Prepared Statement by Michael Lopez-Alegria Senate Hearing on Commercial Spaceflight 16 May 2013

Testimony of Captain Michael Lopez-Alegria, USN (Ret.)
President, Commercial Spaceflight Federation
Senate Committee on Commerce, Science and Transportation
Subcommittee on Science and Space
May 16, 2013

Chairman Nelson, Ranking Member Cruz, and Members of the Subcommittee, thank you for
holding this hearing and for the opportunity to testify as President of the Commercial Spaceflight
Federation.

The Federal government has worked with the American space industry in innumerable capacities
since the dawn of the space program. Companies like Boeing, Aerojet and the David Clark
Company have worked with the Department of Defense (DoD), NASA and NASA’s predecessor
NACA since the 1940s to develop many of the spaceflight systems that took our astronauts to
orbit and then to the Moon. In the 1980s, the first wave of space privatization occurred, giving
birth to a number of new companies and a fast-growing commercial satellite industry that reached
almost $180 billion in revenue by 2011. The Commercial Space Transportation office, now at the
Federal Aviation Administration, was also established in the 1980s, to regulate and promote the
commercial space launch industry. Many of the advancements that followed privatization have
been in turn deployed for government purposes, proving the value of enlisting industry as an
active partner in government space endeavors.

In the last few years, the industry has undergone significant growth in revenue, employees and
capability. Much of its success has been based on the tremendous support that NASA has
provided in developing and providing technologies, supporting development of space systems and
buying services from commercial providers. This partnership between the private sector and
NASA has helped create an industry that can provide services to both NASA and private
customers, while creating jobs all over America.

Under the old paradigm for public-private partnership, NASA engineers would design space
systems and then offer portions under cost-plus contracts for competitive bidding. This has been a
successful method for building one-of-a-kind systems at the cutting edge of technology that can
accomplish missions never before attempted. However, as our presence in space has expanded, it
has become clear that there are wide variety of necessary systems and services that do not fit that
template.

The new paradigm, which has emerged to complement but not replace the old, has been referred
to as commercial procurement. It changes the role of government, so that it is a customer and
involved participant in developing space systems, but not the designer, builder, operator or sole
customer. This approach has proven highly successful in reducing the cost of maintaining critical
space infrastructure in the pioneering Commercial Orbital Transportation System (COTS) and
Commercial Resupply Services (CRS) programs, while promoting the development of systems
that can also be used for commercial purposes. The model is a refinement of one that NASA and
the DoD used in the 1990s to develop launch vehicles still in use today.

Meanwhile, completely commercial space activities are thriving as well. American orbital launch
providers have become more competitive on the world market, bringing high-tech jobs back to
America. Suborbital providers are building and testing vehicles that will tap a worldwide market
for space tourism and fulfill scientists’ need for more frequent and inexpensive access to space.
Other companies are developing technologies to mine asteroids for valuable resources, visit the
Moon, and disaggregate large satellites into small satellite constellations.

Orbital

A year ago, SpaceX launched its first mission to the International Space Station (ISS). Coming
less than a year after the retirement of the Space Shuttle, the launch captured the imagination of
the American people, strengthened the ISS program, and ushered in a new era of spaceflight
cooperation. Of course, one competitor is not enough for a competitive marketplace, and just last
month, Orbital Sciences Corporation completed a test flight that took the company one step closer
to ISS. These companies are replacing some of the capabilities lost with the retirement of the
Space Shuttle and ensuring that the investment and jobs involved in resupplying the ISS are
staying in America.

Unlike most other government programs, which tend to increase in cost over time, NASA’s
Commercial Cargo Program (CCP) has the potential for cost reductions. The vehicles and rockets
providing cargo services can also be available for commercial satellite launches, NASA crew
launches and other commercial markets. In this way the fixed costs of development and
manufacturing infrastructure will be spread over multiple customers, lowering the cost of the
flights for NASA.

Meanwhile, NASA has been working with the companies competing to fly astronauts to the ISS.
The Boeing Corporation recently performed force and moment wind tunnel testing of an
integrated test article including both the CST-100 capsule and the launch vehicle adapter. Sierra
Nevada Corporation has recently completed its integrated system safety analysis review,
demonstrating the safety and reliability plans for the major components of its Dream Chaser crew
transportation system. SpaceX conducted its Ground and Ascent Preliminary Design Review and
continues to do qualification testing of its Falcon 9 “version 1.1” launch vehicle.
Other companies are also working with NASA to develop orbital launch systems, including Blue
Origin, who, under the Commercial Crew Development program, performed a successful pad
abort test and tested components of a new 100,000-pound American rocket engine at NASA’s
Stennis Space Center. That engine is now undergoing evaluation at Blue Origin’s West Texas
facility.

Suborbital

While many companies are developing and flying orbital launch vehicles, we have seen a steady
stream of progress in the suborbital arena, where reusable vehicles offer the possibility of high
flight volume. Companies such as Armadillo Aerospace, Blue Origin, Masten Space Systems,
Virgin Galactic and XCOR Aerospace are competing to offer flights for private individuals,
researchers and experimental equipment to altitudes above 100 kilometers.

Virgin Galactic has performed many glide tests over the last year, and in April accomplished the
first powered flight of its SpaceShipTwo vehicle, breaking the sound barrier and kicking off a
busy year of flight-testing. XCOR is building a liquid rocket-powered vehicle that will be capable
of aircraft-like operations. In March, the company performed a 67 second test firing of an engine
mated to the vehicle fuselage, the first firing of a fully piston-pump-powered rocket engine. Also
in March, Masten Space Systems completed the latest in a series of unmanned vertical-takeoff
vertical-landing flights for Draper Labs to test autonomous control systems for use on vehicles
that will land on the Moon or Mars. Finally, late last year, Armadillo Aerospace conducted a
series of flights, including the first FAA-licensed flight from Spaceport America in New Mexico
by an unmanned liquid propellant sounding rocket with a steerable parachute recovery system.

Each month brings new accomplishments among a set of companies competing for a robust
market for research, space tourism and other applications. A recent study by analysts at the Tauri
Group showed a demand for hundreds of suborbital flights a year for a broad array of purposes. In
fact, because of the operational benefits of reusable vehicles, suborbital reusable capabilities
could be a disruptive technology that creates entirely new markets. The personal computer,
although less powerful than a room-sized mainframe, was infinitely more useful simply because
of its easier operation and came to dominate the market not by replacing supercomputers, but
rather by demonstrating the market was much larger than anyone had anticipated.

The development of reusable suborbital vehicles is a truly American phenomenon, and one that is
creating high-tech jobs in Florida, Texas, California, New Mexico, Colorado, Washington and
many other states across the country. Many states and local communities are modifying existing
airports to accommodate horizontal and vertical launch suborbital vehicles or building new
spaceports to bring home the benefits of the suborbital revolution.

NASA has been admirably forward-looking in creating the Flight Opportunities Program to
purchase commercial reusable suborbital flights for technology demonstration and development
and for other purposes. By being an anchor customer for services, the program provides
significant incentives for private investment while only paying for services rendered. The
program issues calls for proposals to fly technology payloads and has seen impressive interest
from the research and technology development communities, indicating a pent-up demand for
inexpensive, regular access to the space environment.

Other Commercial Space Activities

Over the last few years, as the suborbital and orbital arenas have become competitive industries in
search of near-term markets, new businesses have arisen to support and take advantage of new
developments and push the envelope of space economic activity farther. A web of suppliers and
service providers, some traditional aerospace firms and some from other sectors that have only
recently become involved in space activities, support each of the companies developing orbital or
suborbital vehicles.

Many states have developed or are developing commercial spaceports, including New Mexico,
Florida, Texas, Oklahoma, Virginia, Alaska, Colorado and California. Testing and training
facilities are providing venues to test equipment and train crew and spaceflight participants in the
types of environments they will experience. Companies around the country are supplying
spacecraft parts and subsystems, ranging from screws and fasteners to environmental control
systems, engines and spacesuits.

Meanwhile, new companies have arisen that are pursuing business plans using new ways to
access space to build novel businesses. Several companies are building and launching small
communications and remote sensing satellites that promise to make existing and new satellite
applications more available and more robust. Other companies are building platforms that can
host scientists and individuals in orbit. Finally, commercial space has targeted asteroids and the
Moon through the efforts of companies like Planetary Resources, Moon Express and Golden
Spike. All in all, it is an exciting time for commercial space as early investments bear fruit and a
second generation of companies builds on the accomplishments of the first.

NASA Programs

While purely commercial activities are a vital and rapidly growing part of the demand for launch
services, NASA has expanded that demand to include delivery of cargo and crew to the ISS. The
success of NASA’s commercial cargo and crew programs has been encouraging. Unfortunately,
use of the term “commercial” has become the subject of some disagreement. All programs have
some commercial aspects; the companies that built vehicles in the Apollo and Space Shuttle
programs were selling goods or services, and were therefore commercial enterprises. Rather than
being “commercial” or not, all programs fall somewhere on a continuum of development and
procurement practices. It is our view that those that display the following characteristics are
closer to the “commercial” end of the spectrum:

Full and open competition. Fair and open competition is a fundamental principle that has driven
the economic engines of the free world that now dominate the global economy. This concept is
eminently applicable to the acquisition of space systems and services to limit cost, incentivize
efficiency, and promote innovation. Too often in the past, NASA programs have ended the
competition with a prime contract award near the beginning of the program. Maintaining
competition through all major procurements in a program is essential, and the DoD has thusly
used competition in many of its major aircraft procurements. So far, NASA’s commercial cargo
and crew programs have used multi-stage competition to preserve the competition throughout the
life of the program, while still providing enough business to the industry partners to justify their
investment. It is clear from independent analyses that the COTS program saved money as
compared to the traditional development cost of a single system, even though NASA’s investment
was split between two companies. In addition to desired cost containment effects, competition
provides critical redundancy-both technical and programmatic-that allows the program to remain
robust much later in the programmatic cycle than is afforded by an early down-select to one
provider. In planning any program, we suggest that the Congress and NASA put a high premium
on preserving competition.

Milestone-based fixed-price payments. The COTS program has shown how much NASA can
accomplish when using its Other Transaction Authority to put in place milestone-based Space Act
Agreements. In the absence of a firm-fixed-price contract or agreement, the objectives of the
contractor and agency can be misaligned. Without performance incentives, the contractor has
little motivation to create efficiencies and lower the project cost, and absent fixed-price
milestones, the agency is free to add requirements or change its mind midway through the
program, raising the price of the program for the taxpayer. While not all systems can be
developed on fixed-price contracts or agreements, in general, the more freedom to change the
price, the more expensive the product will be in the end. Selecting the right firm, fixed-price
instrument is also critical to achieving cost effectiveness. Where NASA is actually acquiring
goods or services, a Federal Acquisition Regulations (FAR) contract should likely be used.

However, FAR contracts, even firm, fixed-price, limit flexibility and are subject to cost increases
when the government directs changes. NASA has been very innovative in using funded Space
Act Agreements in the crew and cargo programs to take advantage of their low overhead and
flexibility to achieve cost effectiveness. Since NASA is only “buying” the certification of these
transportation systems, using a FAR contract only for the certification data keep costs to a
minimum while ensuring NASA oversight and verification of performance and safety.

Well-defined and well-communicated requirements and standards. Proper program design is
required to keep any program on schedule and on budget. The Government Accountability Office
(GAO) has analyzed failing programs and provided appropriate guidelines to many agencies to
help them manage programs more effectively. Unfortunately, one of the most damaging forms of
mismanagement-requirements creep-is still a problem. In one example discussed by the GAO,
the addition of new requirements late in the development cycle helped double the cost of a GPSrelated
DoD program.

The degree to which a customer can be specific about its requirements, and that it can define
those requirements sooner rather than later, is of great benefit to the cost effectiveness of a
program. Defining program requirements, standards and milestones early is difficult, and some
flexibility is always required as engineering developments may necessitate a modified or
alternative requirement or standard. In its Commercial Crew Program, NASA is seeking to strike
the right balance through an iterative process with industry partners in the first phase of the
Certification Products Contracts. This process must continue apace to avoid costly, late changes
to requirements. By facing these issues early, NASA is following the best practices outlined by
the GAO and other experts. The processes pioneered by the commercial crew and cargo programs
show great promise and should be practiced more widely at NASA.

Anticipation of other customers. The nation’s recent economic difficulties mean NASA’s
budget has been smaller than the funding profile laid out in the NASA Authorization Act of 2010.
Meanwhile, NASA’s missions have stayed fixed or grown. In order for NASA to accomplish the
remarkable things we all expect of it, the agency must be able to reduce the fixed costs associated
with maintaining the nation’s current space capabilities. Unfortunately, some capabilities required
for NASA’s mission are unique, and for those NASA bears all the fixed costs of development and
maintenance. Whenever possible, NASA should avoid this situation by developing and using
services that also have other customers, allowing NASA to insist that commercial partners invest
their own funds as well.

In the case of crew and cargo transportation to ISS, the capabilities developed by industry in
partnership with NASA will also provide services to a diverse set of markets, including
commercial satellite launch, space tourism, sovereign space exploration and utilization, future
NASA missions and others.

By implementing lessons learned from past and ongoing commercial programs, NASA can
ensure that its investment is used in the most efficient way possible. NASA’s Commercial Crew
Program is currently the most high-profile commercial space program in development. Its success
is important to the commercial space industry, but even more important to our nation. In difficult
economic times, extending the period that American jobs are taken by Russian rocket companies
is a mistake. The success of the Commercial Crew Program will mean that we are no longer
dependent on Russian vehicles to transport our astronauts to the ISS. Meanwhile, it has already
helped create thousands of jobs in the American space industry and will create many more as it
comes to maturity.

The success of the program to date is due to the highly innovative teams at the competing
companies, the skilled technical team at NASA and the commitment by NASA to commercial
agreements and a minimum of unnecessary overhead. In the current phase of development, the
Commercial Crew Integrated Capacity (CCiCap) program, NASA has undertaken an inventive
two-pronged approach that reflects the two related, but different, goals of the program: Help
industry create a competitive marketplace for crew delivery services to low Earth orbit, and
secure crew delivery services for NASA that satisfy its demanding requirements. Under this
approach, the development of the systems is primarily performed under milestone-based Space
Act Agreements that keep costs to a minimum while still providing NASA the insight needed to
ensure the vehicles are safe for crew transport. Meanwhile, NASA is pursuing a parallel
certification process under a traditional, fixed-price Federal Acquisition Regulation-based
contract that will make certain that any other information NASA needs to ensure the safety of its
astronauts is provided. In this way, the two transaction authorities are used for precisely the
reasons they were created: Space Act Agreements to partner with industry to develop new
capabilities that are relevant to both the government’s needs and existing and emerging
commercial markets, and FAR-based contracts to secure a service for NASA to use.

Despite seeking and receiving proposals-called optional milestones under CCiCap-from the
participating companies that would allow them to proceed all the way to first crewed flight,
NASA has indicated that it is planning to move the entire program to FAR-based contracts at the
end of the current phase, just over a year from now. The transition away from the two-pronged
approach may impose an increase in complexity and red tape on industry partners, which could
result in growth in cost and schedule. Another approach would be to exercise the optional
milestones under existing or revised Space Act Agreements while modifying the current FARbased
certification contracts. In this way, NASA maintains oversight, controls risk, verifies safety
and will get the safe, reliable and cost-effective ISS crew transport it needs in a timely and
affordable manner.

The ISS is the crown jewel of our human space enterprise. To quote Astronaut Chris Hadfield,
who just returned from commanding ISS, “We are leaving Earth permanently. It is a huge historic
step and we are trying to do it right and it takes time, it takes patience and it takes tenacity–and
we’re going to do it.” ISS touches all aspects of why we go into space–exploration, science,
inspiration and commerce. NASA will soon have astronauts flying on ISS for over a year,
providing critical information about the long-term effects of weightlessness for astronauts going
to Mars. Science experiments like the Alpha Magnetic Spectrometer are peering into the
mysteries of dark matter. And, equally exciting, ISS is creating a marketplace of space users–
whether it’s small scale projects, like NanoRack’s MixStix, a small test-tube experiment platform,
or very large projects like Bigelow Aerospace’s BEAM module, ISS is the proving ground for
orbital space commerce. These activities will drive the demand for space access and perhaps new
installations in Earth orbit. We strongly urge the Congress to extend utilization of the ISS to its
design-life limit of 2028.

As NASA plans for exploration beyond earth orbit, we should also keep the lessons of the
commercial programs in mind. Where NASA’s purposes overlap with those of commercial
entities, non-profits, other government agencies, and other governments, it should pursue
approaches that take maximum advantage of those resources by engaging early and on multiple
levels. NASA should include the private sector in planning exercises to ensure that overlapping
purposes are recognized and pursued. As partners, NASA and industry can ensure a sustained
American human presence beyond low Earth orbit, and expand commercial, scientific and
exploration opportunities throughout the Solar System.

The commercial spaceflight industry has competencies that can augment and complement
NASA’s for spaceflight beyond low Earth orbit. For example, commercial spaceflight companies
are working to identify, track, analyze, and eventually interact with near-Earth asteroids,
complementing NASA’s own efforts. Congress has an opportunity to leverage this innovative
private-sector activity; the same skills and technology that enable asteroid mining, for example,
enable defense from potentially hazardous asteroids and a NASA asteroid retrieval mission. The
same technologies that allow Google Lunar X PRIZE companies to develop robotic spacecraft on
the Moon will help NASA to accomplish its goals for lunar exploration. Congress should
consider inexpensive ways to promote commercial activity in deep space, so that these companies
and their investors can help accomplish national objectives and maintain U.S. leadership in a new
industry. In the meantime, Congress should make it clear to the State Department that
international negotiations about space resources must take U.S. private-sector activities into
account.

Other companies like those that have been involved in NASA’s commercial crew and cargo
programs could modify their vehicles to provide cargo supply to a mission beyond low Earth
orbit. We urge NASA to adopt the highly successful COTS/CRS model, particularly the use of
Space Act Agreements, wherever possible in the development of exploration capabilities that
could have synergy with commercial activities, thereby reducing the cost and enhancing the
safety of these systems. In other parts of NASA’s mission, such as the dedicated or secondary
launch of small satellites, commercial terms should also be the rule. We welcome further
conversation on how the commercial space industry can enable NASA to reach farther and do
more.

Federal Regulations

With the Commercial Space Launch Act of 1984, Congress established an office within the
Department of Transportation to license and promote commercial launch activities. In the 1990s,
the Office of Commercial Space Transportation was moved into the Federal Aviation
Administration and was also given the authority to license reentry operations. From the beginning,
the office’s mandate was to ensure the safety of the uninvolved public (often called third parties),
and since 1988 part of that task has been to ensure that an appropriate level of financial
responsibility was established for licensed companies so that there would be funds available to
pay any claims in the event of damage to the uninvolved public or the Federal government.
Since it has been several years since the last full reauthorization of this agency, there are a
number of course corrections that we feel are warranted to streamline the regulatory process and
ensure the safe and beneficial development of the industry.

In 1988 Congress set up a “risk sharing regime” to deal with potential harm to uninvolved third
parties. This regime requires that license applicants meet a stringent financial responsibility
requirement by compelling them to purchase insurance or demonstrate sufficient financial
resources to cover third-party damage claims up to the amount that could be caused by a 1-in-10
million probability launch accident. Importantly, the Federal government is in fact protected from
claims up to this Maximum Probable Loss (MPL) by the company’s insurance or assets. In the
extremely unlikely event of an accident that caused damage above the MPL, the Federal
government agreed to seek an expedited appropriation to cover damage above the insured amount.

In fact, because of the tiny chance of an accident costing more than the MPL, the risk-sharing
regime is scored as having no significant cost by the Congressional Budget Office and has been
renewed many times by Congress since 1988. According to our calculations, the regime has an
actuarial cost of less than $10 per launch. The insurance policy that a launch company purchases
to protect the public and the government typically costs many orders of magnitude more.
Last year, Congress only renewed the regime for one year at the end of the previous Congress,
and it will expire again at the end of 2013. In view of the powerful protection that the risksharing
regime provides to the Federal government as well as industry, we strongly urge
Congress to extend it indefinitely.

While the chance of damage to uninvolved people on the ground is small, spaceflight is an
inherently dangerous business for those of us who fly. No one should board a launch vehicle
believing that it is perfectly safe. In 2004, as commercial human spaceflight moved from the
drawing board to the skies above Mojave, Congress passed a law declaring that customers of
commercial human spaceflight launches were not passengers, but rather active “spaceflight
participants.” Along with this declaration came a requirement that any company launching a
participant into space must fully inform them that the Federal government does not certify
spaceflight vehicles to be safe, of the risks of spaceflight in general, and of the specific safety
record of their vehicle type. I am pleased to report that the Commercial Spaceflight Federation is
currently developing an industry consensus standard practice for informing participants of these
risks so that they are fully aware of the hazards.

Because of the risks of spaceflight, Congress understood that litigation could arise in the event of
an accident, and because of the many different companies and individuals involved in any
spaceflight, that litigation could be extended and complicated, imposing large costs on all parties
involved. In order to avoid this situation, the Commercial Space Launch Act includes a
requirement that the parties involved in a spaceflight (including customers) sign reciprocal
waivers of claims with each other. All parties were included in this requirement except
spaceflight participants, which raises the specter of protracted and complicated litigation. We
therefore ask that Congress include spaceflight participants in the waiver of claims structure,
knowing that the waivers do not excuse gross negligence or intentional action. We also ask that
Congress clarify that Federal law controls any space launch activity, including the enforceability
of waivers granted by spaceflight participants, and that these questions be under the sole
jurisdiction of the Federal Courts, to avoid having conflicting law in different jurisdictions on
matters that are fundamentally Federal in nature.

In the Commercial Space Launch Amendments Act of 2004 Congress recognized that human
commercial spaceflight was a new and innovative business and that improvident regulation could
easily stifle it. In that act, Congress established the principle that the Office of Commercial Space
Transportation could continue to issue regulations to protect the uninvolved public without
restriction, but should initially only issue regulations aimed at the safety of crew and spaceflight
participants based on specific flight incidents that led or could have led to injury or death. This
regime has provided regulatory stability, while enabling the industry to find inventive solutions to
challenging technical problems. Though a sunset date was inserted in the 2004 bill, that date was
extended in 2012 to the end of 2015. We ask that this extension be continued, as the general
principle of flight-data-based regulation is important to allow the types of innovation that will
improve safety in the long run.

Another correction would ensure that vehicles could continue to be tested after they are licensed,
in appropriate circumstances. Current law forbids issuing an experimental permit for an
individual reusable spacecraft after a launch license has been issued for a launch or reentry of a
rocket of that design, meaning that further testing of the vehicle class could be limited. A
technical fix would allow companies more flexibility to improve safety and increase performance.
It would also enable flight-testing of new vehicles as they enter service, something required as the
industry matures into operating fleets of vehicles.

Finally, air-launched or hybrid vehicles are currently regulated by two branches of the FAA
depending on the particular activity taking place, a situation that the Commercial Space Launch
Act tried very hard to prevent. FAA’s Office of Commercial Space Transportation regulates an
entire hybrid system on launch day, but FAA’s Office of Aviation Safety regulates the launch
platform and spaceship separately if other activities, such as repositioning and testing are
pursued. Having two separate regulators thwarts congressional intent, adds to the cost and time
burden of compliance, and creates the potential for regulatory gaps and conflicts that could
potentially have a negative impact on safety. We are currently pursuing a solution within the FAA,
but a legislative solution may be necessary.

Conclusion

It is said that some of the greatest companies in American history were formed during recessions.
Adversity can sometimes bring the best out of government programs as well as people, breeding
innovation that seeds the next great round of exploration. I hope that as you consider legislation
later this year, you think of the commercial space industry as a resource that can help NASA
achieve its ever-more-difficult missions and bring a new energy to the scientists, engineers,
dreamers and policy-makers who see space as a vital component of our next economic boom.
Please let me know of any way in which the Commercial Spaceflight Federation can help