Energy Downsizing: While DOE Is Achieving Budget Cuts, It Is Too Soon to
Gauge Effects (Letter Report, 05/13/96, GAO/RCED-96-154).

Pursuant to a congressional request, GAO examined the Department of
Energy's (DOE) progress in implementing its Strategic Alignment and
Downsizing Initiative, focusing on whether: (1) the savings projected
under the initiative have been achieved; (2) additional savings can be
achieved; and (3) DOE can reduce its current and future expenditures.

GAO found that: (1) DOE will save $221 million under the planned
initiative; (2) DOE plans to expand its first-year savings through
additional budget reductions that will total $1.7 billion; (3) DOE plans
to meet savings targets by reducing its federal staffing levels, travel
budget, and support services contracts, improving information resources
management, streamlining national environmental policies, and
reengineering its mission; (4) it is unclear whether DOE will be able to
reduce certain costs because many of its budget plans are in the early
stages; (5) DOE management needs to be diligent in validating its cost
savings estimates because reductions are not always occurring as
planned; (6) DOE could achieve greater cost savings by more broadly
applying certain aspects of the initiative; and (7) DOE could achieve
these additional savings by encouraging its contractors to sell more of
its assets, including DOE managers and contractors in its information
management strategy and consolidating transportation and packaging
functions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-154
     TITLE:  Energy Downsizing: While DOE Is Achieving Budget Cuts, It 
             Is Too Soon to Gauge Effects
      DATE:  05/13/96
   SUBJECT:  Reengineering (management)
             Strategic planning
             Federal agency reorganization
             Budget cuts
             Federal downsizing
             Future budget projections
             Information resources management
IDENTIFIER:  DOE Strategic Alignment and Downsizing Initiative
             DOE Automated Transportation Management System
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Energy and Power, Committee
on Commerce, House of Representatives

May 1996

ENERGY DOWNSIZING - WHILE DOE IS
ACHIEVING BUDGET CUTS, IT IS TOO
SOON TO GAUGE EFFECTS

GAO/RCED-96-154

Energy Downsizing

(308684)


Abbreviations
=============================================================== ABBREV

  DOE - Department of Energy
  GAO - General Accounting Office
  NEPA - National Environmental Policy Act

Letter
=============================================================== LETTER


B-271825

May 13, 1996

The Honorable Dan Schaefer
Chairman, Subcommittee on Energy
 and Power
Committee on Commerce
House of Representatives

Dear Mr.  Chairman: 

Recognizing the need for a smaller, less costly government, in May
1995 the Department of Energy (DOE) unveiled its Strategic Alignment
and Downsizing Initiative, which is intended to save $1.7 billion
over 5 years.  In a letter dated January 24, 1996, and in subsequent
discussions with your office, you requested that we review DOE's
progress in implementing this Initiative.  Specifically, you asked us
to (1) determine whether savings projected to date under the
Initiative have been met and if additional savings will likely be
achieved and (2) identify any additional opportunities for DOE to
reduce its current and future expenditures.  Finally, as agreed with
your office, we identified options that DOE decided to exclude from
its Initiative.  While we did not evaluate these options to determine
their cost-saving potential, we did identify the reasons they were
excluded.  (See app.  II.)


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOE's planned budget savings are on target.  By amending its fiscal
year 1996 budget request and selling excess assets during this fiscal
year, DOE will save the $221 million that it had planned to achieve
this year under the Initiative.  During the rest of the Initiative's
5-year period, DOE plans to maintain and expand upon the first year's
savings through future budget reductions to achieve the Initiative's
goal to save a total of $1.7 billion.  Among DOE's efforts to achieve
this year's and future targeted savings are the following six
strategies:  reduce federal staffing levels, travel budgets, and
support service contracts as well as sell assets, improve information
management, and streamline its National Environmental Policy Act
process.  In addition, DOE is depending on process improvements and
reengineering efforts to enable it to fulfill its missions under the
reduced budgets called for by the Initiative.  Because some
activities are in their early stages and many milestones have yet to
come due, it is not yet clear if DOE will reduce costs in certain
areas to the extent anticipated in its budget reduction plans. 
Furthermore, some overly optimistic initial reports of cost savings
illustrate the need for DOE management to be diligent in validating
claims of cost savings.  Otherwise, managers might believe that
savings were occurring in specific activities when the reductions
were actually being absorbed elsewhere. 

Discussions with DOE officials revealed several opportunities to
achieve additional cost savings by more broadly applying some aspects
of the Initiative's plans and strategies.  One way would be to
encourage its contractors to sell more of DOE's excess assets by
providing incentives and policies for the contractors to identify and
sell them.  A second way would be to include DOE's management and
operating contractors in the strategy to improve information
management.  A third way would be to expand DOE's planned action to
consolidate its transportation and packaging functions to the site
level.  Fulfilling the potential of each of these three
opportunities, however, will require further actions by DOE. 


   BACKGROUND
------------------------------------------------------------ Letter :2

DOE's May 1995 Strategic Alignment and Downsizing Initiative is part
of a broader set of efforts by the Department to reduce its budget. 
In December 1994, the Secretary of Energy identified the following
major efforts to save $14.1 billion between fiscal years 1996 and
2000:  (1) implementing a strategic alignment and downsizing
initiative; (2) selling four of DOE's Power Marketing
Administrations, one of its Naval Petroleum Reserves, and stores of
highly enriched uranium; (3) improving cleanup techniques and
contracting approaches at its weapons sites; and (4) implementing
recommendations from two commissions to improve its defense
laboratories and applied research programs.  These efforts are
occurring while DOE's missions and roles are being questioned by
many, including us.\1

After announcing the Initiative's specific cost-savings targets in
May 1995, DOE allocated federal staffing reductions and budget
targets to individual offices.  DOE senior managers next instructed
offices to develop workforce plans to absorb their assigned cuts and
established teams led by senior-level "champions" to prepare plans to
implement DOE's strategies to live within its staff and budget
reductions.  Both sets of plans include reengineering and process
improvement efforts.  Table 1 shows DOE's targeted cost savings over
the next 5 years for each of the Initiative's six key strategies. 



                                Table 1
                
                  Strategies to Achieve Targeted Cost
                    Savings, Fiscal Years 1996-2000

                         (Dollars in millions)


Strategy                  1996    1997    1998    1999    2000   Total
----------------------  ------  ------  ------  ------  ------  ======
Reduce federal             $45    $128    $187    $215    $235    $810
 staffing.
Reduce travel budgets.      35      35      35      35      35     175
Reduce budget for           90      90      90      90      90     450
 support service
 contracts.
Sell assets.                15      15      15      15      15      75
Improve information         30      31      61      65      58     245
 management.
Streamline NEPA              6       5       5       5       5      26
 process.
======================================================================
Total                   $221\a    $304    $393    $425    $438  $1,781
----------------------------------------------------------------------
Legend

NEPA = National Environmental Policy Act

Note:  All dollars in this table are nominal dollars; the cost
savings reflect the value of the dollar amounts in the years they are
projected to occur. 

\a This total is larger than the amount DOE cut from its fiscal year
1996 budget request ($208 million) because the proceeds from selling
assets will be returned directly to the Treasury. 

Source:  The Department of Energy's Strategic Alignment
Implementation Group. 


--------------------
\1 Department of Energy:  A Framework for Restructuring DOE and Its
Missions (Aug.  21, 1995, GAO/RCED-95-197). 


   BUDGET SAVINGS ARE ON SCHEDULE,
   BUT IT IS TOO SOON TO GAUGE
   SUCCESS OF COST-SAVING
   STRATEGIES
------------------------------------------------------------ Letter :3

By amending its fiscal year 1996 budget request to reflect planned
savings, DOE has already achieved the savings projected for the first
year of its Initiative.  It plans to achieve future savings under the
Initiative through additional reductions in its budgets.  DOE's
strategies for cutting costs to absorb the fiscal year 1996 budget
reductions are on track.  However, many planned actions, such as
process improvements and reengineering efforts that are important to
achieve the cost savings needed to fulfill DOE's missions within
future budget reductions, are just starting. 


      DOE'S TARGETED SAVINGS ARE
      ON SCHEDULE
---------------------------------------------------------- Letter :3.1

DOE has met most of its fiscal year 1996 targeted savings.  In June
1995, DOE amended its fiscal year 1996 budget request to reflect
savings of $208 million from implementing the Initiative.  DOE also
anticipates an additional savings of $15 million from asset sales
during fiscal year 1996.  DOE has made the cuts needed to meet the
specific cost-savings targets reflected in its fiscal year 1996
budget request.  As of March 31, 1996, DOE had cut 1,467 positions
from its fiscal year 1995 allocation of 14,057 full-time positions;
this reduction surpasses its goal of eliminating 1,380 positions by
the end of this fiscal year.\2

Other plans to achieve cost savings for fiscal year 1996 also appear
to be on track.  For example, obligations for support service
contracts are currently lower than planned.  In fact, DOE projects
that its cost savings from these contracts, as well as its strategies
for travel and information resources management, will be greater than
planned.  Savings from selling assets and streamlining the National
Environmental Policy Act (NEPA) process are also on track to reach
DOE's fiscal year 1996 targeted cost savings. 

DOE plans to use future budget reductions to achieve the Initiative's
remaining savings.  For some strategies, DOE need only maintain the
cost savings it achieved in fiscal year 1996 to achieve its targeted
cost savings for the remaining years in the Initiative.  For example,
DOE's strategies relating to the budgets for travel and support
service contracts require only that DOE maintain fiscal year 1996
cost savings each year through the year 2000.  For other strategies,
DOE must take additional actions to achieve the necessary cost
savings.  The targeted cost savings from reducing the workforce
require eliminating an additional 2,408 positions between fiscal
years 1997 and 2000.  Similarly, achieving the targeted cost savings
from improving information management, selling assets, and
streamlining the NEPA process will require additional actions each
year over the Initiative's 5-year period.  For example, DOE's
strategy to sell assets will require that it continue to identify
excess assets in its inventory and sell them. 


--------------------
\2 This base level excludes the five Power Marketing Administrations
and the Federal Energy Regulatory Commission. 


      CRITICAL MILESTONES, PROCESS
      IMPROVEMENTS, AND
      REENGINEERING EFFORTS TO
      ACHIEVE ADDITIONAL COST
      SAVINGS ARE IN THEIR EARLY
      STAGES
---------------------------------------------------------- Letter :3.2

While DOE plans to improve many of its processes and operations and
take other actions to fulfill its missions within the reduced budgets
planned under the Initiative, the cost-savings potential of its
efforts is uncertain because most of them are just beginning and some
are not scheduled to be completed for several years.  For example, of
DOE's 45 implementation plans, 22 have milestones that delineate
future actions--to be met after May 1996--and 5 milestones will not
come due until the year 2000.  Furthermore, many of the workforce
plans identified process improvements and reengineering efforts that
were just beginning.  Because these actions are in their early
stages, it is not yet clear if they will reduce costs to the extent
DOE envisioned.  According to DOE's Associate Deputy Secretary for
Field Management, who is chairing the Initiative's implementation
team, if process improvements and reengineering efforts do not keep
pace with budget cuts, operational problems could result.  This
situation would likely either force the improvements to occur or
curtail the associated function.  Finally, he stated that if a
function could absorb major cuts while not changing its processes, it
may indicate that the function was overfunded or is not critical to
DOE's operations. 


      SOME INITIAL CLAIMS OF COST
      SAVINGS WERE OVERLY
      OPTIMISTIC
---------------------------------------------------------- Letter :3.3

While DOE's Initiative has achieved some overall savings through
planned budget cuts, we identified several examples of initial
reports of cost savings that were overstated and thus do not reliably
depict the progress that DOE has been making toward operating within
its reduced budget.  According to DOE headquarters officials
responsible for monitoring the Initiative, these initial reports had
not yet been validated.  For example, an initial DOE report on the
information management strategy included an annual savings of $9.9
million for fiscal year 1996 by providing electronic versions of DOE
directives departmentwide through a system called Explorer.  This
annual savings was based on using the Internet to eliminate hard-copy
distributions of DOE directives at 85 sites.  However, these
officials believe that this system has been implemented at only one
site to date and will result in savings of about $115,000.  Moreover,
these officials were uncertain if the system would be implemented at
all the remaining sites in time to achieve the full cost savings the
initial report had claimed. 

The same DOE report on the information management strategy also
overstated the savings from implementing DOE's Automated
Transportation Management System at the Hanford site.  According to
the headquarters transportation management official responsible for
implementing this system, the projected savings claimed by the
Hanford site should have been about $550,000 rather than $3 million,
which represented the projected savings for implementing this system
departmentwide. 

Both of these initial claims illustrate the importance of DOE's
validating claims of cost savings.  If DOE managers were to depend on
these reports containing overstated cost savings, they might think
that planned actions intended to absorb budget reductions had
occurred, when in fact they had not.  Officials in DOE's Office of
Information Management told us that they have begun to develop a
process and guidance to validate cost savings claimed under the
information management strategy. 


   ADDITIONAL OPPORTUNITIES EXIST
   FOR DOE TO REDUCE CURRENT AND
   FUTURE EXPENDITURES
------------------------------------------------------------ Letter :4

Discussions with DOE officials revealed opportunities to achieve
additional cost savings by more broadly applying some aspects of the
Initiative's plans and strategies.  However, fulfilling the potential
of these opportunities will require further actions by DOE. 

For example, according to DOE headquarters officials, the Department
lacks an adequate inventory system to identify excess assets to sell. 
These officials added that because of the vast supply of assets DOE
owns, it could potentially realize significantly more income than the
$75 million projected from selling them under the Initiative. 
However, DOE's contractors have no incentives to inventory and sell
those excess assets they manage.  DOE is developing policies to
provide incentives for identifying and selling excess assets and to
transfer proceeds from their sale to the Treasury.  However, until
these policies are implemented, DOE believes the strategy to sell
excess assets will not achieve its full potential. 

DOE could also achieve greater savings if it included its management
and operating contractors in its strategy to improve information
management.  According to the Department's Office of Information
Management, although DOE based its goals to achieve cost savings
through improving information management on budgetary data for all of
its offices and sites, it does not plan to include all of DOE's
contractors in implementing this improvement.  This Office does not
believe that DOE has the authority to compel contractors to identify
their site information resources or implement improvements.  However,
including these contractors could produce substantial additional
savings because they annually spend over 90 percent of DOE's funds
for information technology, which will equate to an estimated $1.45
billion out of $1.6 billion for fiscal year 1997. 

Moreover, according to DOE officials, substantially greater savings
could be achieved under the Initiative's planned action to
consolidate its transportation and packaging functions.  While only
$6.4 million in estimated savings was included from consolidating
these functions at the headquarters level as part of the Initiative's
total cost savings of $1.7 billion, DOE officials told us that
expanding this planned action to the site level could achieve an
estimated cost savings of about $432.5 million during the
Initiative's 5-year period.  Achieving this additional savings will
depend on DOE's ability to restructure its field transportation
activities and establish interfaces between site and headquarters
transportation management systems.  According to DOE officials,
however, the Department may not be able to accomplish these two tasks
because of staffing and funding reductions. 


   OBSERVATIONS
------------------------------------------------------------ Letter :5

Although DOE plans to meet its savings goals for the Initiative
through budget cuts, many of its planned actions to maintain
operations under the Initiative's budget and staffing reductions are
just beginning.  As a result, DOE management will need to continue to
focus attention on implementing the planned actions to enable the
Department to continue fulfilling its missions.  Some overly
optimistic initial reports of cost savings illustrate the need for
DOE management to be diligent in validating claims of cost savings,
lest managers believe those savings are occurring in specific
activities, when in fact, targeted reductions are being absorbed
elsewhere.  As DOE continues to implement its Strategic Alignment and
Downsizing Initiative, it also needs to be alert for and consider
additional opportunities for savings. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

We transmitted a draft of this report to the Department of Energy for
review and comment.  DOE's written comments appear in appendix I. 
DOE agreed with our conclusions that (1) the Initiative's budget
savings were on schedule, (2) the Initiative is still in the early
stages of implementing its reengineering effort, (3) the Department
needs to continue to validate savings, and (4) it needs to continue
to explore additional opportunities for cost savings.  Furthermore,
DOE noted it will ensure that future budget submissions will reflect
its commitment to save a projected $1.7 billion and also indicated
that the Initiative may actually achieve some savings that exceed
DOE's commitments. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To determine whether the projected savings under DOE's Initiative
have been met so far, we initially reviewed the areas designated for
savings under the Initiative and DOE's amended fiscal year 1996
budget request, dated June 1995.  We checked the status of each of
the 45 implementation plans, including the six key strategies for
achieving cost savings.  We analyzed the plans' savings calculations
to determine if they were appropriately documented.  We also
interviewed DOE officials knowledgeable about these plans. 

After our initial review, we further analyzed the Initiative's
documents and savings calculations and again interviewed those
officials to determine if the additional savings that had been
projected under the Initiative will likely be achieved after March
31, 1996.  We also analyzed DOE's 5-year budget projections to
determine how the Initiative's savings will be reflected in future
budgets.  Finally, we discussed procedures for claiming and reporting
savings with officials at the Offices of the Chief Financial Officer
and the Chief Information Officer.  While reviewing the status of the
45 implementation plans, we found that some preliminary reports of
claimed savings were overly optimistic.  However, we did not perform
a detailed review of these reports. 

We used two approaches to identify additional opportunities for DOE
to reduce its current and future expenditures.  First, we listed
opportunities we found as we reviewed the Initiative's documents and
interviewed officials.  Next, we identified the options DOE
considered but did not include in the final Initiative.  (See app. 
II.) Although we did not evaluate the excluded options to determine
their potential to save costs, we did identify the reasons they were
excluded.  We performed our review from January 1996 through May 1996
in accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report for 30 days
from the date of the letter.  At that time, we will send copies to
other congressional committees; the Secretary of Energy; and the
Director, Office of Management and Budget.  We will also make copies
available to others on request.  Please call me at (202) 512-3841 if
you or your staff have any questions.  Major contributors to this
report are listed in appendix III. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy, Resources,
 and Science Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
ENERGY
============================================================== Letter 


OPTIONS EXCLUDED FROM DOE'S
STRATEGIC INITIATIVE
========================================================== Appendix II

Although the Department of Energy (DOE) fully or partially adopted
many of the cost-saving options that were generated while developing
its Strategic Initiative, as DOE management reviewed these options,
other new ideas were added and some options were dropped.  The
following table briefly describes those options that were excluded
and why.  We have not analyzed their potential for cost savings. 



                               Table II.1
                
                 Cost-Saving Options DOE Excluded From
                        Its Strategic Initiative

Option                              DOE's reason for exclusion
----------------------------------  ----------------------------------
Eliminate (or privatize) isotope    Production of isotopes is an
production.                         inherently governmental function.

Eliminate the Office of Hearings    The Office continues to collect
and Appeals.                        funds for return to the states and
                                    the Treasury.

Eliminate the weatherization        The Congress directed DOE to
program (within the Energy          conduct this program.
Conservation Program).

Eliminate the fusion program.       Eliminating this program is a
                                    policy decision outside the bounds
                                    of the Initiative.

Create administrative services      Establishing these centers was
centers.                            unacceptable to most program
                                    offices.
----------------------------------------------------------------------

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

Jeffrey E.  Heil, Assistant Director
Jonathan N.  Kusmik
Diane B.  Raynes
Patton L.  Stephens
Jeanine Brady

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION

Valerie C.  Melvin, Assistant Director
William G.  Barrick
Peter Fernandez
Peggy A.  Stott


*** End of document. ***