[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

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                               Table 5-1.  Federal Resources in Support of Energy
                                            (In millions of dollars)
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                                                                               Estimate
               Function 270                   2000   -----------------------------------------------------------
                                             Actual     2001      2002      2003      2004      2005      2006
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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
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  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.

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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.

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  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;

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  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

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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.

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  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

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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

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 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.