    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [15. Energy]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 149]]

                                   15.  ENERGY

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                                   Table 15-1.  FEDERAL RESOURCES IN SUPPORT OF ENERGY
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 270                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority...      4,900      4,256      4,703      4,891      4,645      4,498      4,391
      Mandatory Outlays:
        Existing law...................     -3,122     -2,913     -2,766     -3,703     -2,823     -3,021     -3,715
        Proposed legislation...........  .........  .........  .........        -24        -35        -65     -1,226
    Credit Activity:
      Direct loan disbursements........      1,036      2,527      2,093      1,731      2,663      1,814      1,682
    Tax Expenditures: \1\
      Existing law.....................      2,200      2,255      2,230      2,425      2,505      2,490      2,520
      Proposed legislation.............  .........        -14        -64        -96        -99       -101       -102
    ----------------------------------------------------------------------------------------------------------------
    \1\ Excludes alcohol fuels excise tax.

      ----------------------------------------------------------------------
      The Federal Government's energy programs contribute not just to energy
    security, but to economic prosperity. Funded mainly through the
    Department of Energy (DOE), they range from protecting against
    disruptions in petroleum supplies, to conducting research on renewable
    energy sources, to developing radioisotope power sources for space
    missions, to restructuring wholesale electricity markets throughout the
    United States. The Administration proposes $4.7 billion for these
    programs in 1998. In addition, the Federal Government allocates about $3
    billion a year in tax breaks mainly to encourage the development of both
    traditional and alternative sources of energy.
      The Federal Government has a longstanding role in energy, one that has
    changed over the last half-century and will continue to evolve. Most of
    the programs and agencies identified below perform functions that have
    no State or private counterparts, and that clearly involve the national
    interest. The federally-owned petroleum reserves, for instance, protect
    against supply disruptions and consumer price shock, while Federal
    regulators protect the public's heath and environment as they ensure
    fair, efficient energy rates. DOE's basic research programs focus on the
    long-term, high-risk problems that lack any obvious short-term payoff
    and, thus, are programs that industry has no incentives to fund.

    Energy Security, and Energy Research and Development

      DOE maintains the Strategic Petroleum Reserve (SPR) and operates
    various research and development (R&D) investments to protect against
    disruptions in petroleum supplies and reduce the environmental impacts
    of energy production and use.
      Created in 1975, SPR now has 563 million barrels of crude oil in
    underground salt caverns at four Gulf Coast sites. In an emergency, the
    oil reserves would meet military needs and cut the economic costs of
    large, sudden oil price increases caused by a severe interruption of our
    oil supply. As the United States was entering the Persian Gulf War in
    early 1991, for instance, the President announced an energy emergency,
    prompting an SPR drawdown that--along with the allied nations' early and
    overwhelming military success--caused oil prices to drop by $10 per
    barrel (or, by about a third of their price).

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      DOE's R&D energy investments cover a broad array of resources and
    technologies to make the production and use of all forms of energy--
    including renewables, fossil, and nuclear--more efficient and less
    environmentally damaging. Federal R&D support can help develop these
    technologies, which benefit society by cutting emission rates of
    greenhouse gases, acid rain precursors, and air pollutants. Investments
    in these areas are not only laying the foundation for a more sustainable
    energy future, but also opening major international markets for
    manufacturers of advanced U.S. technology.
      Energy conservation programs, for which the budget proposes $688
    million in 1998, are designed to improve the fuel economy of various
    transportation modes, increase the productivity of our most energy-
    intensive industries, and improve the energy efficiency of buildings and
    appliances. They also include grants to States to fund energy-efficiency
    programs and low-income home weatherization. Many of these programs rely
    on private-sector partners to cut Federal spending and increase the
    likelihood that these technologies will be used commercially. Energy-
    efficiency technologies that have already come to market include heat-
    reflecting windows, high-efficiency lights, geothermal heat pumps, high-
    efficiency electric motors and compressors, and software for designing
    energy-efficient buildings. Meanwhile, five other technologies that have
    been available for at least five years have generated, to date, $11
    billion in total consumer and business savings on energy bills.
      Solar and renewable energy programs, for which the budget proposes
    $330 million, focus on technologies that will help the Nation use its
    abundant renewable resources such as wind, solar, and biomass, to
    produce low-cost, clean energy. The United States is the world's
    technology leader in wind energy, with a growing export market. In
    addition, utilities are producing some solar thermal power,
    photovoltaics are becoming increasingly useful in remote power
    applications, and DOE is now working with Amoco on producing ethanol
    from wood and paper wastes.
      Fossil fuel energy R&D programs, for which the budget proposes $346
    million, help industry to develop advanced technologies to produce and
    use coal, oil, and gas resources more efficiently and cleanly. The
    program's successes will affect many consumers. For instance, the
    federally-funded development of clean, highly-efficient gas-fired
    generating systems will make electricity production less expensive than
    other technologies. The programs also help boost the domestic production
    of oil and natural gas by funding R&D projects with industry to cut
    exploration, development, and production costs.

    Basic Energy Research

      The Nation receives enormous benefits from investing in DOE's basic
    research and specialized research facilities, for which the budget
    proposes $1.5 billion. The programs focus on research related to energy
    production, conversion, and use, and to identifying and mitigating the
    health and environmental effects of those activities. One Federally-
    funded basic research project discovered how to cut energy losses from
    electric grid transformers by 90 percent, thus paving the way for about
    $1 billion less in lost power for electric companies and, in turn, lower
    prices for consumers.
      DOE's state-of-the-art scientific facilities also provide the cutting-
    edge experimental and theoretical techniques that provide insights into
    dozens of applications--from next-generation semi-conductors to
    microbiological studies of tumor growth. The facilities are available on
    a competitive basis for researchers funded by the National Science
    Foundation, other Federal agencies, and public and private entities. DOE
    also invests in research to develop the scientific and technological
    foundation for the next generation of user facilities.

    Environmental Management and Stewardship

      DOE manages the Nation's most complex environmental cleanup program,
    the result of over four decades of research and production of nuclear
    energy technology and materials at both Federal and private sector
    locations. The Department also faces the crucial task of developing a
    long-term solution to the problem that the Nation's commercial spent
    nuclear fuel poses.

    [[Page 151]]

      Environmental Management: The budget proposes $934 million to reduce
    the environmental risk and manage the waste at: (1) sites run by DOE's
    predecessor agencies that involved researching and producing uranium and
    thorium; (2) sites contaminated with uranium production from the 1950s
    to the 1970s; and (3) DOE's uranium processing plants that the United
    States Enrichment Corporation runs. In recent years, the clean-up and
    safe disposal of radioactive and hazardous wastes and materials has
    progressed substantially. Over 60 percent of private sites contaminated
    during the research, processing, and production of uranium and thorium
    will be cleaned up by the end of 1998, allowing these private sites and
    facilities to return to productive use.
      Civilian Radioactive Waste Management Program (RW): RW oversees the
    management and disposal of spent nuclear fuel from commercial nuclear
    reactors, and high-level radioactive waste from Federal cleanup sites.
    In 1998, DOE expects to complete the first stage of evaluating a Nevada
    site as a possible geologic repository--representing an important step
    in a long process that eventually will produce a DOE site recommendation
    to the President and a DOE license application to the Nuclear Regulatory
    Commission.

    Energy Production and Power Marketing

      The Federal Government is reshaping programs that produce, distribute,
    and finance oil, gas, and electric power--hoping to eventually de-
    Federalize them and their agencies. The Naval Petroleum Reserve,
    commonly known as Elk Hills, is a federally-owned oil and gas field
    located in California. Set aside early this century to provide an oil
    reserve for Navy ships, the Government no longer needs it for that
    purpose. Congress voted in 1996 to require the sale of Elk Hills, which
    produced $368 million of oil, gas, and other products in 1995. The
    Government plans to sell the reserve in 1998 and deposit the proceeds to
    the Treasury.
      The five Federal Power Marketing Administrations (Alaska, Bonneville,
    Southeastern, Southwestern, and Western) market electricity generated at
    129 multi-purpose Federal dams through over 33,000 miles of federally-
    owned transmission lines, located in 34 States. The Government plans to
    finish selling the Alaska Power Administration, as Congress authorized,
    to the State of Alaska and current customers in 1998. The PMAs sell
    about six percent of the Nation's total electricity, and sell it at
    preferred rates to such public entities as counties, cities, and
    publicly-owned utilities and power authorities. The PMAs, however, face
    growing challenges as the electricity industry moves toward open,
    competitive markets--and away from regulated monopolies.
      In 1998, the PMAs will begin to use their receipts from selling
    electric power to cover the full costs of Civil Service Retirement
    System and Post-Retirement Health Benefits for their employees.
    Curently, the PMAs cover the full costs for employees who work under the
    Federal Employees Retirement System.
      The Tennessee Valley Authority (TVA) is a Federal Government
    corporation and the Nation's largest electric utility, serving 7.3
    million customers in seven States. TVA supplies power through 11 coal-
    fired plants, 30 hydropower facilities, and three nuclear power plants.
    It also operates a series of water supply, flood control, recreation,
    and economic development programs. TVA power sales will grow an
    estimated 3.7 percent--from $5.8 billion in 1997 to an estimated $6
    billion in 1998. For the first time, TVA in 1997 will reduce the debt it
    owes to the investing public. The planned $50 million debt repayment in
    1997 and the planned $225 million debt repayment in 1998 reflect TVA's
    efforts to ensure the agency's financial health, position itself to
    succeed as competition increases in the Nation's electricity markets,
    and serve the interests of TVA's customers and bondholders and the
    Federal Government. (For information on TVA's non-power activities, see
    Chapter 20, Community and Regional Development.)
      In 1997, the Agriculture Department's Rural Utilities Service (RUS)
    will make $1.4 billion in direct loans to nonprofit associations, rural
    electric cooperatives, public bodies, and other utilities in rural areas
    for generating, transmitting, and distributing electricity. RUS charges
    interest at or below Treasury rates for debt of comparable maturity, in
    order to cut the high cost of electric service to

    [[Page 152]]

    rural customers that results from the low customer density in rural areas.
      DOE also has large reserves of uranium that the Government no longer
    needs for their original purpose, including high enriched uranium (HEU)
    from dismantled nuclear weapons. The Government plans to sell some of
    that material in a manner that will not disrupt uranium markets--$100
    million worth of natural uranium a year through 2001 and $200 million in
    2002. If, after an inter-agency review, the President declares that the
    remaining HEU exceeds national security needs, DOE will sell, in 2002,
    another $750 million of low enriched uranium, derived from HEU for
    commercial use through 2007.

    Energy Regulation

      The Federal Government's regulation of energy industries is designed
    to protect public health and safety, and promote fair and efficient
    interstate energy markets. The Federal Energy Regulatory Commission
    (FERC), an independent agency within DOE, regulates the transmission and
    wholesale prices of electric power, including non-Federal hydro-electric
    power, and the transportation of oil and natural gas by pipeline in
    interstate commerce. Over the long run, FERC seeks to increase economic
    efficiency by promoting competition in the natural gas industry and in
    wholesale electric power markets. FERC's recent reforms give consumers
    competitive choices in services and suppliers that were not available
    just a few years ago. Its actions will cut consumer energy bills by $3
    billion to $5 billion a year.
      The Nuclear Regulatory Commission (NRC), an independent agency,
    regulates nuclear facilities--commercial nuclear reactors, the medical
    and industrial use of nuclear materials, and the transport and disposal
    of nuclear waste. The NRC seeks to protect public health and the
    environment from nuclear materials. The companies and other entities
    that the NRC regulates finance most of its budget through fees.
      DOE also seeks to improve the Nation's use of energy resources through
    its appliance energy efficiency program. Federal regulations specify
    minimum levels of energy efficiency for all major home appliances, such
    as water heaters, air conditioners, and refrigerators.

    Tax Incentives

      Federal tax incentives are mainly designed to encourage the domestic
    production or use of fossil and other fuels, and to promote the vitality
    of our energy industries and diversification of our domestic energy
    supplies. The largest incentive lets certain fuel producers cut their
    taxable income as their fuel resources are depleted. An income tax
    credit helps promote the development of certain non-conventional fuels.
    It applies to oil produced from shale and tar sands, gas produced from a
    number of unconventional sources (including coal seams), some fuels
    processed from wood, and steam produced from solid agricultural
    byproducts. Another tax provision provides a credit to producers who
    make alcohol fuels--mainly ethanol--from biomass materials. The law also
    allows a partial exemption from Federal gasoline taxes for gasolines
    blended with ethanol.