    [Budget of the United States Government]
    [III. Creating a Better Government]
    [5. Energy]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                                   5.  ENERGY

      ----------------------------------------------------------------------

                                   Table 5-1.  Federal Resources in Support of Energy
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Estimate
                   Function 270                   2000   -----------------------------------------------------------
                                                 Actual     2001      2002      2003      2004      2005      2006
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary Budget Authority..........     2,706     3,095     2,773     2,869     3,100     3,199     3,299
      Mandatory Outlays:
        Existing law..........................    -4,019    -3,701    -3,296    -3,150    -3,704    -3,626    -3,582
    Credit Activity:
      Direct loan disbursements...............     1,423     1,896     2,246     2,461     2,735     2,817     2,907
      Guaranteed loans........................       152        52       105       100       100       100       100
    Tax Expenditures:
      Existing law............................     2,030     2,100     2,120     1,930     1,620     1,770     1,890
    ----------------------------------------------------------------------------------------------------------------

      ----------------------------------------------------------------------
      Federal energy programs contribute to energy security, economic
    prosperity, and environmental protection. Funded mainly through the
    Energy Department (DOE), they range from protecting against disruptions
    in petroleum supplies, to conducting research on renewable energy
    sources, to cleaning up DOE facilities contaminated by years of nuclear-
    related research activities. The Administration proposes to spend nearly
    $2.8 billion for these programs. In addition, the Federal Government
    allocates about $2.1 billion a year in tax benefits, mainly to encourage
    development of traditional and alternative energy sources.
      The Federal Government has a longstanding and evolving role in energy.
    Most Federal energy programs and agencies have no State or private
    counterparts. The federally-owned Strategic Petroleum Reserve, for
    instance, protects against supply disruptions and the resulting price
    shocks. DOE's applied research and development (R&D) programs in fossil,
    nuclear, solar/renewable energy, and energy conservation are intended to
    speed the development of technologies to use energy more cleanly or
    efficiently, often through cost-shared partnerships with industry.

    Energy Reserves

      Strategic Petroleum Reserve (SPR): DOE maintains SPR to protect
    against petroleum supply disruptions and reduce the economic impact of
    any disruptions. SPR was authorized in 1975, in response to the oil
    embargoes of the early 1970s. The Reserve now holds 541 million barrels
    of crude oil in underground salt caverns at four Gulf Coast sites. SPR
    helps protect the economy and provide flexibility for the Nation's
    foreign policy in case of a severe energy supply disruption.
      In 2001, the two-million barrel Northeast Home Heating Oil Reserve was
    established. Operated by the private sector, the Reserve helps ensure
    adequate supplies of heating oil in the event that colder than normal
    winters occur in the Northeastern United States. The President has
    committed to continue support for the Reserve.
      In 2002, DOE will maintain its capability to reach a SPR
              drawdown rate of about four million barrels a day within 15
              days and to maintain that rate for at least 90 days.

    [[Page 38]]

    Applied R&D

      DOE's energy R&D investments cover a broad array of resources and
    technologies to make the production and use of all forms of energy,
    including solar and renewables, fossil, and nuclear, more efficient and
    more environmentally sound. The applied R&D programs fund research at
    DOE's national labs and engage in a variety of partnerships with
    industry for technology development and deployment.

      Energy Conservation: DOE's energy conservation programs, for which the
    budget proposes $795 million, 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. The
    weatherization program is slated for a significant increase in 2002, as
    part of the President's commitment to increase funding for the program
    by $1.4 billion over 10 years. Each of these activities benefits our
    economy and the environment. Many rely on partnerships with the private
    sector for cost-sharing and commercialization.
      In 2002:
      The world's first automotive-scale (50 kilowatt, (kW)), fully
              integrated, gasoline-powered fuel-cell system will be
              delivered by a contractor to the DOE test facility at Argonne
              National Laboratory. Validation of low-cost ($10/kW) fuel-cell
              technology will be completed.
      Initial testing will be completed on light trucks with
              advanced diesel engines that provide a 35 percent improvement
              in fuel economy while meeting Tier 2 emissions standards.
      The Office of Industrial Technologies will continue R&D
              partnerships with energy-intensive industries, resulting in an
              estimated additional $200 million energy savings and
              productivity gain.
      Local recipients of DOE Weatherization Assistance program
              grant funds will weatherize approximately 116,000 low-income
              homes, improving their energy efficiency, and safety, and
              reducing the residents' energy bills. This is an increase of
              approximately 51,000 homes over 2001.

      Solar and Renewable Resources: Solar and renewable resources programs
    focus on technologies that will help the Nation use its renewable
    resources such as wind, solar, and biomass to produce energy. The United
    States is the world's technology leader in wind energy, with a growing
    export market and production costs that have fallen dramatically. In
    addition, photovoltaics (PV) are becoming more useful in remote power
    applications, and new biofuels plants are being constructed.
      Solar and renewable energy will benefit from the Administration's
    legislative proposal to open a small part of the Arctic National
    Wildlife Refuge (ANWR) to oil and gas leasing and production. This
    process will generate bidding bonuses for the Federal government
    estimated at $1.2 billion, to become available in 2004, which will be
    made available over a series of years to increase the funding for solar
    and renewable energy technologies.
      In 2002:
      A 100 kW cold-weather wind-turbine, winner of an ``R&D 100''
              award in 2000, will begin experimental operation and testing
              in an Alaskan village. These turbines are expected to provide
              reliable power options for small villages and remote
              installations in extremely harsh arctic environments.
      DOE's biofuels program will complete development of a yeast
              that can ferment most biomass-derived sugars to meet the cost
              goals for production of ethanol from cellusic feedstocks.
      The PV program will develop a 17-percent efficient cadmium-
              telluride thin-film PV cell. This laboratory achievement will
              be about seven percent more efficient than the best available
              commercial thin-film PV units of any type.
      The biopower program will complete technical feasibility
              testing of using closed-loop, short-rotation wood (fast-
              growing willows) as a dedicated fuel source for power
              generation at two retrofitted coal power plants in New York
              State.

    [[Page 39]]

      Electric Energy Systems: These activities are managed by DOE's Office
    of Energy Efficiency and Renewable Energy. The programs focus on
    technical advances in electricity transmission and storage and on the
    efficiency and reliability of the Nation's electrical grid. The largest
    activity is in high-temperature superconductivity R&D, which can greatly
    increase the efficiency of generators and heavy electrical machinery,
    and dramatically increase the carrying capacity of high-voltage
    transmission lines.
      In 2002, operational testing will be completed on the world's
              first commercial-service superconducting utility power cable.
              This single cable has four times the electrical capacity of
              the copper cable it replaced, and will supply power to 14,000
              residents in a Detroit neighborhood.

      Fossil Energy R&D: Fossil fuel energy R&D programs, for which the
    budget proposes $449 million, help industry develop advanced
    technologies to produce and use coal, oil, and gas resources more
    efficiently and cleanly. Federally-funded development of clean, highly-
    efficient gas-fired and coal-fired generating systems aims to reduce gas
    emission rates, while reducing electricity costs compared to currently
    available technologies. These programs also include efforts to discover
    effective, efficient, and economical means of sequestering carbon
    dioxide. In the past, the oil and gas program has funded research on
    activities that had already been commercialized by the private sector.
    The budget targets funds to projects that will not compete with private
    sector investment and will improve the longer-term technologies to
    foster increased, environmentally sound, domestic energy production.
      Through a new $150 million Clean Coal Power initiative, the Department
    will create an industry consortium to direct research toward the most
    critical barriers to expansion of coal use for power generation in the
    United States. This cooperative effort, totaling more than $2 billion
    over 10 years, will require industry to share in the cost of the
    research work, with the industry share increasing as technologies
    approach commercial stages. Participating companies will be asked to
    take part in selection of technologies and evaluate the progress of R&D
    efforts, with the goal of accelerating development and deployment of
    coal technologies that will economically meet environmental standards.
      In 2002, DOE will:
      develop a new consortium of coal companies, utilities, and
              generating equipment vendors to direct coal research toward
              the most important problems faced by the entire industry;
      complete technology evaluations to make available, by 2003,
              advanced control technologies seeking to achieve cost
              competitive, deep nitrogen oxides (NOx) reductions in power
              plant flue gas emissions in response to the Clean Air Act
              standards, at 25 percent lower cost than available technology;
              and
      conduct integrated research and field demonstrations of carbon
              dioxide (CO2) sequestration in deep, unminable coal
              seams and depleted oil reservoirs and develop sufficient data
              to determine reservoir integrity and fate of injected
              CO2. If the CO2 does not escape the
              formations where it is injected, a safe and economical method
              of disposal might be developed based on this knowledge.

      Nuclear Energy R&D: Twenty percent of our Nation's electricity and
    about 17 percent worldwide is made today with nuclear power plants. R&D
    addressing the issues that threaten the acceptance and viability of
    nuclear fission in the United States will help determine whether nuclear
    fission can continue to supply increasing amounts of economically-priced
    energy while reducing emissions.
      In 2002, DOE will:
      continue peer-reviewed, competitively-selected R&D projects
              that address nuclear energy's cost-effectiveness and
              acceptability, including plant economics, operational safety,
              proliferation, and waste disposal;
      maintain the advanced radioisotope power system program and
              facility operations and capabilities for current and future
              space and national security missions, and explore fission
              power systems to support future human exploration of space;

    [[Page 40]]

      manage its resources and capabilities at Nuclear Energy (NE)
              managed sites to ensure that the Department can meet its
              mission requirements, that the NE sites are maintained in a
              safe, secure, environmentally-compliant and cost-effective
              manner, and ensure the protection of the workers, the public,
              and the environment; and
      continue to provide, through the isotope program, a supply of
              radioactive and stable isotopes for medical and other
              research.

    Environmental Quality

      Environmental Management: For the Non-Defense Environmental Management
    and Uranium Facilities Maintenance and Remediation programs, the budget
    proposes $592 million to manage part of the Nation's most complex
    environmental cleanup program, the result of more than five decades of
    research and production of nuclear energy technology and materials. This
    will reduce environmental risk and manage the waste at: 1) sites run by
    DOE's predecessor agencies; 2) sites contaminated by uranium and thorium
    production from the 1950s to the 1970s; 3) DOE's inactive uranium
    processing facilities; and 4) the Paducah Gaseous Diffusion Plant
    operated by the United States Enrichment Corporation. (For information
    on DOE's Defense Environmental Management program and performance
    measures, see Chapter 2, ``National Defense.'')

    Office of Civilian Radioactive Waste Management

      This office is responsible for ensuring the safe, geologic disposal of
    radioactive wastes from civilian and defense uses. The budget increases
    funding for DOE's Civilian Radioactive Waste Management Program in order
    to help the program stay on schedule toward a formal Site Recommendation
    in 2002, and a formal License Application at the end of calendar year
    2003. In addition, the budget request will enhance the program's effort
    to achieve a competitive design effort, leading to a robust license
    application. This design effort will include: 1) an analysis of concepts
    that span the full range of repository operating conditions, and 2) the
    development of modular concepts that will lead to outyear budgetary
    savings for the program.
      In addition, the Administration supports efforts to use the nuclear
    utilities' budgetary receipts for their intended purposes. DOE will
    submit to Congress an updated report regarding alternative approaches to
    finance and manage the program by June 30, 2001, as directed by the
    House report language accompanying the 2001 Energy and Water Development
    Appropriations Act. DOE will identify in this report models of effective
    organizations that might benefit the operation of its civilian program.

    Energy Production and Power Marketing

      Power Marketing Administrations: The Federal Government operates
    programs that produce, distribute, and finance electric power. The four
    Federal Power Marketing Administrations, or PMAs, (Bonneville,
    Southeastern, Southwestern, and Western) market electricity generated at
    131 multi-purpose Federal dams and related facilities, and manage more
    than 33,000 miles of federally-owned transmission lines in 34 States.
    The PMAs sell about five percent of the Nation's electricity, primarily
    to preferred customers such as counties, cities, and publicly-owned
    utilities. The PMAs face growing challenges as the electricity industry
    moves toward open, competitive markets.
      In 2002, each PMA's goal is to operate its transmission system
              to ensure that service is continuous, reliable, and balanced--
              that is, that the system achieves a ``pass'' rating each month
              under the North American Electric Reliability Council
              performance standards. These measures are used industry-wide
              and indicate the reliability and quality of power provided by
              utilities.

      Tennessee Valley Authority (TVA): TVA is a Federal Government
    corporation and one of the five largest electric power companies in the
    country. It generates three percent of the Nation's electric power and
    transmits that power over its 17,000-mile transmission network to 158
    municipal utilities and rural electric cooperatives that serve eight
    million people in seven States. TVA also promotes economic activity in
    the area it serves by operating a complex river management system that

    [[Page 41]]

    provides navigation, flood control, hydropower, water supply, and
    recreation services.
      The Nation's electric power industry is changing so that customers
    benefit from competition in the industry. To prepare for that change,
    TVA is cutting its costs wherever possible. In the past four years, TVA
    has paid down its outstanding debt by over $1.7 billion, roughly six
    percent.
      In 2002, TVA will:
      reduce its debt by an estimated $260 million; and
      keep the navigable waterway TVA manages on the Tennessee River
              open to commercial traffic 99 percent of the time, up from the
              94 percent level TVA achieved in 2000.

      Rural Utilities Service: In 2002, the Agriculture Department's Rural
    Utilities Service (RUS) will make $2.6 billion in direct and guaranteed
    loans to rural electric cooperatives, public bodies, nonprofit
    associations, and other utilities in rural areas for generating,
    transmitting, and distributing electricity. Its main goal is to finance
    modern, affordable electric service to rural communities. Included
    within this funding is $100 million loans originated by the private
    sector and guaranteed by RUS, which will help rural utility borrowers
    better position themselves in a competitive, deregulated environment.
    RUS will also make $495 million in direct loans to companies providing
    telecommunications services to rural communities, and $27 million in
    grants and $400 million in loans for distance learning, telemedicine,
    and broadband technology. RUS borrowers continue to provide service in
    some of the poorest counties in rural America and to the majority of
    counties suffering from recent population out-migration.
      In 2002, RUS will:
      upgrade 187 rural electric systems, which will benefit over
              2.8 million customers and create or preserve approximately
              60,000 jobs;
      provide more than 50 telecommunication systems with funding
              for advanced telecommunications services benefiting more than
              300,000 rural customers by providing broadband and high-speed
              Internet access; and
      provide distance learning facilities to 300 schools,
              libraries, and rural education centers, and telemedicine
              equipment to 150 rural health care providers, benefiting
              millions of residents in rural America.

    Energy Regulation

      The Federal Government's regulation of energy industries is designed
    to protect public health, achieve environmental and energy goals, and
    promote fair and efficient interstate energy markets.

      Appliance Efficiency Rules: DOE specifies minimum levels of energy
    efficiency for major home appliances, such as water heaters, air
    conditioners, and refrigerators, and for commercial-scale heating and
    cooling components. The initial efficiency standards were established in
    legislation, and DOE periodically issues rules to revise those standards
    or to create standards for new categories of equipment.
      In 2002, DOE will issue a final rule for residential air
              conditioning products for specialized applications, and will
              begin rulemakings for residential furnaces and boilers,
              commercial air conditioning products, and electrical
              distribution transformers--all of which are scheduled to be
              completed by the end of 2004.

      Federal Energy Regulatory Commission (FERC): FERC, an independent
    agency within DOE, regulates the transmission and wholesale prices of
    electric power, including non-Federal hydroelectric power, and the
    transmission of oil and natural gas by pipeline in interstate commerce.
    FERC promotes competition in the natural gas industry and in wholesale
    electric power markets.
      In 2002, in order to promote competitive, well-functioning energy
    markets, FERC will measure the response of prices to external conditions
    in natural gas and electricity, the level of price volatility and
    changes in price volatility in electricity and gas, and the correlation
    of commodity prices across regions.

    [[Page 42]]

      Nuclear Regulatory Commission (NRC): NRC, an independent agency,
    regulates the Nation's civilian nuclear reactors, the medical and
    industrial use of nuclear materials and their safeguards, and the
    disposal of nuclear waste to ensure adequate protection of the public
    health and safety, to promote the common defense and security, and to
    protect the environment. NRC international activities support U.S.
    interests in nonproliferation and the safe and secure use of nuclear
    materials in other countries. To meet the challenges of a restructured
    and deregulated electric utility industry, NRC is committed to adopting
    a more risk-informed and performance-based approach to regulation. This
    regulatory framework will focus NRC and licensee resources on the most
    safety-significant issues, while providing flexibility in how licensees
    meet NRC requirements.
      The budget increase accommodates the increasing demand NRC is facing
    to renew nuclear power plant licenses for an additional 20 years of
    plant operations, approve reactor license transfers associated with
    electricity industry restructuring, and support industry initiatives to
    increase the Nation's electricity supply. In addition, the budget
    proposes to reduce the burden on licensees to pay fees for NRC expenses
    that do not provide a direct benefit to them. In 2002, the NRC will
    recover approximately 96 percent of its total costs through licensee
    fees, and this will decline to 90 percent by 2005.
      In 2002:
      NRC's nuclear reactor strategic goal is to prevent radiation-
              related deaths and illnesses, promote the common defense and
              security, and protect the environment in the use of civilian
              nuclear reactors;
      NRC's nuclear materials strategic goal is to prevent
              radiation-related deaths and illnesses, promote the common
              defense and security, and protect the environment in the use
              of source, by-product, and special nuclear material; and
      NRC's nuclear waste strategic goal is to prevent significant
              adverse impacts from radioactive waste to the current and
              future public health and safety and the environment, and
              promote the common defense and security.

    Management and Procurement Reform

      Program and contract management at DOE is a priority management
    objective of the Administration because more than 90 percent of the
    Department's budget is spent on contracts to operate its facilities. DOE
    has made insufficient use of competitive, performance-based contracts,
    and the Administration will increase the use of such contracts for DOE
    in 2002.
      Industry cost-sharing requirements in DOE's applied R&D programs have
    not been uniformly implemented, and in some programs as few as 20
    percent of the projects obtain any cost-sharing. In 2002, DOE's applied
    energy R&D programs will be implementing a rigorous and consistent cost-
    sharing policy that applies to all contracts, grants, cooperative
    agreements, or other funding mechanisms for industry-performed R&D. The
    cost-sharing policy will provide for an absolute minimum requirement for
    industry cost-sharing in any project, with graduated steps based on
    technological maturity and risk, up to a requirement for more than 50
    percent cost-sharing for demonstration or commercialization activities.
    The policy will also include explicit consideration of factors such as
    estimated time to a commercialization decision, technical progress and
    change in risk as a result of previous funding phases, and existence of
    external incentives for industry to perform similar work.
      More aggressive and consistent cost-sharing will reduce corporate
    subsidies, free up funds for other priority projects, and create an
    internal incentive for industry to terminate projects that are not
    making adequate progress or are not meeting performance goals.
      DOE will also better define its performance measures across the
    Department, and particularly in its R&D programs. In the past, some
    performance measures were outside the scope of the Department's
    influence and gave a distorted vision of the role of the Government and
    its ability to affect outcomes (e.g., ``Ensure a competitive electricity
    industry is in place that can deliver adequate and affordable supplies
    with reduced environmental

    [[Page 43]]

    impact.'') Future performance measures will better match the strategic
    goals identified by DOE.

    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 existing 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.

      Provide Tax Credit for Residential Solar Energy Systems: Current law
    provides a 10-percent investment tax credit to businesses for qualifying
    equipment that uses solar energy to generate electricity, to heat or
    cool or provide hot water for use in a structure, or to provide solar
    process heat. No credit is available for non-business purchases of solar
    energy equipment. The Administration proposes a new tax credit for
    individuals that purchase solar energy equipment used to generate
    electricity (PV equipment) or heat water (solar water heating equipment)
    for use in a dwelling unit. The credit would be available only for
    equipment used exclusively for purposes other than heating swimming
    pools. The credit would be equal to 15 percent of the cost of the
    equipment and its installation. The credit would be nonrefundable and
    the lifetime maximum credit allowed to an individual would be limited to
    $2,000 for PV equipment and $2,000 for solar water heating equipment.
    The credit would apply only to solar water heating equipment placed in
    service after December 31, 2001, and before January 1, 2006, and to PV
    systems placed in service after December 31, 2001, and before January 1,
    2008.
      Extend and Modify the Tax Credit for Producing Electricity from
    Certain Sources: Current law provides taxpayers a 1.5-cent-per-kilowatt-
    hour tax credit, adjusted for inflation after 1992, for electricity
    produced from wind, closed-loop biomass (organic material from a plant
    grown exclusively for use at a qualified facility to produce
    electricity), and poultry waste. The electricity must be sold to an
    unrelated third party and the credit is limited to the first 10 years of
    production. The current credit applies only to facilities placed in
    service before January 1, 2002. The Administration proposes to extend
    the credit for electricity produced from wind and biomass to facilities
    placed in service before January 1, 2005. In addition, eligible biomass
    sources would be expanded to include certain biomass from forest-related
    resources, agricultural sources, and other specified sources. Special
    rules would apply to biomass facilities placed in service before January
    1, 2002. Electricity produced at such facilities from newly eligible
    sources would be eligible for the credit only from January 1, 2002,
    through December 31, 2004, and at a rate equal to 60 percent of the
    generally applicable rate. Electricity produced from newly eligible
    biomass co-fired in coal plants would also be eligible for the credit
    only from January 1, 2002, through December 31, 2004, and at a rate
    equal to 30 percent of the generally applicable rate.
      Modify Treatment of Nuclear Decommissioning Funds: Under current law,
    deductible contributions to nuclear decommissioning funds are limited to
    the amount included in the taxpayer's cost of service for ratemaking
    purposes. For deregulated utilities, this limitation may result in the
    denial of any deduction for contributions to a nuclear decommissioning
    fund. The Administration proposes to repeal this limitation. Also under
    current law, deductible contributions are not permitted to exceed the
    amount the IRS determines to be necessary to provide for level funding
    of an amount equal to the taxpayer's post-1983 decommissioning costs.
    The Administration proposes to permit funding of all decommissioning
    costs (including pre-1984 costs) through deductible contributions. The
    IRS would continue to determine the amount necessary to provide for
    level funding of the taxpayer's decommissioning costs. The

    [[Page 44]]

     Administration also proposes to permit a nuclear decommissioning fund
    to receive transfers from certain funds that do not qualify as nuclear
    decommissioning funds for Federal tax purposes (nonqualified funds).
    Under this proposal, a taxpayer would be permitted to transfer amounts
    that have been irrevocably set aside in a nonqualified fund pursuant to
    the requirements of a State or Federal agency exclusively for the
    purpose of funding the decommissioning of the nuclear power plant. Any
    portion of the amount transferred that exceeds the amount deducted (or
    excluded from the taxpayer's gross income) on account of transfers to
    the nonqualified fund would be allowed as a deduction ratably over the
    remaining useful life of the nuclear power plant. These proposals would
    be effective for taxable years beginning after December 31, 2001.