[Congressional Record (Bound Edition), Volume 151 (2005), Part 9]
[Senate]
[Pages 12291-12297]
[From the U.S. Government Publishing Office, www.gpo.gov]




                               CBO REPORT

  Mr. DOMENICI. Mr. President, at the time Senate Report No. 109-78 was 
filed, the Congressional Budget Office report was not available. I ask 
unanimous consent that the report, which is now available, be printed 
in the Congressional Record for the information of the Senate.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:


               congressional budget office cost estimate

     Energy Policy Act of 2005--As ordered reported by the Senate 
         Committee on Energy and Natural Resources on May 26, 2005
       Summary: The legislation would authorize funding for 
     several programs aimed at energy production, conservation, 
     and research and development. It would authorize the use of 
     energy savings performance contracts (ESPCs), make several 
     changes to the regulatory framework governing the nation's 
     electricity system, and establish a mandate for the use of 
     renewable fuels.
       Most of the bill's estimated costs would stem from changes 
     in spending subject to appropriation. We estimate that 
     implementing the bill would cost $5.1 billion in 2006 and 
     $35.9 billion over the 2006-2010 period from appropriated 
     funds, assuming appropriation of the necessary amounts.
       CBO estimates that enacting the bill also would increase 
     direct spending by $728 million over the 2005-2010 period but 
     would reduce direct spending by $591 million over the 2005-
     2015 period. CBO estimates that enacting the bill would 
     increase net revenues by $75 million in 2006 and would result 
     in a net loss of revenues totaling $1.2 billion over the 
     2006-2010 period and $1.0 billion over the 2006-2015 period.
       The bill contains numerous mandates as defined in the 
     Unfunded Mandates Reform Act (UMRA) that would affect both 
     intergovernmental and private-sector entities.
       CBO cannot determine the cost of all the mandates in the 
     bill because several of the requirements established by the 
     bill would hinge on future regulatory action about which 
     information is not available. Though CBO cannot estimate the 
     cost of each mandate, we expect that the total cost of 
     private-sector mandates in the bill would exceed the annual 
     threshold established in UMRA ($123 million in 2005, adjusted 
     annually for inflation). That conclusion is based on our 
     analysis of the renewable fuels standard, which would impose 
     substantial costs on the motor fuels industry.
       CBO estimates, however, that the total cost of complying 
     with intergovernmental mandates in the bill would not exceed 
     the threshold established in UMRA ($62 million in 2005, 
     adjusted annually for inflation). The bill also would 
     authorize numerous grants and initiatives that would benefit 
     state, local, and tribal governments; any costs those 
     governments incur for these projects and initiatives would 
     result from complying with conditions for receiving this 
     federal assistance.
       Based on its review of the bill, CBO expects that the 
     mandates contained in the bill's titles on renewable energy 
     (title II), nuclear energy (title VI), electricity (title 
     XII), and energy efficiency (title I) would have the greatest 
     impact on private-sector entities and state and local 
     governments.
       Estimated cost to the Federal Government: The estimated 
     budgetary impact of the legislation is shown in Table 1. The 
     costs of this legislation fall within budget functions 270 
     (energy), 300 (natural resources and environment), 350 
     (agriculture), 450 (community and regional development) and 
     800 (general government).
     Basis of estimate
       For this estimate, CBO assumes that the Energy Policy Act 
     of 2005 will be enacted near the end of fiscal year 2005. 
     Additionally, CBO assumes that the authorized and necessary 
     amounts will be appropriated for each year and that spending 
     will follow historical rates for ongoing activities. Table 2 
     details the components of estimated spending subject to 
     appropriation under the bill. (Table 3, provided later, 
     details the bill's direct spending effects.)
       Spending subject to appropriation--Overview
       The bill contains several provisions that specify amounts 
     authorized to be appropriated for programs related to energy 
     research, development, production, and conservation. 
     Additionally, the bill would authorize unspecified amounts to 
     be appropriated for energy conservation, loan guarantees for 
     certain energy facilities and projects to develop innovative 
     technologies, incentives to use renewable energy, and several 
     other energy programs, studies, and reports. Assuming 
     appropriation of the necessary amounts, CBO estimates that 
     implementing these provisions would cost $5.1 billion in 2006 
     and $35.9 billion over the 2006-2010 period. The following 
     two sections detail the costs of specified and estimated 
     authorizations. (A discussion of direct spending and revenue 
     effects follows the next two sections.)

                      TABLE 1.--ESTIMATED BUDGETARY IMPACT OF THE ENERGY POLICY ACT OF 2005
----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in billions of dollars--
                                               -----------------------------------------------------------------
                                                   2005       2006       2007       2008       2009       2010
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
 
Spending Under Current Law for Energy Science
 Programs:
    Budget Authority\1\.......................        6.0        0.0        0.0        0.O        0.0        0.0
    Estimated Outlays.........................        5.4        2.9        0.6        0.1          *          *
Proposed Changes:
    Specified Authorization Levels:
        Authorization Level...................        0.0        9.7       10.5       11.5        2.4        2.5
        Estimated Outlays.....................        0.0        4.8        8.8       10.6        6.9        3.2
    Estimated Authorization Levels:
        Estimated Authorization Level.........        0.0        0.4        0.3        0.4        0.3        0.3
        Estimated Outlays.....................        0.0        0.3        0.3        0.4        0.3        0.3
        Total Proposed Changes:
            Estimated Authorization Level.....        0.0       10.1       10.8       11.9        2.7        2.8
            Estimated Outlays.................        0.0        5.1        9.2       10.9        7.2        3.5
Spending Under the Energy Policy Act of 2005
 for Energy and Science Programs:
    Estimated Authorization Level.............        6.0       10.1       10.8       11.9        2.7        2.8
    Estimated Outlays.........................        5.4        8.0        9.7       11.0        7.2        3.6
 
                                           CHANGES IN DIRECT SPENDING
 
Estimated Budget Authority....................          *        0.1        0.4        0.3        0.1       -0.1
Estimated Outlays.............................          *        0.1        0.3        0.3        0.1       -0.1
 
                                               CHANGES IN REVENUES
 
Estimated Revenues............................        0.0        0.1          *       -0.2       -0.4       -0.7
----------------------------------------------------------------------------------------------------------------
\1\The 2005 amount is the amount appropriated for that year for energy conservation, development, production,
  and science programs.
Notes: * = less than $50 million.
Components may not sum to totals because of rounding.


        TABLE 2.--ESTIMATED EFFECTS OF THE ENERGY POLICY ACT OF 2005 ON SPENDING SUBJECT TO APPROPRIATION
----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in billions of dollars--
                                               -----------------------------------------------------------------
                                                   2005       2006       2007       2008       2009       2010
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION
 
Discretionary Spending Under Current Law for
 Energy and Science Programs:
    Budge Authority\1\........................      5,953          0          0          0          0          0
    Estimated Outlays.........................      5,366      2,882        556         86         29         29

[[Page 12292]]

 
Proposed Changes:
    Specified Authorization Level.............          0      9,684     10,454     11,492      2,440      2,539
    Estimated Outlays.........................          0      4,765      8,843     10,553      6,889      3,228
    Estimated Authorizations:
        Energy Conservation Measures at
         Federal Agencies:
            Estimated Authorization Level.....          0         93         99        106        107        114
            Estimated Outlays.................          0         76         98        105        108        113
        Loan Guarantees for Innovative
         Technologies:
            Estimated Authorization Level.....          0         85         85         85         85         60
            Estimated Outlays.................          0         85         85         85         85         60
        Indian Energy Programs:
            Estimated Authorization Level.....          0         36         51         61         71         56
            Estimated Outlays.................          0         21         41         55         67         60
        Renewable Energy Production Incentive
         (REPI):
            Estimated Authorization Level.....          0        100         23         13          8         27
            Estimated Outlays.................          0         70         46         16         10         21
        Cellulosic Biomass and Cane Sugar Loan
         Guarantee:
            Estimated Authorization Level.....          0         30          0         40          0         40
            Estimated Outlays.................          0         30          0         40          0         40
        Other Provisions:
            Estimated Authorization Level.....          0         46         50         56         14         14
            Estimated Outlays.................          0         43         49         56         14         14
        Subtotal, Estimated Authorizations:
            Estimated Authorization Level.....          0        390        307        360        284        310
            Estimated Outlays.................          0        325        318        357        283        307
        Total Proposed Changes:
            Estimated Authorization Level.....          0     10,073     10,761     11,852      2,724      2,849
            Estimated Outlays.................          0      5,090      9,161     10,910      7,172      3,535
        Discretionary Spending Under the Bill
         for Energy and Science Programs:
            Estimated Authorization Level\1\..      5,953     10,073     10,761     11,852      2,724      2,849
            Estimated Outlays.................      5,366      7,972      9,717     10,996      7,201      3,564
----------------------------------------------------------------------------------------------------------------
\1\The 2005 amount is the amount appropriated for that year for energy conservation, development, production,
  and science programs.

       Spending subject to appropriation: specified authorizations
       The legislation would specifically authorize the 
     appropriation of $36.6 billion over the next five years for 
     several energy-related programs. Assuming appropriation of 
     the authorized amounts, CBO estimates that implementing the 
     bill's programs with specified authorizations would cost $4.8 
     billion in 2006 and $34.3 billion over the 2006-2010 period. 
     That estimate includes:
       Nearly $2.5 billion for the Department of Energy's (DOE's) 
     energy conservation programs (title I);
       Nearly $700 million for renewable energy grants and 
     research projects (title II);
       $3.3 billion for programs related to federal oil and gas 
     resources and for financial assistance to coastal states 
     (title III);
       $400 million to research and demonstrate new technologies 
     that use coal (title IV);
       $134 million for programs to research and develop energy 
     resources on Indian lands (title V);
       About $540 million for a new program to research, develop, 
     design, construct, and operate an Advanced Reactor Hydrogen 
     Cogeneration Project and $16 million for a nuclear 
     decommissioning project in Arkansas (title VI);
       About $450 million for research and demonstration of 
     vehicles that use alternative transportation fuels (title 
     VII);
       $2.8 billion for research, development, and demonstration 
     of hydrogen-based fuel technologies and infrastructure for 
     hydrogen fuels (title VIII);
       $23 billion to research energy efficiency technologies, 
     renewable energy sources, fossil energy development, basic 
     science, and other energy sources and new technologies (title 
     IX);
       $45 million to promote a technology infrastructure program 
     and support small business participation in DOE research 
     activities (title X);
       About $300 million for training personnel to work in the 
     energy technology industry, and providing awards and 
     fellowships in science, mathematics, and energy education 
     (title XI); and
       About $40 million for incentive payments for advanced power 
     technologies (title XII).
       Spending subject to appropriation: Estimated authorizations
       Based on information from DOE, the Department of the 
     Interior (DOI), the Environmental Protection Agency (EPA), 
     other affected agencies, and industry sources, CBO estimates 
     that implementing the provisions of the bill that are subject 
     to appropriation and have no specified authorization level 
     would cost $325 million in 2006 and $1.6 billion over the 
     2006-2010 period. Key components of this estimate are 
     described below.
       Energy Conservation at Federal Agencies. Title I would 
     amend several energy conservation goals and requirements that 
     apply to the federal government. CBO estimates that 
     implementing those provisions would cost $500 million over 
     the 2006-2010 period, subject to appropriation of the 
     necessary amounts. Most of those goals, such as reducing 
     energy use by 2 percent per year relative to 2003 consumption 
     and purchasing energy-efficient products when economical, are 
     being pursued under current executive orders. Where 
     practical, the bill would require that hourly electricity 
     meters be installed at all federal buildings by 2012. Such 
     meters would provide data at least once daily and measure 
     hourly consumption of electricity. The data would be 
     available to facility energy managers.
       Based on information from the DOE, we assume that it would 
     only be economical to meter 20 percent of the government's 
     inventory of 500,000 buildings and that installing meters 
     would cost, on average, $4,000 per building. We assume that 
     meters would be installed in 20,000 buildings per year until 
     2012, when the project would be complete. We estimate that 
     implementing the metering provisions of the legislation would 
     cost $57 million in 2006 and $323 million over the 2006-2010 
     period. CBO estimates that other requirements in this title, 
     such as providing technical assistance to states, 
     establishing new programs and rules for making products more 
     energy-efficient, and monitoring the equipment installed 
     using energy savings performance contracts would cost $19 
     million in 2006 and $177 million over the next five years.
       Based on experience in the private sector, metering the 
     hourly electricity use of buildings can lead to reduced 
     energy consumption and reduce costs enough to recoup the cost 
     of installing meters within two to four years. It is possible 
     that this requirement could lead to a future reduction in 
     appropriations for energy use in federal buildings, but any 
     such savings would depend on how metering information is used 
     by federal agencies. Additionally, metering can reveal where 
     energy use is high, but capital investment and other changes 
     in how federal buildings consume energy would likely be 
     needed to achieve savings. In any case, any savings are not 
     likely to be significant over the next five years because 
     most of the new metering and required capital investment 
     would not be completed until the end of that period or after 
     2010.
       Loan Guarantees for Innovative Technologies. The bill would 
     establish a credit assistance program for energy production 
     technologies that reduce greenhouse gas emissions and employ 
     new or significantly improved technologies over those 
     currently available. Currently, DOE has no authority to 
     provide credit assistance and has developed no plans for how 
     it would use this authority. For this estimate, we assume DOE 
     would provide an 80 percent guarantee of loans worth about 
     $3.75 billion over the 2006-2010 period. Assuming 
     appropriation of the necessary amounts, CBO estimates that 
     implementing this provision would cost $400 million over the 
     2006-2010 period and an additional $200 million after that. 
     CBO assumes--after providing loan guarantees for $3.75 
     billion worth of projects over the next five years--that 
     DOE's credit assistance under the program would probably 
     accelerate after that period as the department gained 
     experience. The department could offer more or less credit 
     assistance than we have assumed here. All costs of such 
     credit assistance would be subject to appropriation.
       Description of Loan Guarantee Program. The bill would 
     provide DOE with broad authority to make loan guarantees to a 
     variety of energy projects, ranging from renewable energy 
     systems, to advanced nuclear energy facilities, integrated 
     coal gasification combined-cycle technology, petroleum coke 
     gasification technology, and carbon sequestration technology, 
     as well as other new technologies. The legislation sets no 
     limits on

[[Page 12293]]

     the number of projects, or total principal that could be 
     guaranteed, nor does it indicate any priority for one type of 
     project over another.
       Under the bill, DOE could not guarantee loans for more than 
     80 percent of a project's cost; it could sell, manage, or 
     hire contractors to take over a facility to recoup losses in 
     the event of a default, or it could take over a loan and make 
     payments on behalf of borrowers prior to a default. Such 
     payments could result in DOE effectively providing a direct 
     loan with as much as a 100 percent subsidy rate--essentially 
     a grant--that could be used by the borrower to payoff its 
     debts.
       Under the Federal Credit Reform Act, funds must be 
     appropriated in advance to cover the subsidy cost of loan 
     guarantees, measured on a present value basis. The costs of 
     such subsidies could vary widely depending on the terms of 
     the contracts and the financial and technical risk associated 
     with different types of projects. According to Standard and 
     Poor's, the cumulative default risk for projects rated as 
     speculative investments can range from about 20 percent to 
     almost 60 percent, depending on a project's cash flows and 
     contractual terms. Subsidy costs also are affected by amounts 
     that could be recovered by the government in the event of 
     default, which in turn depend on the value of the security 
     backing the guarantee as well as contractual protections. For 
     this estimate, CBO assumes that, over the next five years, 
     DOE would not provide guarantees to projects with a subsidy 
     cost greater than 20 percent.
       The bill would authorize DOE to accept payments from 
     borrowers sufficient to cover the subsidy cost of loan 
     guarantees. However, because the technologies covered by the 
     program would be new and would be seeking government backing, 
     CBO expects that projects seeking a guarantee would not be in 
     a position to fund the federal subsidy cost of a loan 
     guarantee. The bill specifies that DOE shall charge fees to 
     cover the costs of administering the credit program.
       Types of Projects Guaranteed. The legislation contains 
     general guidelines that projects must meet to qualify for 
     credit assistance and specifies criteria for selecting at 
     least two coal gasification projects. For purposes of this 
     estimate, we assume that DOE would guarantee about $3 billion 
     in coal gasification projects, which would include the two 
     specified in the legislation and at least one other project. 
     We also assume that the department would use the authority in 
     the bill to provide loan guarantees for $625 million worth of 
     renewable energy systems, such as biomass or geothermal 
     electricity plants.
       Coal Gasification. Gasification projects require large 
     capital investments, ranging from over $500 million for a 400 
     megawatt gasification plant to $1 billion or more for a plant 
     that would produce electric power and other fuels using 
     petroleum coke. Such gasification technologies are not new--
     they have been tested and deployed to some extent in other 
     countries--but they have not been proven economically 
     competitive in the United States. Profitability would depend 
     on numerous factors, including future electricity and fuel 
     prices; the price, quality, and availability of feedstocks; 
     and various regulatory approvals.
       For this estimate, CBO assumes that DOE would provide an 80 
     percent guarantee on investments totaling about $3 billion 
     over the next five years, which would include the planning 
     and construction of the two coal gasification plants 
     specifically mentioned in the legislation and additional 
     investment in other clean coal technologies.
       Given the current outlook for energy prices, CBO expects 
     that the credit risk of gasification loans would likely fall 
     within the middle of the range for speculative investments, 
     but the risk of default could be higher or lower depending on 
     the contract terms and specific technology. CBO estimates 
     that loan guarantees for such projects would probably involve 
     a 20 percent subsidy. Thus, we estimate that implementing 
     this provision would cost $350 million over the 2006-2010 
     period, assuming appropriation of the necessary amounts. 
     Additional outlays of $150 million would occur after 2010 as 
     construction progressed on such projects.
       Renewable Energy. The legislation also would authorize DOE 
     to make loan guarantees for renewable energy projects such as 
     biomass and geothermal sources for electricity generation. 
     Such projects could range in cost from $10 million for a 
     small 5 megawatt geothermal plant to $250 million for an 
     ethanol production plant. We expect that subsidy rates for 
     loans guaranteed under this title would be 20 percent. For 
     this estimate, we assume that $625 million worth of renewable 
     energy projects would receive an 80 percent loan guarantee 
     over the next 5 years. Such loan guarantees for renewable 
     energy systems would cost $50 million over the 2006-2010 
     period, and an additional $50 million after that period.
       Nuclear Energy. Because of DOE's support of emerging 
     nuclear technology through a current program called Nuclear 
     Power 2010, we expect that the department would use the 
     program to provide a guarantee to at least one new nuclear 
     facility over the 2011-2015 period. Such a guarantee could be 
     for more than $2 billion and carry a significant subsidy cost 
     (perhaps as much as 30 percent).
       Indian Energy Programs. Title V would authorize the 
     Department of the Interior to provide grants and loans to 
     Indian tribes for energy resource development projects. That 
     title also would authorize DOE to provide loan guarantees for 
     energy development projects on Indian land and to establish 
     an Office of Indian Energy Policy and Programs. In total, CBO 
     estimates that these programs would cost $21 million in 2006 
     and $244 million over the 2006-2010 period.
       DOI Grants and Loans. The bill would authorize DOI to 
     provide loans and grants to Indian tribes for energy resource 
     development and integration and regulation of tribal energy 
     resources and to develop energy resource agreements through 
     leases, business agreements, and rights-of-way. Based on 
     information from DOI, CBO estimates that such grants and 
     loans would cost about $11 million in 2006 and $97 million 
     over the 2006-2010 period.
       DOE Loan Guarantees. Title V would authorize the Secretary 
     of Energy to guarantee up to $2 billion in loans for energy 
     projects on Indian lands. Based on information from the 
     Council of Energy Resource Tribes, CBO expects that DOE would 
     provide loan guarantees for a variety of projects on Indian 
     lands, including electricity transmission lines, fossil fuel 
     electricity generation, and renewable fuels. CBO expects that 
     the subsidy cost of loans guaranteed under this program could 
     range from 2 or 3 percent for routine conventional projects 
     to 50 percent or more for unproven technologies.
       For this estimate, CBO assumes that about half of the 
     program would provide loan guarantees for electricity 
     transmission lines, which should pose relatively little 
     credit risk under standard contract terms. We assume that the 
     remaining loan guarantees would be divided between fossil 
     fuel electricity generation and renewable fuel projects. 
     Under these assumptions, we estimate that the average subsidy 
     cost for loans guaranteed under the program would be 10 
     percent. CBO expects that loans would be disbursed over the 
     next 10 years, and we estimate that the loan guarantee 
     program would cost $7 million in 2006 and $132 million over 
     the 2006-2010 period, assuming appropriation of the necessary 
     amounts for the estimated subsidy costs.
       Office of Indian Energy Policy and Programs. The bill also 
     would authorize DOE to establish a new office that would be 
     responsible for promotion and development of Indian tribal 
     energy concerns. Based on information from DOE, CBO estimates 
     that the salaries, expenses, benefits, space, and travel 
     costs of the DOE employees that would administer such 
     programs would be about $3 million annually.
       Renewable Energy Production Incentive (REPI). The REPI 
     program currently provides cash payments to public utilities 
     and electric cooperatives that generate energy using 
     renewable sources. The payment is based on the annual 
     kilowatt-hours of electricity generated using qualified 
     renewable energy sources. Section 202 would reauthorize the 
     REPI program for an additional 20 years, and make Indian 
     tribes eligible for the program. Annual funding appropriated 
     for the program has not kept pace with applications for 
     payment from eligible utilities. Specifically, eligible 
     utilities have generated electricity from renewable resources 
     since 1994 in an amount that qualifies for about $76 million 
     in REPI payments that have not been appropriated. Based on 
     information from DOE, CBO estimates that fully funding this 
     program, including the backlog of applications, would cost 
     $70 million in 2006 and $163 million over the 2006-2010 
     period.
       Cellulosic Biomass and Cane Sugar Loan Guarantee Program. 
     Section 204 would authorize DOE to issue loan guarantees to 
     help finance the construction of facilities to produce fuel 
     ethanol from agricultural residue. The development of such 
     facilities poses some risk mainly because the technology that 
     would be used to process ethanol from such sources is new and 
     is not well-proven.
       For this estimate, we expect that such facilities would be 
     debt-financed and sponsors would recover costs through the 
     sale of ethanol. Prices for ethanol have a history of 
     fluctuating widely and the likelihood of future fluctuations 
     could contribute additional credit risk for such a project. 
     Moreover, the cash flow for these projects also would rely 
     heavily on the cost of purchasing feedstock. According to 
     DOE, a plant's reliance on feedstock from these sources would 
     increase a project's credit risk because prices for feedstock 
     can become competitive if demand for such products increases.
       Under credit reform procedures, funds must be appropriated 
     in advance to cover the subsidy cost of loan guarantees, 
     measured on a present value basis. Because of the significant 
     level of risk associated with these types of projects, the 
     costs of subsidizing such loan guarantees could vary widely. 
     At worst, the government could absorb all of the risk, 
     effectively converting the loan guarantees into grants. This 
     provision would authorize DOE to issue loan guarantees 
     limited to $250 million per project. However, the provision 
     does not set any limits on the number of loan guarantees that 
     could be made. Under this legislation, an applicant for a 
     loan guarantee

[[Page 12294]]

     would have to be currently operating an existing facility 
     that produces at least 50,000 gallons of ethanol per year.
       CBO estimates that, over the next five years, DOE would 
     probably provide loan guarantees for three projects, each 
     with a total construction cost of about $250 million. Because 
     the bill also would require applicants to contribute at least 
     20 percent of the project's total cost, CBO estimates that 
     the value of each loan guarantee would be about $200 million. 
     In addition, based on information from DOE, CBO assumes that 
     the department would seek projects with a financial outlook 
     similar to those of bonds rated B- or better by companies 
     such as Standard and Poor's and Moody's. Projects with this 
     rating typically have a cumulative default risk of over 40 
     percent. Under those assumptions, CBO estimates that loans 
     guaranteed under the bill would be likely to have a subsidy 
     rate between 15 percent and 20 percent and would cost $110 
     million over the 2006-2010 period.
       Electricity Regulations. Title XII would require the 
     Federal Energy Regulatory Commission (FERC) to establish 
     several new rules for managing the nation's electricity 
     system and governing the business practices of the 
     electricity industry. Such rules would affect transmission 
     services, construction and siting permits for building new 
     transmission lines, and the reliability of the nation's 
     electricity transmission infrastructure. The bill also would 
     repeal the Public Utility Holding Company Act of 1935, 
     require FERC to take over certain regulatory procedures 
     currently undertaken by the Securities and Exchange 
     Commission, and amend the Public Utilities Regulatory 
     Policies Act.
       Based on information from FERC, CBO estimates that 
     implementing these provisions would cost $11 million in 2006 
     and $47 million over the 2006-2010 period. Such costs would 
     cover additional data processing and storage, additional 
     staff, and travel related to the agency's new duties. Because 
     FERC recovers 100 percent of its costs through user fees, 
     such additional costs would be offset by an equal change in 
     fees that the commission charges. Hence, these provisions 
     would have no net budgetary impact.
       Other Provisions. The bill includes several provisions that 
     would authorize various new studies, reports, and activities 
     related to energy consumption and production. Those 
     provisions would authorize federal agencies to:
       Establish new programs related to federal oil and natural 
     gas resources;
       Authorize a direct loan to upgrade a nonoperational clean-
     coal technology plant in Alaska to a traditional coal-fired 
     electricity plant;
       Reorganize certain offices within DOE; and
       Prepare several other studies and reports on energy 
     resources and efficiency.
       Based on information from the agencies that would be 
     responsible for implementing these provisions, CBO estimates 
     that these activities would cost $43 million in 2006 and $176 
     million over the 2006-2010 period, subject to the 
     availability of appropriated funds.
       Direct spending and revenues
       Several provisions in the bill would affect direct spending 
     and revenues. The estimated effects of these provisions are 
     shown in Table 3. The bill would establish a mandate for the 
     use of renewable motor fuels, provide permanent authorization 
     for the use of energy savings performance contracts; 
     establish an Electric Reliability Organization to manage the 
     reliability of the nation's electricity system; allow the 
     Western Area and Southwestern Power Administrations to accept 
     up to $100 million in financing from private sources for 
     electricity transmission projects; make changes to federal 
     programs related to oil and natural gas; and require the 
     Rural Utilities Service to change the terms of certain loans.
       CBO estimates that enacting the bill also would increase 
     direct spending by $728 million over the 2005-2010 period but 
     would reduce direct spending by $591 million over the 2005-
     2015 period. CBO estimates that enacting the bill would 
     increase net revenues by $75 million in 2006 and would result 
     in a net loss of revenues totaling $1.2 billion over the 
     2006-2010 period and $1 billion over the 2006-2015 period. In 
     addition, we estimate that new civil penalties imposed by the 
     bill would result in an increase in revenues of less than 
     $500,000 annually.

                                TABLE 3.--ESTIMATED DIRECT SPENDING AND REVENUE EFFECTS ON THE ENERGY POLICY ACT OF 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                         2005     2006     2007     2008     2009     2010     2011     2012     2013     2014     2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING
 
Renewable Fuels Requirement and Agricultural Support
 Programs:
    Estimated Budget Authority.......................        0        0      -59     -164     -366     -569     -669     -697     -750     -768     -771
    Estimated Outlays................................        0        0      -59     -164     -366     -569     -669     -697     -750     -768     -771
Energy Savings Performance Contracts:
    Estimated Budget Authority.......................        0        0      301      307      314      320      327      334      341      348      355
    Estimated Outlays................................        0        0      256      306      313      319      326      333      340      347      354
Electric Reliability Organization:
    Estimated Budget Authority.......................        0      100      102      104      106      108      110      113      115      117      120
    Estimated Outlays................................        0      100      102      104      106      108      110      113      115      117      120
Financing of Federal Electricity Transmission
 Projects:
    Estimated Budget Authority.......................        0        0       50        0       50        0        0        0        0        0        0
    Estimated Outlays................................        0        0       10       20       30       20       20        0        0        0        0
Federal Oil and Natural Gas Programs:
    Estimated Budget Authority.......................        0        8        7       10        9       12        5       11        8       10        7
    Estimated Outlays................................        0        8        7       10        9       12        5       11        8       10        7
Assistance for Rural Communities with High Energy
 Costs:
    Estimated Budget Authority.......................       46        0        0        0        0        0        0        0        0        0        0
    Estimated Outlays................................       46        0        0        0        0        0        0        0        0        0        0
      Total Changes in Direct Spending Under the
       Energy Policy Act of 2005:
        Estimated Authorization Level................       46      108      401      257      113     -129     -227     -239     -286     -293     -289
        Estimated Outlays............................       46      108      316      276       92     -110     -208     -240     -287     -294     -290
 
                                                                 CHANGES IN REVENUES\1\
 
Renewable Fuels Requirement..........................        0        0      -64     -264     -509     -754     -262        0        0        0        0
Electric Reliability Organization--Fees Charged on           0       75       77       78       80       81       83       84       86       87       89
 Electricity Consumers...............................
    Total Changes in Revenues Under the Energy Policy        0       75       13     -186     -429     -673     -179       84       86       87       89
     Act of 2005.....................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Net of income and payroll tax offsets.

       Renewable Fuels Requirement and Agricultural Support 
     Programs. CBO estimates that enacting section 204 would lower 
     direct spending by about $4.8 billion over the next 10 years 
     and lower revenues by about $1.9 billion over the same 
     period.
       Section 204 would require that motor fuels sold by a 
     refiner, blender, or importer contain specified amounts of 
     renewable fuel. The required volume of renewable fuel would 
     start at 4 billion gallons in 2006, escalate to 8 billion 
     gallons for 2012, and increase thereafter at the rate of 
     growth in gasoline consumption. CBO expects that the use of 
     renewable fuels would be significantly affected starting in 
     2007, when the bill's renewable fuel requirement would exceed 
     the amount of renewable fuel use CBO estimates under current 
     law.
       CBO expects that most of the fuel produced to meet the 
     requirements under the bill would be ethanol. Because ethanol 
     is primarily derived from corn, demand for corn would rise 
     with the requirement to use more ethanol. CBO expects that 
     com prices would increase up to 10 percent by the end of the 
     2007-2015 period. Accordingly, the costs of federal programs 
     to support farm prices and provide income support to 
     agricultural producers would fall over the 2007-2015 period. 
     CBO estimates that spending for farm price and income 
     supports would decline by about $4.8 billion over the 2007-
     2015 period.
       Section 204 also would affect revenues. Because ethanol-
     blended fuels are taxed at a lower rate than gasoline, 
     receipts from taxes on motor fuels would change when ethanol 
     use changes. CBO estimates that increased ethanol use would 
     reduce revenues starting in 2007, and continue affecting 
     revenues through part of 2011. Although ethanol use would 
     increase significantly under the bill, the special tax 
     treatment of ethanol fuels under current law will expire at 
     the end of calendar year 2010. Therefore, changes in ethanol 
     use would not significantly affect federal revenues after 
     that time.
       Energy Savings Performance Contracts (ESPCs). The bill 
     would provide authorization for the use of energy savings 
     performance contracts through 2016. Under current law, the 
     authority to enter into such contracts expires at the end of 
     fiscal year 2006. Overall, CBO estimates that entering into 
     ESPCs would increase direct spending by $256 million in 2007 
     and $2.9 billion over the 2005-2015 period.

[[Page 12295]]

       ESPCs enable federal agencies to enter into long-term 
     contracts with an energy savings company (ESCO) for the 
     acquisition of energy-efficient equipment, such as new 
     windows, lighting, and heating, ventilation, and air-
     conditioning systems. Using such equipment can reduce the 
     energy costs for a facility, and the savings from reduced 
     utility payments can be used to pay the contractor for the 
     equipment over time. Because the government does not pay for 
     the equipment at the time it is acquired, the ESCO borrows 
     money from a nonfederal lender to finance the acquisition and 
     installation ofthe equipment. When it signs the ESPC, the 
     government commits to paying for the full cost of the 
     equipment as well as the interest costs on the ESCO's 
     borrowing for the project. Since the ESCO faces higher 
     borrowing costs than the U.S. Treasury, total interest 
     payments for the equipment acquisition will be higher than if 
     the government financed the acquisition of the equipment 
     directly with appropriated funds.
       The obligation to make payments for the equipment and the 
     financing costs is incurred when the government signs the 
     ESPC. Under current law, agencies can use ESPCs to acquire 
     new energy-efficient equipment, paying over a period of up to 
     25 years without an appropriation for the full amount of the 
     purchase price. Thus, consistent with government accounting 
     principles, CBO believes that the budget should reflect that 
     commitment as new obligations at the time that an ESPC is 
     signed and that the authority to enter into these contracts 
     without budget authority for the full amount of the purchase 
     price constitutes direct spending.
       CBO's estimate of direct spending reflects an amount equal 
     to the cost of the energy conservation measures as installed, 
     plus the portion of borrowing costs attributable to contract 
     interest rates that exceed U.S. Treasury interest rates. 
     (Borrowing costs equivalent to the amount of Treasury 
     interest that would be paid if the equipment were financed 
     with appropriated funds are not counted against this 
     authority, consistent with the budget scorekeeping of regular 
     interest costs associated with federal spending; that is, 
     Treasury interest effects are not counted as a direct cost or 
     savings to any particular legislative provision.)
       Since 1988, the Department of Energy estimates that 
     agencies have entered into ESPCs valued over $800 million, 
     $252 million of that in 2003 alone. CBO estimates that, 
     because the federal building inventory is aging, those 
     contracts would continue to be used--over time at roughly the 
     same rate as currently used--about $300 million in 2007 and 
     increasing with anticipated inflation in each of the 
     following years. Thus, we estimate that extending the 
     authorization for ESPCs would increase direct spending by 
     $2.9 billion over the 2007-2015 period.
       Electric Reliability Organization. The bill would authorize 
     the Federal Energy Regulatory Commission (FERC) to exercise 
     authority over the reliability of the nation's electricity 
     transmission system through the establishment of an Electric 
     Reliability Organization (ERO). Under the bill, FERC would 
     select an organization to become the ERO based on several 
     criteria, including the ability of the organization to charge 
     fees to end users of the electricity system to cover its 
     costs. CBO believes the ERO's collections and spending should 
     be included in the federal budget because this new entity 
     would conduct inherently governmental activities that could 
     not be undertaken by a purely private organization. FERC 
     would approve and enforce the collection of fees charged by 
     the ERO.
       Based on information from the North American Electric 
     Reliability Council (NERC), CBO estimates that the newly 
     formed ERO and its regional affiliates would spend between 
     $75 million and $150 million a year. For this estimate, CBO 
     assumes that spending by the ERO and its regional affiliates 
     would start at $100 million a year and increase by the rate 
     of anticipated inflation. Thus, we estimate that spending by 
     the ERO would total about $100 million in 2006 and $1.1 
     billion over the next 10 years.
       Because the ERO and the regional organizations created by 
     it would be governmental in nature, CBO believes that the 
     collection of these fees should be recorded as revenues in 
     the budget. Based on information from NERC, CBO estimates 
     that net revenues collected by an ERO and its regional 
     organizations would total $75 million in 2006, $391 million 
     over the 2006-2010 period, and $820 million over the 2006-
     2015 period.
       Currently, the federal power marketing administrations, 
     including the Tennessee Valley Authority and the Bonneville 
     Power Administration, pay dues to the regional affiliates of 
     NERC. We would expect that those payments would continue and 
     would increase under the new regulatory scheme established by 
     the ERO. Any increase in those fees would be offset by 
     changes in the rates charged to customers of the federal 
     agencies.
       Financing of Federal Electricity Transmission Projects. The 
     bill would authorize DOE's Western Area and Southwestern 
     Power Administrations to accept from private entities up to 
     $100 million to assist in the design, development, 
     construction, and operation of transmission projects that 
     would contribute to reducing congestion on existing 
     electricity lines. Such financing would be equivalent to 
     incurring new federal debt, and the spending of such borrowed 
     amounts should be recorded in the budget as direct spending. 
     We estimate that such spending would cost $10 million in 2007 
     and $100 million over the 2007-2015 period.
       Federal Oil and Natural Gas Programs. Title III would make 
     several changes to federal programs related to the production 
     of oil and natural gas. Several ofthese provisions would 
     provide private producers of those resources with various 
     forms of royalty relief or other credits that would reduce 
     federal receipts, particularly over the next few years. By 
     creating incentives for greater production of oil and natural 
     gas, CBO expects that net receipts from royalties would 
     eventually increase under some of those provisions, but not 
     for several years. Based on information from DOl, CBO 
     estimates that these provisions would result in a net loss of 
     offsetting receipts (a credit against direct spending) 
     totaling $8 million in 2006 and $87 million over the next 10 
     years.
       Assistance for Rural Communities with High Energy Costs. 
     Section 210 of the bill would require the Rural Utilities 
     Service (RUS) to change the loan terms offered to eligible 
     electric cooperatives in Alaska that currently have loans 
     provided by that agency. The bill would require that the term 
     of loans be changed to reduce the electricity rates charged 
     to customers. Under the Federal Credit Reform Act, the cost 
     of a loan modification is the change in the subsidy cost of 
     the loan (on a present value basis) because of the modified 
     loan terms. CBO estimates that the cost of this provision 
     would be $46 million and would be recorded in 2005, the 
     assumed year of enactment.
       Based on information from RUS, CBO estimates that six 
     utilities would be eligible for the assistance authorized by 
     the bill. The bill would require that the agency provide such 
     assistance through deferrals, extensions, or reductions of 
     loans. Currently, the six eligible borrowers have a total 
     outstanding principal of $57 million, at an average interest 
     rate of about 3.5 percent. It is possible that the agency 
     could decide to provide zero-interest loans, or lengthen the 
     term of loans, thereby reducing payments owed to the 
     government. The legislation would authorize the agency to 
     forgive the full amount of the outstanding principal without 
     recourse to the borrowers. CBO assumes that the cooperatives 
     in the highest distress areas would apply for loan 
     forgiveness and the remaining cooperatives would apply to 
     receive zero-interest loans. CBO estimates that the net 
     present value for all payments that would have been provided 
     under current law results in a cost to the government of $46 
     million, which would be recorded in 2005, the assumed year of 
     enactment.
       Civil Penalties. The bill also could affect governmental 
     receipts and direct spending by establishing and increasing 
     certain civil and criminal penalties. CBO estimates that any 
     resulting increase in receipts and spending would be less 
     than $500,000 annually. Such penalties would be established 
     for violations of regulations relating to: Violations of the 
     Price-Anderson Act, Nuclear safety at nonprofit institutions, 
     willful destruction of a nuclear facility, the reliability of 
     the nation's electricity system, market trading of 
     electricity, and the sale of renewable fuels.
       Section 385 would raise the maximum civil and criminal 
     penalty amounts imposed for violations of the Natural Gas Act 
     (NGA) and the Natural Gas Policy Act of 1978. Currently the 
     maximum amount FERC may assess varies depending on the 
     violation, however, most fall between $500 and $25,000 per 
     violation. The bill would increase those amounts to as much 
     as $1 million for violations of the NGA. Based on information 
     from FERC, CBO expects that the penalty increases and the 
     additional civil penalty authority would serve as a 
     significant deterrent so that firms would very likely comply 
     with the regulations, resulting in no significant effect on 
     revenues.
       Intergovernmental and private-sector impact: The bill 
     contains numerous mandates as defined in UMRA that would 
     affect both intergovernmental and private-sector entities.
       CBO cannot determine the cost of all the mandates in the 
     bill because several of the requirements established by the 
     bill would hinge on future regulatory action about which 
     information is not available. Though CBO cannot estimate the 
     cost of each mandate, we expect that the total cost of 
     private-sector mandates in the bill would exceed the annual 
     threshold established in UMRA ($123 million in 2005, adjusted 
     annually for inflation). That conclusion is based on our 
     analysis of the renewable fuels standard, which would impose 
     II substantial costs on the motor fuels industry.
       CBO estimates, however, that the total cost of complying 
     with intergovernmental mandates in the bill would not exceed 
     the threshold established in UMRA ($62 million in 2005, 
     adjusted annually for inflation). The bill also would 
     authorize numerous grants and initiatives that would benefit 
     state, local, and tribal governments; any costs those 
     governments incur for these projects and initiatives would 
     result from complying with conditions for receiving this 
     federal assistance.

[[Page 12296]]

       Based on its review of the bill, CBO expects that the 
     mandates contained in the bill's titles lion renewable energy 
     (title II), nuclear energy (title VI), electricity (title 
     XII), and energy efficiency (title I) would have the greatest 
     impact on private-sector entities and state and local 
     governments.
       Renewable Energy (Title II)--Renewable Fuels Standard
       Section 204 would impose a private-sector mandate on 
     domestic refiners, blenders, and importers of gasoline by 
     requiring that gasoline sold or dispensed to consumers in the 
     contiguous United States contains a minimum volume of 
     renewable fuels. The bill also II would establish a credit 
     trading program for renewable fuels to allow producers who 
     use more ethanol than would be required to sell credits to 
     producers who would be in deficit. Those credits could only 
     be used in the same year they are generated. The required 
     volume of renewable fuel would start at 4.0 billion gallons 
     in 2006 and increase to 8.0 billion gallons by 2012. CBO 
     expects that the renewable fuels requirement would be met in 
     2006 without additional costs to the industry. The industry 
     would begin to experience additional costs in 2007 as it 
     begins to blend or purchase greater amounts of gasoline 
     containing renewable fuels than it would in the absence of a 
     standard. Based on Department of Energy estimates of the 
     price impacts of similar renewable fuels standards on 
     gasoline prices, CBO estimates that the direct costs of the 
     renewable fuel requirement on private-sector entities would 
     exceed UMRA's annual threshold for private-sector mandates.
       Nuclear Matters (Title VI)--Increase in the Annual Premium
       Under current law, in the event that losses from a nuclear 
     incident exceed the required amount of private insurance, 
     Nuclear Regulatory Commission licensees (both public and 
     private) are assessed a charge to cover the shortfall in 
     damage coverage. Section 603 would increase the maximum 
     annual premium from $10 million to $15 million. CBO has 
     determined that raising the maximum annual premium would 
     increase the costs of existing mandates and would thereby 
     impose both intergovernmental and private-sector mandates 
     under UMRA. Because the probability of a nuclear accident 
     resulting in losses exceeding the amount of private insurance 
     coverage is low, CBO estimates that the annual costs for 
     public and private entities of complying with the mandates 
     (in expected value terms) would not be substantial over the 
     next five years.
       Electricity (Title XII)
       Mandatory Reliability Standards. Section 1211 would require 
     users of the bulk-power system to comply with standards 
     issued by a newly established Electric Reliability 
     Organization designated by the Federal Energy Regulatory 
     Commission. Those users include intergovernmental entities 
     such as municipally owned utilities as well as private-sector 
     entities, including utilities, nonutility generators, and 
     marketers. Currently, the North American Electric Reliability 
     Council (NERC), a voluntary organization, promotes 
     electricity reliability. According to several industry 
     experts, almost all public and private-sector users of the 
     bulk power system voluntarily comply with standards issued by 
     NERC. The mandate would impose no significant additional 
     costs in the short term relative to current practice since 
     the ERO is not expected to significantly change current 
     standards. In the future, market conditions may prompt the 
     ERO to impose stricter standards to maintain reliability. In 
     that case, costs for users of the bulk power system-that 
     could otherwise elect to disregard NERC standards under 
     current law--could increase substantially.
       Mandatory Assessments. Section 1211 would direct the ERO to 
     assess fees and dues to cover the costs of implementing and 
     enforcing ERO standards. Although there is some uncertainty 
     as to how those fees would be assessed, the most likely 
     scenario is that the ERO would assess fees on its members, 
     which is the current practice of NERC. As NERC members 
     include both public and private entities, such fees would 
     constitute intergovernmental and private-sector mandates as 
     defined in UMRA.
       CBO estimates that the increment in fee collections for the 
     proposed compliance, monitoring, ``and enforcement activities 
     under the bill would be about $50 million annually. Based on 
     industry data, CBO assumes that roughly 80 percent to 85 
     percent of the collections would be borne by the private 
     sector and another 10 percent to 14 percent would be borne by 
     state and local government entities. The remainder would be 
     paid by federally owned entities.
       Regulatory Fees. The bill would require FERC to assume 
     certain regulatory procedures that are currently under the 
     jurisdiction of the Securities and Exchange Commission. In 
     addition, the bill would require FERC to establish new rules 
     for managing the nation's electricity system and governing 
     the business practices of the electricity industry. Under 
     current law, FERC has the authority to collect fees from 
     investor-owned utility companies to offset its costs. The 
     duty to pay those fee increases would impose a private-sector 
     mandate on those entities. Based on information from FERC, 
     CBO expects that investor-owned utilities would have to pay 
     $11 million in 2006 and $47 million over the 2006-2010 
     period.
       State Authority Over Electric Utilities. Section 1221 would 
     preempt state authority to take action to ensure the safety, 
     adequacy, and reliability of electric service within that 
     state if the state's actions are inconsistent with the 
     federal reliability standards. This preemption of state 
     authority would impose no additional costs on state 
     governments.
       Sections 1251, 1252, and 1254 would require state 
     regulators to review the use of net metering, time-based 
     metering, demand-response systems, and interconnection 
     services before permitting electric utilities to implement 
     these federal standards. These sections contain 
     intergovernmental mandates because they would increase a 
     state's responsibilities under the existing mandates in the 
     Public Utilities Regulatory Policies Act. However, CBO 
     estimates that the states' costs to review additional 
     standards would not be significant.
       Jurisdiction over the Termination Payments of Certain 
     Contracts. Section 1270 would grant the Federal Energy 
     Regulatory Commission exclusive jurisdiction to determine 
     whether the requirement to pay termination payments under 
     certain contracts entered into between sellers and buyers of 
     wholesale electricity was unjust and unreasonable. These 
     contracts are currently before the Bankruptcy Court in the 
     Southern District of New York. FERC has asserted jurisdiction 
     over termination payments under wholesale power contracts for 
     periods a seller was found to be in violation of Commission 
     orders. While legislative provisions that would severely 
     limit or extinguish a person's rights in court have been 
     considered to be mandates under UMRA, CBO cannot determine if 
     the language in this provision would extinguish the sellers' 
     rights before the Bankruptcy Court or would simply make clear 
     FERC's jurisdiction over the termination payments.
       Energy Efficiency (Title I)
       Energy Conservation. Section 135 would direct the Secretary 
     of Energy to prescribe energy conservation standards 
     restricting ``standby-mode'' energy consumption of household 
     and commercial appliances. According to industry sources and 
     DOE, up to 9,000 types of household and commercial appliances 
     could be affected by this provision, and further, many such 
     products may require significant modification to meet the 
     standard for energy consumption in standby mode. DOE has not 
     yet determined how it would implement this provision. 
     Therefore, we cannot estimate the incremental cost to the 
     industry of meeting such requirements.
       If DOE applies standards to the majority of products 
     potentially affected, costs to industry could be substantial. 
     The magnitude of the costs also depends on the stringency of 
     new standards that would affect the appliance manufacturers. 
     For example, the bill would require DOE to apply new energy 
     conservation standards to certain furnaces. Roughly three 
     million oil, gas, and electric furnaces would have to comply 
     with the new standards. According to a DOE report, the 
     incremental costs to manufacturers of improving energy 
     efficiency could range from $5 to $175 per unit, depending on 
     the level of the standard that must be met. If DOE applies 
     relatively high efficiency standards to the appliances 
     covered under the bill, the incremental costs to the industry 
     could be large, and thus could exceed UMRA's threshold for 
     private-sector mandates.
       In prescribing the energy conservation standards required 
     under sections 135 and 136 for household appliances and 
     consumer products, the Secretary would preempt state and 
     local energy efficiency standards currently in place for 
     those products and appliances. CBO estimates that no costs 
     would result from this preemption.
       Testing Requirements. Section 135 would direct the 
     Secretary of Energy to prescribe energy efficiency testing 
     requirements for appliances specified in the bill and future 
     appliances to be determined by the Secretary. The provision 
     would require manufacturers of those appliances to have their 
     appliances tested to determine energy efficiency ratings. The 
     testing and rating would be conducted by the DOE. CBO 
     estimates that the cost to comply with the mandate to have 
     appliances tested would not be large.
       Ban of Mercury Vapor Lamp Ballasts. Section 135 would 
     prohibit the manufacturing and importing of mercury vapor 
     lamp ballasts after January 1, 2008. A ballast is an 
     electrical device for starting and regulating fluorescent and 
     certain other lamps. The mercury vapor lamp ballast has been 
     decreasing in its share of the market for ballasts during the 
     last 20 years. Moreover, according to industry contacts, few, 
     if any mercury vapor lamp ballasts are imported into the 
     United States. The majority of such ballasts are manufactured 
     in the United States for domestic use. According to industry 
     sources, mercury vapor lamp ballasts are now only 
     manufactured for rural street lights and residential 
     floodlights. Based on information provided by industry and 
     government sources, the value of annual shipments of such 
     ballasts amounts to about $15 million. The cost of the 
     mandate, measured in lost net income to the industry, would 
     be less than that amount.

[[Page 12297]]

       Energy Efficiency Resources Program. Section 141 would 
     require ratemaking authorities for gas and electric utilities 
     (including states, local municipalities, or co-ops) to either 
     demonstrate that an energy efficiency resource program is in 
     effect or to hold a public hearing regarding the benefits and 
     feasibility of implementing an energy efficiency resources 
     program for electric and gas utilities. CBO estimates no 
     significant costs would result from this requirement.
     Previous CBO estimates
       Federal budget effects
       On April 19, 2005, CBO transmitted a cost estimate for H.R. 
     1640, the Energy Policy Act of 2005, as ordered reported by 
     the House Committee on Energy and Commerce on April 13, 2005. 
     Like this legislation, H.R. 1640 would authorize 
     appropriations for a wide array of energy-related activities. 
     Differences between the estimates of spending subject to 
     appropriation under this bill and H.R. 1640 reflect 
     differences in authorization levels, particularly for the 
     Low-Income Home Energy Assistance Program and activities 
     related to science and coastal impact assistance.
       Like H.R. 1640, this legislation would authorize FERC to 
     establish an ERO to oversee the nation's electricity 
     transmission system. Both bills would authorize the new 
     organization to collect and spend fees (which would be 
     classified as revenues). However, H.R. 1640 would cap those 
     fees at $50 million a year. This legislation contains no such 
     cap; therefore, our estimates of direct spending and revenues 
     related to the proposed ERO are higher than under H.R. 1640.
       CBO previously completed two cost estimates for bills that 
     would permanently authorize the use of ESPCs: H.R. 1640 and 
     H.R. 1533, the Federal Energy Management Improvement Act of 
     2005. CBO transmitted a cost estimate for H.R. 1533, as 
     ordered reported by the House Committee on Government Reform, 
     on April 13, 2005. Provisions of this legislation and H.R. 
     1533 related to ESPCs are similar; however, H.R. 1640 would 
     cap total payments under ESPCs at $500 million a year. 
     Therefore, our estimate of spending for ESPCs is lower under 
     H.R. 1640 than under this bill or H.R. 1533. Also, this bill 
     would authorize the use of ESPCs through 2016.
       Finally, on May 23, 2005, CBO transmitted a cost estimate 
     for S. 606, the Reliable Fuels Act, as ordered reported by 
     the Senate Committee on Environment and Public Works on March 
     16, 2005. Like this legislation, S. 606 would require that 
     motor fuels sold by a refiner, blender, or importer contain 
     specified amounts of renewable fuel but with two key 
     differences. First, the required level of renewable fuels 
     under this bill would be higher than under S. 606. Second, S. 
     606 would allow producers of motor fuels to accumulate 
     ethanol-use credits for exceeding the ethanol target in any 
     year. Under S. 606, such credits could be used in subsequent 
     years to meet the ethanol target. In contrast, this 
     legislation contains no such provision for use of credits 
     over multiple years. As a result, CBO expects that demand for 
     corn-based ethanol under this bill would increase more than 
     under S. 606, leading to higher demand for corn and, 
     subsequently, a larger decrease in federal spending to 
     support farm prices and provide income to farmers.
       Mandates
       The bill includes many of the same state and local mandates 
     as in H.R. 6, the Energy Policy Act of 2005, as approved by 
     the House Committee on Resources on April 20, 2005. However, 
     the estimate of state and local mandates in this bill is not 
     identical to the statement included in CBO's cost estimate 
     for that earlier legislation. Section 1502 of H.R. 6 is not 
     included in this bill. That provision would shield 
     manufacturers of motor fuels and other persons from liability 
     for claims based on defective product relating to motor 
     vehicle fuel containing methyl tertiary butyl ether or 
     renewable fuel. That provision in H.R. 6 would impose an 
     intergovernmental mandate as it would limit existing rights 
     to seek compensation under current law.
       The state and local mandates in this bill that are the same 
     as the mandates in H.R. 6 include the increase in the 
     retrospective premiums, the mandatory reliability standards 
     and assessments, the state authority over electric utilities, 
     and the energy conservation provision. In contrast, section 
     141 of the legislation was not included in H.R. 6. That 
     provision would require ratemaking authorities for gas and 
     electric utilities (including states, local municipalities, 
     or co-ops) to either demonstrate that an energy efficiency 
     resource program is in effect or to hold a public hearing 
     regarding the benefits and feasibility of implementing an 
     energy efficiency resources program for regulated and 
     nonregulated electric and gas utilities. CBO estimates that 
     no significant costs would result from this requirement.
       Regarding private-sector mandates, most of the mandates 
     contained in the bill were also contained in the legislation 
     considered in the House. H.R. 6 and H.R. 1640 contain a 
     mandate establishing a renewable fuel standard for motor 
     fuels, which would impose costs on refiners, importers, and 
     blenders of gasoline similar to the one in the Renewable 
     Fuels title of this bill. However, the renewable fuels 
     standard in the House bills would require the industry to use 
     a lower yearly level of renewable fuels than the standard 
     contained in this bill. In the case of the House bills, CBO 
     found that the motor fuels industry would be able to meet the 
     renewable fuels requirement in the first five years that the 
     mandate is in effect without significant additional costs to 
     the industry. The House bills also contain a mandate that 
     would extend the existing requirement for licensees to pay 
     fees to offset roughly 90 percent of the Nuclear Regulatory 
     Commission's annual appropriation. That provision is not 
     included in the bill.
       Estimate prepared by: Federal Costs: Energy Savings 
     Performance Contracts: Lisa Cash Driskill and David Newman; 
     Oil and Natural Gas Resources: Lisa Cash Driskill and Megan 
     Carroll; Indian Energy Programs: Mike waters; EPA Provisions 
     and Loan Guarantee for Ethanol Production: Susanne Mehlman; 
     Renewable Fuels Requirement and Agriculture Support Programs: 
     David Hull; All Other Federal Costs: Lisa Cash Driskill; 
     revenues: Annabelle Bartsch and Laura Hanlon; impact on 
     state, local, and tribal governments: Lisa Ramirez-Branum; 
     impact on the private sector: Craig Cammarata, Jean Talarico, 
     Selena Caldera and Paige Piper/Bach.
       Estimate approved by: Peter H. Fontaine, Deputy Assistant 
     Director for Budget Analysis; G. Thomas Woodward Assistant 
     Director for Tax Analysis.

                                                     June 9, 2005.
     Hon. Pete V. Domenici,
     Chairman, Committee on Energy and Natural Resources, U.S. 
         Senate, Washington, DC 20510
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed cost estimate for the Energy Policy Act 
     of 2005.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contact is Lisa Cash 
     Driskill.
           Sincerely,
                                              Douglas Holtz-Eakin,
     Director.

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