[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]


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                               15.  ENERGY

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                               Table 15-1.  FEDERAL RESOURCES IN SUPPORT OF ENERGY                              
                                            (In millions of dollars)                                            
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                                                                            Estimate                            
            Function 270                1996   -----------------------------------------------------------------
                                       Actual      1997       1998       1999       2000       2001       2002  
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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
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\1\ Excludes alcohol fuels excise tax.                                                                          

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  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.

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  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 

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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.