And how long do you think it'll take to fix it? And is that your mission?

GEN. STROCK: The main problem is damage during flooding.

(To staff.) If you could go back to this one -- yeah, I'll show you this one -- and then maybe the cross-section, and many of your -- what you see -- and I know you can't see it very well here, but these dots down here are pumping stations. The newer ones are up along the levees here. Some of the older ones -- some of these have been in place for a hundred years or more. These are -- some of these are old, old systems.

These pumps are part of a thing called the Southeast Louisiana Project, and they are all about de-watering the city, keeping rain -- getting rainwater out of the city. These are not meant to fight floods. So this is just about interior drainage. And so there there's a certain limit to their capacity. And the way they're positioned in the city, if the city is flooded, when the city was flooded, the pumps and their electrical infrastructure went under water because they're not designed to operate during floods.

So our challenge now is getting the water out of the city, bringing the pumps out of the water and then getting them rehabbed and back in shape.

It requires us to drain the fluids out of the pumps and replace those. It requires us to rehab generation and get power back in and so on. So that's the challenge right now with the pumps in the city.

Q How long do you think it will take?

GEN. STROCK: Well, I can't give you a good answer on that. We went from zero to about 40 percent here in the central part of the city in about three weeks. Some of these are long term, as I mentioned; some of these are very old pumps, and in fact the only place you can get parts for these pumps is manufacturing sites down in this area of New Orleans where they actually build parts for some of these pumping systems. So I can't give you a good answer on how long that might take.

Q But if next week, say, there were sustained heavy rains, you could end up with another six feet of water?

GEN. STROCK: Yeah, at the outside. We've got our hydrographic models that show us for various levels of rainfall in the city how much ponding we could expect based on the condition of the pumps. And if you look up at this area of the city here, this is the lowest part of the city, this is where you might get as much as six feet if that should occur. And then as you move toward the Mississippi River, the flooding is less and less.

Could I have that cross-section, Mark, if that's available real quickly? (Pause.) This is what we face here. If you look at distance from the sea, this is the Mississippi River over here, and this is the side of the city the French Quarter's on. In fact, the French Quarter's right there. This is cut through the city from the French Quarter to the University of New Orleans. This point right here is 116 miles from the ocean by river. This point here is essentially at sea level. Typically Lake Ponchartrain is about one foot above sea level.

And this is the real challenge of New Orleans here. The ground was built up by the Mississippi River, and so you have the higher portions of the city here, which are not as prone to flooding, and the lower portions over here. And we have a series of bowls within the city that will fill up with water. This is where the pumps are supposed to move that water out of here. And that's the challenge we face in New Orleans for rainwater.

Did I get all your questions in? Thank you.

Yes, sir?

Q General, with the time frames that you mentioned for studying and constructing, would that be further compressed if you went to a different system? You mentioned last time you were here about some sea walls that were rejected last time. Would that be a possibly quicker way to do this?

GEN. STROCK: Potentially, yes.

If I could have the navigation chart here, I'll show you what we're talking about there. (Pause.) This was a -- and there's a lot of controversy associated with this. One more. There we go.

The original 1965 proposal by the Corps of Engineers was to build barriers down here -- this is Lake Ponchartrain, and you have narrow inlets down here, and the idea was to build barriers there which could be closed in times like this to prevent a storm surge getting up into the lake. If you built those barriers and took off a good part of that storm surge, you could protect New Orleans with lower levees. At that time the levees -- we thought 10- to 14-foot levees would protect New Orleans if we installed those barriers.

We now have levees on the magnitude of 16 to 17 feet around New Orleans. So lower levees because you had a barrier to take off the storm surge.

For a lot of reasons, we abandoned that plan and went to what we've called a high level plan of protection, which is what we currently have. So, that would certainly be something we would consider as we look at that category 5 protection.

Theoretically -- and I'm just -- this is purely theoretical -- if those barriers were put in and could take off some of the storm surge, you might not need to raise the level of these levees now if you get to category 5, because category 3 required lower levees than what we have now. So, it might be possible by just installing barriers and reinforcing some of the levees to get to category 5. The challenge would be, though, in -- in St. Bernard's parish, this is Lake Borgne right here, there would be no barrier there, and we still have that storm surge to content with on those levees. And then, down here, in Plaquemines parish, we've got this -- this storm surge out of Breton Sound here, where really overtopped the levees down in Plaquemines. So --

Q What are the objections to the barriers?

GEN. STROCK: Well, you know, it's a real complex and long story. Recall that in 1965 this was our proposal; in 1969 the NEPA act was passed, and that required environmental impact statements and studies. The original project was challenged on the adequacy of the environmental impact statement and concerns over restricted water flows into Lake Ponchetrain and the effect on that ecosystem. And then there was a significant amount of litigation that lasted about 12 years, when we finally said we will not do the barrier plan, we will go to the high level plan. And there were a lot of steps in between that, some of which drove the costs in a different way. The barrier plan in 1965 was felt to be the most economic plan. But by the time we got into the '70s, the high level plan actually became more cost- effective than the barrier plan. So, depending on where you want to take a snapshot in time on this project, you could make a case for either approach.

The barriers are an effective mechanism. The city of London in England is protected from storm surge by a moving surge barrier. Holland has a series of extensive barriers that are put in place when the North Sea swells occur. So it's proven technology, and it's something we would consider as a solution to cat 5 protection.

Q General, on -- on -- on the feasibility study on the levees, is this a given? Or do you have to have -- do you need authorization for that? (Off mike.)

GEN. STROCK: Well, we have authorization, sir, now to -- there's an authorized study. And that study has gone on. What it would require is funding to move to the feasibility stage. In this year's water resources bill there is funding in there -- not enough -- about $250,000 from the Senate to begin the study. So there's an opportunity as they conference that bill between the House and the Senate to put the adequate resources to accomplish this study.

We think if we cost share it would take about $4 million to take care of next year's study. If it -- if we do not get a local share, then about $8 million is what it would take to do the study.

Q Thank you.

MR. WHITMAN: All right. Thank you very much.

Q Thank you, General.

GEN. STROCK: Well, thank you all very much.

MR. WHITMAN: I have one more announcement to make, and it has to do with the first announcement that I made, and that is the briefing that I said was at 3:00 and moving to 3:30 is now moved back to 3:00. So disregard the earlier announcement and you'll be fine. (Light laughter.)

LOAD-DATE: October 8, 2005

26. Federal Document Clearing House Congressional Testimony, “FEDERAL ACTION IN RESPONSE TO HURRICANES,” October 6, 2005

312 of 687 DOCUMENTS

Federal Document Clearing House Congressional Testimony

October 6, 2005 Thursday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3236 words

COMMITTEE: SENATE ENVIRONMENT AND PUBLIC WORKS

HEADLINE: FEDERAL ACTION IN RESPONSE TO HURRICANES

TESTIMONY-BY: MARCUS PEACOCK, DEPUTY ADMINISTRATOR

AFFILIATION: UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

BODY:

Statement of Marcus Peacock Deputy Administrator, United States Environmental Protection Agency

Committee on Senate Environment and Public Works

October 06, 2005

Introduction

Good morning, Mr. Chairman and members of the Committee. My name is Marcus Peacock and I serve as the Deputy Administrator at the U.S. Environmental Protection Agency (EPA). On September 6th, the Administrator formally appointed me to lead the coordination of the Agency's response activities for Hurricane Katrina and I appreciate the opportunity to provide you today with an update on EPA's response.

Our hearts go out to the people of the Gulf region, and we share with you an urgent sense of duty to help restore the communities affected by Hurricane Katrina - and most recently by Hurricane Rita. Over the past month, natural disasters have left their mark on the Gulf region; the loss of life and destruction is staggering. The magnitude of Hurricane Katrina will require sustained, long-term coordination across all federal agencies and with the affected state and local governments. My testimony today will provide you with an overview of EPA's role and activities in the affected Gulf region, our impressive coordination with federal, state and local partners and a snapshot of our primary environmental concerns.

Early Response for Hurricane Katrina

First, I want to briefly touch on EPA's early response to Hurricane Katrina. Beginning on August 25th, EPA pre-deployed personnel to the FEMA National Response Coordination Center and sent On-Scene Coordinators to the Florida, Louisiana, Alabama and Mississippi Emergency Operations Centers before Hurricane Katrina made landfall. The On-Scene Coordinator (OSC) is the federal official responsible for monitoring or directing responses to all oil spills and hazardous substance releases reported to the federal government. We sent additional personnel to the affected areas as soon as travel into the region was possible. In anticipation of Hurricane Rita, EPA also deployed response experts to the multi-agency Regional Response Coordination Center in Austin, TX on September 20th. The number of EPA staff and contractors currently assisting with recovery efforts is more than 1,100 in the affected Gulf region.

When EPA personnel arrived in New Orleans, it was clear that saving lives was the first priority, and EPA joined other federal, state, and local responders in urgent rescue needs, putting over sixty EPA watercraft otherwise used for environmental monitoring to work as search and rescue vessels. Our field staff and contractors -- mostly environmental experts equipped to address oil and hazardous substances releases -- joined the fire fighters, police, and other first responders and rescued nearly 800 people in Louisiana.

EPA Role in Federal Response

After helping with urgent rescue needs, EPA turned its attention to its primary responsibilities under FEMA's National Response Plan. EPA is the lead federal agency for Emergency Support Function (ESF) #10, which addresses oil and hazardous materials, and works with other agencies to provide support for a number of other Emergency Support Functions, including ESF #3, which addresses Public Works and Engineering. Specifically, our responsibilities include preventing, minimizing, or mitigating threats to public health, welfare, or the environment caused by the actual or potential releases of hazardous materials; testing the quality of flood waters, sediments, and air; and assisting with the restoration of the drinking and waste water infrastructure. Also under ESF #3, the Agency anticipates a growing role working with the U.S. Army Corps of Engineers (USACE) to address final disposition of the large volumes of debris from homes, buildings and other structures damaged by Hurricane Katrina. EPA, in coordination with the States, is providing information to both workers and the public about test results, as well as assisting communities with debris disposal and hazardous waste issues.

Debris Management and Disposal

The volume of debris left behind by Hurricane Katrina is huge. EPA is working closely with other federal agencies (particularly the US Army Corps of Engineers), state agencies, and local governments to facilitate the collection, segregation, and management of household hazardous waste, containers, and the larger debris.

To date, we have provided guidance on: identifying electrical equipment that may contain PCBs; marking and storage of electrical equipment that may contain PCBs; disposal of electrical equipment that may contain PCBs; and handling and disposal of debris containing asbestos. EPA has also provided the affected states with guidance on burning debris. EPA personnel continue to provide site-specific technical assistance in the disposal of hazardous waste and a wide array of waste management debris left behind by the storm.

Drinking Water and Waste Water Infrastructure

Many drinking water and wastewater systems in the three states were adversely affected by Hurricanes Katrina and Rita. It is a high priority of the states and EPA to re-establish operations at these facilities.

Information received by EPA from state drinking water programs as of October 4th, indicated that 84% of the 3,200 water utilities in affected areas of Alabama, Louisiana and Mississippi are operating. Another 8%, were operational, but under a boil water advisory. Four percent of the utilities, or 131 systems, were not operating and we estimate that those systems served about 122,000 people prior to the hurricane. Louisiana is still trying to assess the status of an additional 153 systems which have been unreachable and are probably not operating.

The States also indicated that as of October 4th, about 96% of the 730 wastewater facilities in the affected areas of Louisiana, Mississippi and Alabama were operational. Of the remaining 4% of systems, 16 systems normally serving approximately 530,000 people were not operating and we are awaiting further information on the status of 11 more systems.

In addition to these public systems, there are many people living in areas served by private wells and septic/decentralized systems. The Louisiana Department of Health and Hospitals has begun to distribute water testing kits in affected parishes in Louisiana. EPA's mobile laboratories and regional labs in Mississippi and Louisiana are also available to provide on-going water testing capabilities. To date, EPA's mobile lab located in Biloxi, MS has supported over 300 private drinking water well samples for local residences.

Oil Spills and Hazardous Releases

There are hundreds of chemical and petrochemical facilities as well as other sites of potential concern that are being inventoried and assessed. EPA and the United States Coast Guard (USCG) are working together to address oil and hazardous material releases reported to the National Response Center or otherwise observed by our emergency responders. As of October 3rd, EPA and the USCG have conducted more than 130 emergency response actions as a request of reported incidents. Of these, there were five major oil spills in the New Orleans area resulting in releases of over 8 million gallons.

Superfund Sites

There are twenty-four Superfund sites located in the region affected by Hurricane Katrina. As indicated on the map of the impacted areas, there are fifteen National Priority List (NPL) sites in Louisiana, three in Mississippi, and six in Alabama that were potentially affected. Also, Hurricane Rita potentially affected an additional two sites in Louisiana and 28 sites in Texas for a total of 54 NPL sites.

Working together with state health and environmental agencies, EPA has conducted initial assessments of each of these sites. In many cases, these sites were not flooded and did not sustain significant damage. However, we are continuing our assessments and, where necessary, are conducting environmental sampling to determine any impacts. To date, sampling has been conducted at 9 sites in Louisiana and 12 sites in Texas and is ongoing at other sites. The data is currently being evaluated.

Sediment in New Orleans

As flood waters in New Orleans again recede, we are analyzing the sediment left behind. We are conducting biological and chemical testing, specifically for volatile organic compounds, semi- volatile organic compounds, metals, PCBs, pesticides, and total petroleum hydrocarbons. Sediment samples collected by EPA indicate that most sediments are contaminated with bacteria and fuel oils. Human health risks may therefore exist from unprotected contact with sediment deposited from receding flood waters and exposure to sediment should therefore be avoided if possible. E. coli was detected in sediment samples, which implies the presence of fecal contamination. Some of the semi-volatile organic compounds, common to diesel and fuel oils, were also detected at very elevated levels. The levels of metals detected thus far have been below levels that would be expected to produce immediate adverse health effects. Sediment sampling occurred in the flooded areas of New Orleans and is near completion.

Flood Water

In the immediate aftermath of Katrina, the potential exposure or contact by residents and emergency response personnel to contaminated flood waters was among our leading concerns. EPA's initial plans to collect water samples in the New Orleans flood zone were set aside to assist in rescue operations, and were further delayed by limited access due to security concerns. Nonetheless, EPA, in close coordination with the Louisiana Department of Environmental Quality, began water sampling on September 3rd, and while we continue to conduct biological and chemical testing of the flood waters, sampling is near completion.

The flood waters continue to be analyzed for over 100 chemical priority pollutants as well as for bacteria. Results to date indicate that the flood water has high levels of E. coli, and that some locations tested had lead levels exceeding the EPA drinking water action levels. Arsenic, Barium, Thalium, Chromium, Benzene, Selenium, and Cadmium were detected in some samples at levels that exceeded EPA drinking water maximum contaminant levels. Although other contaminants were detected, none have been at levels that would pose an immediate risk to human health. Throughout this process, EPA has taken great steps to ensure scientific accuracy. EPA solicited the assistance the Science Advisory Board to review the flood water sampling plan, and EPA and CDC have routinely conducted a thorough data review, and interpreted the data for potential human health affects.

Water Quality

EPA is working closely with its federal and state partners to mitigate environmental impacts to Lake Pontchartrain caused by the flood waters. As of October 3rd, the Corps continues un- watering operations and skimming booms are deployed to remove oil and debris from water prior to pumping. After pumping, additional booms are being deployed in the canals leading to the Lake to further reduce oil, debris, and solids. Aerators are also being used in the canals to raise the dissolved oxygen levels in the water prior to outfall to Lake Pontchartrain.

Contaminated flood waters and sediment may adversely impact coastal aquatic resources. As such, EPA and USACE are actively evaluating options for directing the floodwaters. In addition, EPA is coordinating water quality monitoring efforts with USGS, NOAA and our state partners in the Mississippi Sound and the Gulf of Mexico. The poster behind me reflects the coordinated post- Hurricane plans to monitor water quality in the Gulf of Mexico.

Air Monitoring

Air monitoring networks normally in place for monitoring particulate matter, ozone, sulfur dioxide, oxides of nitrogen, and carbon monoxide under the Clean Air Act were mostly destroyed in New Orleans and damaged and disrupted in coastal Mississippi. EPA is working to restore monitoring systems in those regions, as well as to deploy new monitors designed specifically to address potential air quality impacts during the recovery from Hurricane Katrina. For instance, as sediments from the floodwaters dry, EPA has conducted air screening sampling with special monitors to assess potential inhalation risks from particulates.

Specific to New Orleans, EPA, in coordination with our government partners in Louisiana, makes daily tactical decisions regarding air monitoring needs and works with an agency-wide team of air monitoring professionals to address both emerging and source or location specific issues as well as longer term regional air quality issues.

EPA has a number of tools to measure air quality. These include DataRam 400, personal air monitoring devices, as well as use of a remote sensing aircraft known as ASPECT to locate chemical spills that needed emergency response to protect both water and air quality. EPA's environmental surveillance aircraft was in operation during the early days of the emergency, and again after Hurricane Rita passed through the region.

EPA's real-time mobile laboratory - the Trace Atmospheric Gas Analyzer (TAGA) - is sampling air quality in the New Orleans area. Initial screening results from the TAGA represent the beginning of extensive sampling efforts. As this is a dynamic situation, general conclusions should not be made regarding air safety based on results from snapshots of data.

EPA and the affected states will continue to monitor for potential inhalation risks and have plans to enhance their temporary monitoring networks in the coming weeks to monitor and evaluate the air impacts of recovery activities including the burning of debris.

Reoccupation of New Orleans

EPA and CDC formed a joint task force to advise local and state officials of the potential health and environmental risks associated with returning to the City of New Orleans. Their report, titled Environmental Health Needs and Habitability Assessment, was issued on September 17th and identifies a number of challenges and critical issues for consideration prior to the reoccupation of New Orleans. The task force is now incorporated into the Federal New Orleans Reoccupation Zip Code Assessment Group (Zip Code Assessment Group), which will provide information on a broad range of issues, ranging from infrastructure to health issues. Their recommendations will assist State and Local officials in their decisions regarding when to allow residents to reoccupy the city. As part of this larger group, EPA will continue to work to identify potential health and environmental risks associated with returning to the city based on the Agency's ongoing efforts to assess the quality of the air, water and sediment.

Fuel Waivers

EPA, in conjunction with the Department of Energy, responded quickly to address disruptions to the fuel supply that have occurred due to the damage to refinery and pipeline infrastructure in the Gulf Region. To increase the supply of fuel and minimize potential supply disruptions, the Agency has issued emergency waivers of certain federal and state fuel standards. On August 30th, EPA granted waivers applying to low sulfur diesel fuel requirements, Reid Vapor Pressure (RVP) standards that control the volatility of gasoline during the summer months, state gasoline sulfur limits, or reformulated gas (RFG) requirements. On September 21st, EPA expanded this effort in order to minimize potential fuel supply disruptions caused by Hurricane Rita. To address each fuel supply situation, waivers have been granted for various periods of time and have been applicable at the national, state or local level, to the extent necessary to alleviate the fuel supply disruption.

In taking these actions, EPA used a Clean Air Act waiver provision recently signed into law as part of the Energy Policy Act of 2005 signed into law this year. This provision authorizes the Administrator of EPA to temporarily waive fuel standards due to "extreme and unusual" circumstances "that are the result of a natural disaster, an Act of God, pipeline or refinery equipment failure, or another event that could not reasonably have been foreseen or prevented and not the lack of prudent planning" on the part of fuel suppliers.

Informing the Public

We view communication to the public, workers, and other agencies to be a critical component of our response effort. The Occupational Health and Safety Administration (OSHA) was on-scene early in the response effort, distributing over 3,500 fact sheets by hand in the first two weeks and conducting interventions that removed more than 850 workers from serious or life threatening hazards. OSHA continues these activities and on a daily basis, EPA response personnel and contractors receive health and safety instructions regarding field conditions and safe work practices. EPA's preliminary sampling results are also provided to On-Scene Coordinators to facilitate field decisions and ensure health and safety of workers.

EPA posts advisories on our website and also distributes them through the Incident Command Post in Baton Rouge. We also have been alerting communities through AM and FM radio broadcasts, particularly on aerial mosquito spraying and how to avoid vector borne illnesses such as the West Nile Virus.

Future Challenges

Looking ahead, much remains to be done to help address the public health and environmental impacts of Hurricane Katrina. The safe management of debris remains a high immediate priority, and the Agency will assist our federal, state and local partners as they move forward on debris removal. For its part, the Agency will strive to provide sound and practical advice, participate in hazardous waste removal where appropriate, and monitor air quality where open burning is occurring. EPA will also continue to work with the USACE and others to support the States and local governments in their efforts to repair and restore public facilities including drinking water, waste water, and waste treatment facilities. We will also continue to monitor air, water, and sediment quality in the region and make sure that this information is readily available to federal, state and local officials, other responders, and the public.

Conclusion

The nation faces an enormous task in restoring and rebuilding the affected areas. Simply meeting many basic needs of people in the region - including shelter, safe drinking water, sanitation, and protection from disease and hazards - will require a broad partnership across government agencies, the private sector and nongovernmental organizations (NGOs). We expect that citizens and government agencies will look to EPA and our Federal partners for technical expertise, scientifically sound data, and practical advice on environmental and public health conditions in the region for some time to come. We are focused on meeting that challenge.

Finally, as local communities undertake the task of reviving their economies and helping businesses restart their operations, EPA, in partnership with other federal, state, and local agencies, will provide technical expertise and guidance to assist in the recovery. Some of you may know that I'm quite new to the EPA, but what I've seen in the past month makes me proud to be counted among them.

At this time I welcome any questions you may have.

LOAD-DATE: October 7, 2005