Federal Electricity Subsidies: Information on Research Funding,
Tax Expenditures, and Other Activities That Support Electricity
Production (26-OCT-07, GAO-08-102).
Electricity is vital to our daily lives, powering homes,
businesses, and industries. Presently, electricity is generated
largely by coal and other fossil fuels and nuclear power, with
hydropower, and, to a lesser extent, renewable energy sources,
such as wind. Because of electricity's importance to producers,
consumers, and businesses, the federal government has undertaken
a wide range of programs to develop the electricity sector, which
includes fuel suppliers, electric utilities, and others in the
electricity industry. These programs have sought to, among other
things, develop the nation's electrical infrastructure, influence
the types of fuels used to produce electricity, increase the use
of renewable energy, and limit the harmful effects of electricity
production. These programs are financed through federal
subsidies, broadly defined as payments made or benefits provided
by the federal government to encourage certain desired activities
or behaviors. For example, the federal government has, for many
years, funded research and development (R&D) on fossil fuels,
nuclear energy, renewable energy, other energy technologies, and
related efforts through the Department of Energy (DOE). In
addition, the federal government has provided favorable tax
treatment, such as tax credits to companies that make certain
types of energy investments. These tax preferences--which are
legally known as tax expenditures--result in forgone revenue for
the federal government. The revenue losses can be viewed as
spending channeled through the tax system. As requested, we are
providing information on (1) federal funding DOE receives for
electricity-related R&D, including funding by type of fuel; (2)
tax expenditures the federal government provides to subsidize
electricity production, including expenditures by type of fuel;
and (3) other ways the federal government subsidizes electricity.
As discussed with congressional offices, we examined federal
electricity-related subsidies over a 6-year period, from fiscal
year 2002 through fiscal year 2007.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-102
ACCNO: A77708
TITLE: Federal Electricity Subsidies: Information on Research
Funding, Tax Expenditures, and Other Activities That Support
Electricity Production
DATE: 10/26/2007
SUBJECT: Alternative fuels
Electricity demand
Electricity restructuring
Energy development
Energy management
Energy research
Federal agencies
Federal funds
Fossil fuels
Fuel research
Nuclear energy
Program management
Renewable energy sources
Research and development
Research program management
Research programs
Subsidies
Program costs
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GAO-08-102
* [1]Results in Brief
* [2]Scope and Methodology
* [3]Agency Comments and Our Evaluation
* [4]GAO Comments
* [5]Order by Mail or Phone
Report to Congressional Requesters
United States Government Accountability Office
GAO
October 2007
FEDERAL ELECTRICITY SUBSIDIES
Information on Research Funding, Tax Expenditures, and Other Activities
That Support Electricity Production
GAO-08-102
Contents
Letter 1
Results in Brief 2
Scope and Methodology 5
Agency Comments and Our Evaluation 7
Appendix I Briefing to the Senate Committee on Environment and Public
Works 9
Appendix II Comments from the Department of Energy's Power Marketing
Liaison Office 59
GAO Comments 62
Abbreviations
BPA Bonneville Power Administration
CBO Congressional Budget Office
CREBs Clean Renewable Energy Bonds
CRS Congressional Research Service
DOE Department of Energy
EIA Energy Information Administration
FERC Federal Energy Regulatory Commission
NRC Nuclear Regulatory Commission
OMB Office of Management and Budget
PMA power marketing administration
R&D research and development
RUS Rural Utilities Service
SEPA Southeastern Power Administration
SWPA Southwestern Power Administration
Treasury Department of the Treasury
TVA Tennessee Valley Authority
USDA Department of Agriculture
WAPA Western Area Power Administration
This is a work of the U.S. government and is not subject to copyright
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wish to reproduce this material separately.
United States Government Accountability Office
Washington, DC 20548
October 26, 2007
The Honorable Thomas Carper
Chairman
Subcommittee on Clean Air and Nuclear Safety
Committee on Environment and Public Works
The Honorable Lamar Alexander
Ranking Member
Subcommittee on Public Sector Solutions to Global Warming, Oversight,
and Children's Health Protection
Committee on Environment and Public Works
United States Senate
Electricity is vital to our daily lives, powering homes, businesses, and
industries. Presently, electricity is generated largely by coal and other
fossil fuels and nuclear power, with hydropower, and, to a lesser extent,
renewable energy sources, such as wind. Because of electricity's
importance to producers, consumers, and businesses, the federal government
has undertaken a wide range of programs to develop the electricity sector,
which includes fuel suppliers, electric utilities, and others in the
electricity industry. These programs have sought to, among other things,
develop the nation's electrical infrastructure, influence the types of
fuels used to produce electricity, increase the use of renewable energy,
and limit the harmful effects of electricity production. Electricity is
vital to our daily lives, powering homes, businesses, and industries.
Presently, electricity is generated largely by coal and other fossil fuels
and nuclear power, with hydropower, and, to a lesser extent, renewable
energy sources, such as wind. Because of electricity's importance to
producers, consumers, and businesses, the federal government has
undertaken a wide range of programs to develop the electricity sector,
which includes fuel suppliers, electric utilities, and others in the
electricity industry. These programs have sought to, among other things,
develop the nation's electrical infrastructure, influence the types of
fuels used to produce electricity, increase the use of renewable energy,
and limit the harmful effects of electricity production.
These programs are financed through federal subsidies, broadly defined as
payments made or benefits provided by the federal government to encourage
certain desired activities or behaviors. For example, the federal
government has, for many years, funded research and development (R&D) on
fossil fuels, nuclear energy, renewable energy, other energy technologies,
and related efforts through the Department of Energy (DOE). In addition,
the federal government has provided favorable tax treatment, such as tax
credits to companies that make certain types of energy investments. These
tax preferences--which are legally known as tax expenditures--result in
forgone revenue for the federal government. The revenue losses can be
viewed as spending channeled through the tax system. These programs are
financed through federal subsidies, broadly defined as payments made or
benefits provided by the federal government to encourage certain desired
activities or behaviors. For example, the federal government has, for many
years, funded research and development (R&D) on fossil fuels, nuclear
energy, renewable energy, other energy technologies, and related efforts
through the Department of Energy (DOE). In addition, the federal
government has provided favorable tax treatment, such as tax credits to
companies that make certain types of energy investments. These tax
preferences--which are legally known as tax expenditures--result in
forgone revenue for the federal government. The revenue losses can be
viewed as spending channeled through the tax system.
As requested, we are providing information on (1) federal funding DOE
receives for electricity-related R&D, including funding by type of fuel;
(2) tax expenditures the federal government provides to subsidize
electricity production, including expenditures by type of fuel; and (3)
other ways the federal government subsidizes electricity. As discussed
with your offices, we examined federal electricity-related subsidies over
a 6-year period, from fiscal year 2002 through fiscal year 2007.
On September 6, 2007, we provided your offices with a briefing on the
results of this review, including our scope and methodology. This report
transmits the briefing slides, which are reprinted as appendix I.1
Results in Brief
We estimate that DOE's appropriations for electricity-related R&D,
adjusted for inflation, totaled $11.5 billion from fiscal year 2002
through fiscal year 2007.2 These appropriations grew by 35 percent during
the 6-year period we examined, increasing from $1.6 billion in fiscal year
2002 to $2.2 billion in fiscal year 2007. Funding for DOE's
electricity-related R&D by fuel type (nuclear, fossil fuel, and
renewables) include the following programs:
o Nuclear programs. Nuclear programs received the largest share of
electricity-related R&D funding, with appropriations totaling $6.2
billion from fiscal year 2002 through fiscal year 2007.
Appropriations for nuclear programs grew by 59 percent, increasing
from $775 million in fiscal year 2002 to $1.2 billion in fiscal
year 2007. The greatest variation in funding within these programs
occurred in the environmental cleanup program, which funds the
cleanup of sites contaminated by nuclear research. Funding for
this program increased from $168 million in fiscal year 2002 to
$462 million in fiscal year 2005, before declining to $350 million
in fiscal year 2007. Other nuclear energy programs include
research on fusion energy and the Advanced Fuel Cycle Initiative,
which seeks to reduce nuclear fuel waste requiring geologic
disposal.
^1Many of the briefing slides presented in app. I consist of high-level
talking points and were not designed to represent a complete or exhaustive
review of the programs and issues discussed.
^2All dollar amounts for R&D funding and tax expenditures discussed in this
report are inflation adjusted to 2007 dollars. Of the $11.5 billion
amount, we could assign $10.7 billion to fuel types. The remaining
unassigned portion of R&D funding was related to efforts to improve the
transmission of electricity. In nominal dollars, we estimate that DOE's
appropriations for electricity-related R&D totaled $10.8 billion from
fiscal year 2002 through fiscal year 2007.
o Fossil fuel programs. Fossil fuel programs were appropriated
$3.1 billion in electricity-related R&D funding from fiscal year
2002 through fiscal year 2007. Appropriations for these programs
were relatively constant during the 6-year period we examined.
Appropriations totaled $531 million in fiscal year 2002, peaked at
$574 million in fiscal year 2004, and then returned to $531
million in fiscal year 2007. Most of the funding variation within
these programs was due to the Clean Coal Power Initiative, which
is aimed at accelerating the deployment of advanced technologies
to reduce air emissions and other pollutants from coal-burning
power plants. Funding for the Clean Coal Power Initiative
decreased from $210 million in fiscal year 2004 to $62 million in
fiscal year 2005, before increasing to $75 million in fiscal year
2007. Other significant fossil fuel energy programs include the
fuels and power systems program, which provides research funding
aimed at reducing coal-burning power plant carbon emissions, and
the FutureGen program, which focuses on the technical capability
of coproducing electricity and hydrogen with near-zero emissions.
o Renewable programs. Renewable programs were appropriated $1.4
billion in electricity-related R&D funding from fiscal year 2002
through fiscal year 2007. During this period, appropriations for
these programs grew by 23 percent, increasing from $248 million in
fiscal year 2002 to $305 million in fiscal year 2007. Variations
in funding were primarily attributable to funding for the Solar
program, which makes up the largest share of renewable program
funding. Here, funding more than doubled between fiscal year 2006
and 2007, rising from $99 million to $203 million. Other renewable
energy programs include wind, biomass, and geothermal programs.
The hydrogen R&D program was not included in our analysis as
hydrogen primarily is used as an alternative fuel for
transportation.
Based on our review of the Department of the Treasury (Treasury)
estimates, the sum of revenue loss estimates associated with tax
expenditures specifically related to electricity totaled $18.2
billion from fiscal year 2002 to fiscal year 2007.^3 Over this
period, revenue loss estimates associated with these tax
expenditures increased by 88 percent, growing from $2.2 billion to
$4.1 billion annually. Electricity-related tax expenditures by
type of fuel include the following:
o Fossil fuels. Fossil fuels received the largest share of
electricity-related tax expenditures. We estimate that tax
expenditures to support electricity production from fossil fuels
totaled $13.7 billion from fiscal year 2002 through fiscal year
2007. Revenue loss estimates associated with these tax
expenditures grew by 43 percent during the 6-year period we
reviewed, increasing from $1.9 billion in fiscal year 2002 to $2.7
billion in fiscal year 2007. These revenue loss estimates stemmed
from 12 different tax expenditures. The largest tax expenditure
supporting electricity production from fossil fuels was the
alternative fuel production credit, which Treasury estimated at
$2.1 billion for fiscal year 2007.^4
^3Summing tax expenditure estimates provides a gauge of general magnitude
but does not take into account interactions between individual provisions.
Of the $18.2 billion amount, we could assign $16.5 billion to fuel types.
We could not assign one electricity-related tax expenditure, deferral of
gain from dispositions of transmission property, to a fuel type. This tax
expenditure totaled $1.7 billion during the period of our analysis. All
tax expenditure estimates are based on projections using prior year data;
whereas historical data are available for federal receipts and outlays,
the last available values for tax expenditures remain estimates.
^4The tax credit for alternative fuel is scheduled to expire at the end of
calendar year 2007. If this tax credit expires, the total tax expenditures
for fossil fuels used for electricity production would fall significantly.
o Renewables. We estimate that tax expenditures to support
electricity production from renewable sources totaled $2.8 billion
from fiscal year 2002 through fiscal year 2007. Revenue loss
estimates associated with these tax expenditures grew by 232
percent during the 6-year period we reviewed, increasing from $238
million in fiscal year 2002 to $790 million in fiscal year 2007.
These revenue loss estimates stemmed from three tax
expenditures--Clean Renewable Energy Bond tax credits, exclusion
of interest on energy facility bonds, and the new technology tax
credit for renewable electricity production and renewable energy
investment. The new technology credit, which reduces the cost of
electricity generation from wind, geothermal, and solar energy, is
the largest tax expenditure directed at renewable electricity
production. Revenue loss estimates for this tax credit totaled
$690 million in fiscal year 2007.
o Nuclear. We did not identify tax expenditures directed at
nuclear power production during the 6-year period we examined. A
key tax expenditure directed at nuclear power production, the
advanced nuclear power facilities production tax credit, was
enacted in the 2005 Energy Policy Act. However, this tax credit
has not been used because no nuclear power plant has been built
recently.
As requested, we also identified a number of other potential
federal government subsidies of electricity production. However,
as discussed with your staff during our briefing, additional work
would be required in order to determine the extent to which these
activities are subsidies and to develop reasonable estimates.
Among these:
o The federal government provides low-cost financing to federal
power entities. For example, the power marketing administrations
(PMA)^5 other than the Bonneville Power Administration (BPA)
finance capital expenditures through federally appropriated debt.
While PMAs repay appropriated debt to Treasury with interest,
financing subsidies may exist if Treasury's cost of funds is
greater than the interest rates on PMA-appropriated debt. Critics
also have noted the rates, terms, and conditions of PMA debt may
be preferential when compared to market rates, terms, and
conditions.
o The Department of Agriculture's (USDA) Rural Utilities Service^6
provides loans and loan guarantees to rural electric cooperatives
at low rates. Authorized amounts of these electricity loans and
loan guarantees totaled $21.9 billion from fiscal year 2002 to
fiscal year 2006.
o The federal government, through the Price-Anderson Act, limits
nuclear plant operator liability for accidents. This may be
considered a subsidy because it could reduce insurance coverage
needs and related insurance costs for nuclear plant operators.
Scope and Methodology
To estimate the federal funding DOE has received for
electricity-related R&D, we conducted detailed reviews of DOE's
R&D budget documents and included prior year balances and
transfers from other agencies in our analysis, as well as funding
for nuclear fusion energy, considered basic research by some. We
also used Energy Information Administration (EIA) data on the
types, amounts, and percentage of fuels used to produce
electricity to estimate DOE's electricity-related R&D spending by
fuel type. We discussed our allocation methodology with EIA
officials.
To estimate the amount of tax expenditures the federal government
provides to subsidize electricity production, we reviewed
Treasury's tax expenditure data and identified specific
electricity-related tax expenditures. We excluded broad tax
expenditures available to most businesses. We used Treasury
revenue loss estimates to determine the costs of these tax
expenditures from fiscal year 2002 through fiscal year 2007. We
also used EIA data on the types, amounts and percentage of fuels
used to produce electricity to assign the electricity-related
portion of these tax expenditure estimates by fuel type. We also
reviewed our allocation methodology with EIA officials and staff
in Treasury's Office of Tax Analysis.
^5The PMAs are BPA, Southeastern Power Administration, Southwestern Power
Administration, and Western Area Power Administration.
^6The Rural Utilities Service, an agency of USDA, will be referred to in
this report as Rural Development.
To identify other ways the federal government subsidizes
electricity, we reviewed relevant reports and studies prepared by
GAO and other federal agencies including the Congressional Budget
Office, the Congressional Research Service, and EIA. We reviewed
studies by trade associations and nongovernmental groups. We
interviewed relevant federal agency staff and other experts at
trade associations and non-governmental groups. We conducted
limited reviews of activities at the PMAs, the Tennessee Valley
Authority, and USDA. In addition, we identified measures to
calculate net federal financing support for loan and loan
guarantee programs.
Several limitations apply to our review, including:
o We did not analyze subsidies related to electricity end use or
consumption, such as those designed to promote energy efficiency
and conservation or to provide low-income energy assistance.
o We did not gather data on possible electricity-related R&D
funding by federal agencies other than DOE.
o We did not audit or verify data provided by agencies. We
determined that DOE budget data were sufficiently reliable to
provide useful information about the agency's electricity-related
R&D funding.
o Although we present the tax expenditure estimates in aggregate
and the sums are reliable as a gauge of general magnitude, they do
not take into account interactions between individual provisions.
We determined that Treasury's list of tax expenditures and revenue
loss estimates were sufficiently reliable to provide perspective
on electricity-related tax programs.
o We did not attempt to determine the market value of
electricity-related subsidies.
We conducted this performance audit from April 2007 through
September 2007 in accordance with generally accepted government
auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based
on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based
on our audit objectives.
Agency Comments and Our Evaluation
We provided a draft of this report to the Department of
Agriculture, the Department of Energy, the Department of the
Treasury, the Nuclear Regulatory Commission, and the Tennessee
Valley Authority for review and comment. We received technical
comments from the Department of Agriculture, the Department of
Energy, the Department of the Treasury and the Nuclear Regulatory
Commission, which we incorporated as appropriate. We received
written comments from the Department of Energy's Power Marketing
Liaison Office, which represents the Southeastern Power
Administration, Southwestern Power Administration, and Western
Area Power Administration. These comments generally address
methodologies used in previous GAO reports and technical comments
on the briefing slides. These comments and our evaluation are in
appendix II.
We will send copies of this report to the appropriate
congressional committees; interested Members of Congress; the
Secretaries of Agriculture, Energy, and the Treasury; the Chairman
of the Nuclear Regulatory Commission; the Tennessee Valley
Authority's board of directors; and other interested parties. We
also will make copies available to others on request. In addition,
the report will be available at no charge on the GAO Web site at
http://www.gao.gov.
Should you or your staffs have any questions on the matters
discussed in this report, please contact Mark Gaffigan at (202)
512-3841 or gaffiganm@gao.gov, or Jeanette Franzel at (202)
512-9406 or franzelj@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs can be found on the
last page of this report.
Key contributors to this report were Marcia Carlsen, Daniel Egan,
Philip Farah, Brenna Guarneros, Carol Henn, Steve Lowrey, Jon
Ludwigson, Tim Minelli, Mehrzad Nadji, Alison O'Neill, Glenn
Slocum, MaryLynn Sergent, Anne Stevens, and Barbara Timmerman.
Mark Gaffigan
Acting Director, Natural Resources and Environment
Jeanette Franzel
Director, Financial Management and Assurance
Appendix I: Briefing to the Senate Committee on Environment and
Public Works
Appendix II: Comments from the Department of Energy's Power
Marketing Liaison Office
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 1.
See comment 1.
See comment 6.
See comment 5.
See comment 4.
See comment 3.
See comment 2.
GAO Comments
The following are GAO's comments on the Department of Energy's
Power Marketing Liaison Office letter dated October 16, 2007.
1. We acknowledged PMA concerns during our previous
work cited in the Liaison Office comments. We stand
by the methodologies used when performing this
earlier work, and our responses to PMA concerns
regarding this earlier work are still valid.
2. The briefing slides included points for overall
discussion rather than detailed information about the
rates, terms, and conditions of PMA financing versus
investor-owned utility financing. As we note in Power
Marketing Administrations: Their Ratesetting
Practices Compared With Those of Nonfederal
Utilities, [12]GAO/AIMD-00-114 (Washington, D.C.:
Mar. 30, 2000), direct comparisons of financing costs
are somewhat difficult because the financing
structures of PMAs and investor-owned utilities
differ. We note that the PMAs' ability to defer
repayment of appropriated debt and repay highest
interest rate appropriated debt first offsets their
general inability to refinance appropriated debt. We
note this could be a disadvantage during times of
declining interest rates. Here, Treasury bears the
risk of increases in interest rates and PMAs, to some
degree, bear the risk of decreases in interest rates.
3. This sentence is taken from the Department of
Energy's Power Marketing Liaison Office letter
commenting on the GAO report, rather than the actual
GAO report. As noted, this portion of the briefing
included points for overall discussion rather than
detailed conclusions about the rates, terms, and
conditions of PMA financing. As noted in the
briefing, more work would be needed to do better
quantify the subsidy, if any.
4. As noted, this portion of the briefing included
points for overall discussion rather than detailed
conclusions about the rates, terms, and conditions of
PMA financing.
5. Comparing financing costs among federal, public,
and investor-owned utilities is difficult and the
briefing slide was meant for overall discussion
rather than specific conclusions about relative
financing costs. We indicate that we would need to do
additional work in this area to provide Congress with
more information on the relative financing costs of
these groups.
6. Any future work we do in this area would include
close coordination and input from the PMAs.
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