THE WHITE HOUSE

WASHINGToN

October 19, 1977

HEMORANDUM FOR THE PRESIDENT

THE CABINET

PROM JIM SCELESINGER ,;/

STU EIZENSTAT ) |LL

SUBJECT BRIEFING MATERIAL ON NATIONAL ENERGY PLAN

This demorandum will provide you with:

042 The basic themes of our presentation on energy legislation. These can be used as talking points.

042 An overview of the energy problem and how our Plan meets

these needs.

042 A schedule of major events in the coming weeks and

information on the Conference.

042 An outline of the major provisions of the National

Energy Plan and a summary of House and Senate changes.

Attached to this memorandum is a suggested basic speech.

Several optional inserts dealing with specific impacts

(labor, farmers, consumers, international aspects) are

included to help target speeches to specific audiences.

A set of the toughest questions and answers on the energy

plan are also.attached. Should you need any other information, we are happy to provide it.

BASIC ENERGY THEMES

1. With every passina day the energy problem grows worse.

We used more gasoline this summer than ever before.

We import more oil at higher prices than ever before,

and have become more dependent on uncertain foreign

supplies.

We continue to waste energy in our factories, our cars,

and our homes at rates which we cannot afford.

P00000133969
- 2 -

We continue to out off the hard choices and the sacrifices in booes that the problem will go away -- it won't.

There are no easy choices or comtortable solutions. But

the disaster we face in the future if we tall to act is

even harder than the choices we must make now. If we

act now, while there is time, we can balance energy needs

and energy supplies without severo economic disruption.

2. Enactment of a strong, responsible energy plan tests our

will as a people, and tests the strength of our system of

* government. Can we, with our system of government, act

to avoid disaster before its most severe effects become

visible? Both the President and the -Congress will be

judged on their ability to act before a crisis overwhelms

us.

3. Odr extraordinary dependence on foreign oil -- which is

costing us $45 billion this year -- threatens our national

security. We cannot afford to have our energy sources and

prices held hostage to the desires and whims of foreign

oil producing nations. Our huge oil bill drains billions

out of our economy robbing Americans of iobs. It creates

unacceptable deficits in our balance of trade.

4. The President's Energy Plan is balanced and fair. It

relies on three principal strategies:

e conservation -- making more efficient use of the

energy supplies which we now have:

e fair production incentives -- ensuring that our

energy industries receive the

revenues they need to find new

domestic supplies of oil and gas

without letting them profiteer;

e conversion -- switching to more abundant energy

sources such as coal and solar energy.

5. Energy prices will inevitably increase, with or without a

plan. The President's Plan protects the consumer through:

042 keeping a ceiling on natural gas orices and making

sure that increases are borne primarily by industry.

042 rebates to consumers to offset increased oil prices

rather than giving windfall profits to the oil companies.

P00000133970
- 3 -

e insulation and utility rate reform programs to

keep electric bills from skyrocketing.

5. The President's National Energy Plan would not raid the

Federal Treasury. It would not bust the budget and swell

the federal deficit. Solutions to the energy problem

should not eat up resources which are needed for other

national needs.

6.. If we in government fail to act, the responsibility will

be on our shoulders. Future generations will say "they

could have saved us, but they didn't." The responsibility

will be on the powerful, but the terrible cost of our

failure will be paid by the averaae workinc family in

this country.

7. The Congress and the President can act tocether to establish a National Eneroy Plan. This is the President's

highest priority and the entire Carter Administration will

continue to fight for the princioles ano the procrams out

forward last April. Congress should not recess for the

year without an adequate energy bill. But no bill would

be preferable to an unacceptable bill which fails to protect the consumer.

OVERVIEW OF THE PROBLEM AND THE PLAN

Production of oil and natural gas, which now supplies 7,5% of our

energy, has been declining by 6% per year. Oil imports nave

doubled in the last five years and now make up half our supply. Imports will cost $45 billion this year.

Before the end of the century, and perhaps as early as the

mid-1980's, world demand for oil will outstrip capacity to

produce. Even if price and foreign dopendence were unimportant,

we would still have to begin a transition away from oil and gas

to other fuel sources. The National Energy Plan relies on

three basic thrusts to guide this transition.

1. Conservation

The National Energy Plan combines regulatory programs,

such as mandatory auto fuel economy standards, with economic incentives to encourage more efficient use of energy.

A key element of our conservation strategy is pricine enerav

at its true replacement cost. This permits us to harness

the marketplace to stimulate conservation.

P00000133971
The basic mechanism for accomplishing replacement-cost

pricing is the crude oil ecualization tax (COET). While

controls are maintained on old oil supplies to prevent

producer windfalls, the COET is imposed at the wellhead

to bring oil prices to the world level.

Revenues from the COET would be rebated to consumers

on a ,per capita basis with a dollar for dollar rebate for

home heating oil. The COET would be phased in over a

three year period to prevent sharp economic disruptions

and minimize inflationary impacts.

A second key element of conservation is the oil and gas

user tax, Very large industrial users of these fuels

would pay a gradually increasing tax to: (1) promote

conservation, and (2) encourage conversion to alternate

fuels.

Revenues from the oil and gas user tax would be available to

industry to offset the costs of conversion.

The National Energy Plan provides other programs and

incentives for conservation including:

042 grants and low interest loans for weatherizing

low income homes

e reform of utility rate structures to discourage

waste

e business and residential tax credits for insulation,

solar and other conservation -investments

e retrofitting of federal buildings and local schools

and hospitals

o a tax on gas guzzling automobiles to ensure that we

meet fuel economy standards

e mandatory standards for major home appliances

2. Conversion to Alternative Fuels

coal makes up 90% of U.S. energy reserves, but it supplies

only 18% of current demand. Renewable sources of energy --

solar, wind, biomass, and geothermal -- are available in

certain applications today. But major U.S. capital plant

P00000133972
- S -

investments made since the Arab oil embargo have not

switched to these alternative fuels -- they have

continued using oil and gas.

Under the national energy plan, utilities and other

major fuel burning installations will be prohibited

from burning oil and gas, except where environmental

considerations prohibit use of coal. Incentives in

the form of tax credits are provided for conversion to

coal and renewable resources. Nuclear energy, in the

form of light water reactors, will fill a gap during

this transition.

Coal and renewable resources have been long neglected

in our energy research and development budget. In our

FY 1978 budget request, fossil fuel research increased

by $42 million. Solar and renewables programs will

be revamped and emphasized. The Energy Department s

R&D program will continue to shift to make up for

neglect in moving these types of transition

technologies forward, and to overcome some of the

current difficulties associated with burning coal.

3. Incentives for New Production

Incentives must be given to stimulate new exploration

and production of oil and gas, from both conventional

and unconventional sources. The Plan, however,

differentiates between reasonable ,incentives and

windfall profits which would accrue if the price of

all oil and gas were completely deregulated. O

prices are set by an international cartel, not a free

ermined

prices.

Nevertheless, the Plan, using discretionary authorities

in existing law, provides for the equivalent of the

her countries demand royalty or severance taxes ar g

than the U.S. But the oil producers are asking for

even more--they would like to deregulate prices from

oil wells, many of which were producing prof itably

before the Arab oil embargo when the average domestic

price of domestic oil was under $4 dollars per barrel.

P00000133973
- 6 -

Natural gas is an even more valuable energy source

than oil--it is cleaner burning, more versatile, and

does not require extensive refining. Demand for

natural gas is high, and were the price deregulated,

even just for new gas, the price would soar to levels

equal or higher than the world price equivalent for

* oil.

While we have had too much regulation of natural

gas--over half the natural gas we now consume is

priced at 32 cents per thousand cubic feet (mef)--much

of this corces from wells drilled in the 1950's and

Ib60's. Rewarding producers for past efforts which

were profitably undertaken years ago ignores basic

principles of equity.

While the Energy Plan maintains controls on

conventional suon11es ot new natural cas, the $1.75

price per tnousano cubic teet is a generous increase

over the current orice. Just one year ago, the

Federal Power Commission set the price of new gas at

$1.42--a price which was calculated to include: all

increases in exploration and drilling costs, a 17%

return on investment, compensation for loss of

percentage depletion, a federal income tax rate of

48% (while most companies actually pay far less than

that), and an additional increase to encourage

conservation. ·.

Finally, Past experience in the unregulated intrastate

gas market shows that higher prices have not managed

to reverse the trend of dwindling supplies.

For unconventional sources of oil and gas, the Plan

would orovide the caulvalent of deregulated prices.

M:nilar incentives are provided to encourage enhanced

recovery from old oil and gas wells.

In summary, the National Energy Plan is designed to meet

seven basic goals by 1985:

o To reduce the growth rate in energy consumption

to 2 percent per year;

o To reduce gasoline consumption by 10 percent;

P00000133974
- 7 -

o To cut imports of foreign oil to less than

6 million barrels a day, less than half the amount

that we will be importing if we do not conserve;

o To establish a strategic petroleum reserve supply

of at least a billion barrels, which will acet our

needs for about 10 months;

o To increase our coal production by more than

two-thirds, over 1 billion tons a year;

o-. To insulate 90 percent of American homes and all

new buildings; and

o To use solar energy in more than 2 1/2 million

American homes.

SCHEDULE OF MA7OR EVENTS

Week of 10/17 - 10/23

o House/Senate conference begins on conservation.

o President's trip to Michigan, Iowa, Colorado, and

california with prepared energy speech in Des Moines

on 10/21.

O President meets with Senators,'House conferees,.

consumer leaders and AFL-CIO.

Week of 10/24 - 10/30

o House/Senate Conference continues on conservation,

and possibly begins coal conversion.

o Senate/Finance Committee report on tax measures

filed; floor debate begins. Action expected oy

end of week or beginning of next.

o Regularly Scheduled Presidential news conference;

regular meeting with newspaper editors.

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- 8 -

Week of 10/31 - 11/6

042Cabinet activities in full swing.

042Possible beginning of Conference action on tax

portions.

042Possible initial Conference consideration of

utility rate reform and/or natural gas regulation.

Week of 11/7 - 11/13

Regular regional editors briefing with the President.

042Conference action continuing on all major controversial

issues.

042Regularly scheduled Presidential news conference.

Beyond this point it is difficult to predict the issues under

consideration in the Conference or the timing in moving toward

completion.

CONFERENCE INFORMATION

The House has one set of conferees for all issues.

Conference members were drawn from the Ad Hoc Committee

on Energy which has representation from all standing

committees with energy jurisdiction.

The Senate will have different sets of conferees for

different issues. For example on conservation, all Senate

Energy Committee members are participating. It is not now

known which Senators will be conferees on the tax related

portions of the bill, although they will be drawn from the

Senate Finance Committee.

The Senate will vote on five separate conference reports

(broken down to: conservation, coal conversion, utility

rate reform, natural gas, and tax measures). The House

will treat the Conference product as one bill.

OUTLINE OF MAJOR PROVISIONS OF THE NATIONAL ENERGY PLAN--SEE

ATTACHED CHARTS

P00000133976
ACTIONS TAKEN ON TilE NATIONAL ENERGY PLAN

Administration Proposal House Action Senate Action

CONSERVATIOt3

1. Residential Conservation Tax credit

- 25% of the first S800 for speci- - A 20% credit for the Finance Committee - adopted

fied energy conservation measures. first S2,000, for a tne House bill with an

- 15% of the next $1,400. maximum credit of $400, expanded list of eligible

- The maximum credit is $410. conservation investments.

2. Solar Tax credit

- 40% of the first $1,000 and - 30% of the first Sl +500 Finance Committee - adopted

25% of the next 56,400 for - 25% of the next $8,500 the Itouse bill and expanded

qualifying solar equipment for - The maximum credit is the coverage to include

the first several years, $2,150. leased equipment.

- declining by 1982 to 25% of - Includes wind equipment

the first $1,000 and 15% of

the next S6,400.

- The maximum credit begins at

S2,000 and declines to Si210

in 1982.

3. Weatherization Financing

- $585 million direct grant program Passed the Administration's Same as House

for low-income residence owners. program and added a GNMA sub-

- Creation of a secondary mort- sidized interest rate loan

gage market for residental - program for residences owned

conservation loans. by individuals who earn up to

90% of the median income. Also

raised the grant program cutoff

to families with incomes at

125% of the ~poverty level.

1

P00000133977
ACTIONS TAKEN ON TilE NATIONAL ENERGY PLAN

Administration Proposal HouSe A

CONSERVATICH

Buildings (cont.)

4. Utility Insulation Program

An individual utility must Utilities would be required to Pas d m ar petition DOE to be allowed

offer insulation information' to install or nake loans.

offer loans repayable through proposal with an opporutility bills and offer to tunity for States and e

arrange for installation. Pc al gover o to air or deceptive.

a utility if an anticom- Otherwise siellar.

petitive finding to made

of any given utility's

actions under the program.

5. Schools and Itospitals conservation Program

o St s or t e i st ation % n e ta n h a ip e sed 5 .

and design of conservation cases): also expan Also made the tax credit

initiatives in schools and coverage to nursing homes hospitals, and day care centors. re 042

6. Municipal Buildings

Conservation Program

No program . Provides for energy audit No program

and technical assistance

grants for energy conserving

initiatives in buildings

owned by units of local

government.

P00000133978
ACTIONS TAKEN ON TilE NATIONAL ENERGY PLAN

Administration Proposà! ilouse Action Senate Action

CONSERVAflO3

Bu11dinas (cont.)

7. Federal Buildings

- Energy c(ficiency Program

Retrofit program to reduce Requires a schedule that a s u on t e

energy conservation 20% in all meets total retrof t goa

existing Federal buildings, and of 204 by 1990. *

45% in all new Federal buildings. (legislative) 9

(Administrative)

- Solar Program

o $100 million Federal building same as Administration Same as Administration

solar demonstration program.

o Photovoltaics Added a $39 million Same as House

program for further develNo program OPment of photovoltaic

technology.

8. Mandatory Standards For New

Buldings

Advanced the effectivo date Authorized $20 million for Same as House

of previously existing standards state aid to nect the for 1981 to 1980. Administration's objective.

(Administrativo)

3

P00000133979
ACTIONS TAKEN ON THE NATIONAL ENERGY PLAN

Administration Proposal llouse Action Senate Action

CONSERVATI0ti

Transportation

1, Gas Guzzler Tax/Truck Standards

Graduated excise tax on cars

and light trucks which fail to

meet EPCA standards. Graduated

rebates for vehicles with fuel

economy above the standard.

Taxes begin in 1978. The tax

in 1985 would range froa a low

of $67 per car to a high of

$2,488. Also inplemented existing

discretionary authority to set

truck standards.

Excise tax if fuel economy The gas guzzler tax was rejected,

falls note than 3 to 6 mpg Instead, the Senate passed an .

below EPCA standardC. No amendment to EPCA which Simply

rebates. Taxes in 1985 would prohibits the construction of low

range from a low of $397 to mileage autonobiles (16 mpg in 1981

$3,856 per car in 1985. rising to 22 mpg in 1985), and

Eliminates applicability doubles the civil penalties

to trucks. assessed against the companies

for not meeting the EPCA

average fleet standards.

2, Gasoline Taxes

Standby tax - five cents per gallon Rejected standby tax. Extended Same as House

tax in 1979, increasing 5 cents every existing 4 cent excise tax to

year in which consumption exceeds cor- 1985.

tain predetermined target levels.

Taxes would be rebated on a per

capita basis through the tax system.

3. Blended Motor Fuela No program Exempted motor fuela using a blend

of alcohol from the gasoline excise

No program tax.

P00000133980
ACTIONS TAKEt3 ON THE NATIONAL ENERGY PLAN

Administration Proposal House Action Senate Action

CONSERVATION

Transportation (cont.)

4. Deduction for State and Local Repeals Federal tax deduction Finance Committee - rejected repeal

casoline Taxes for State and local taxes on oi deduction.

gasoline.

No proposal.

5. Repeal 10% excise tax on similar to Administration Finance Committec - Same as House.

inter-city buses, but expanded to cover Also added a year, S200 million

excise tax on all buses refundable tax credit for interand bus parts, and on city buses and terminals to reduce

certain' related equipment. fares and improve facilities.

6. Electric Automobiles

Bligible for maximum gas Provided for a S300 tax credit Finance Committee - same as 80080.

guzzler rebate, for any electric automobile.'

P00000133981
ACTIONS TAKEN ON THE NATIONAL ENERGY PLAN

Administration Proposal House Action Senate Action

CONSEBVATION

Transportation (cont.)

7. Aviation and Harine Fuel

Current 2 cent tax rebate on Adopted proposal on marine Sane as House

marine fuel would be elimin- fuel. Aviation fuel proated. Exciso tax on fuel used posal not adopted.

for noncommercial aviation

would be increased from 7 cents

to 11 cents.

8. Van Pooling Programs

Purchase 6,000 Pederal vans for Deleted program Passed Administration*s program.

demonstration pooling program. Finance Committee - added a 20%

investment tax credit for vans

used by a taxpayer to trànsport

enployees to and from work.

9. Other Programs

-- -- rinance Connittee - provided for

a 10% investment tax credit for

transportation energy saving

devices.

6

P00000133982
ACTION TAKl;N ON Tils NATIONAL ENERGY PLAN

Admittistration Proposal House Action senate Action

COtiSC1WATIOrt

Elcetrie utility pequiatory Policies

- rates nust be cost justified Administration propocal plus: ted bill that provides

- eliminate declining block rates

er te in rot ib d n of ubì c C unsel's - aut rit intervene in

- FERC autorized to require pool- offiC© - information gathering on

ling and wheeling to take advan- - tight i of ee o tes rates throughout the Nation

tage of regional efficiences n program for - lifeline rates nationwide

small hydroelectric facilities

- prohibition against wholesale

rate increases without a

hearing

- promotional advertising not

allowed in rates

crude oil Equalization Tax

(COET)

- tax the difference between Adopted the Administration's anc omittee a e

controlled oil Price levels and the proposal but provided for tions that if COET were adopted

world prico, laposing the full tax rebates only for the first

over a three year period with three year, and on a taxpayer, rather in con erence,

equal increments of tax than per capita, basis - the tax should be phased out over

- rebate the proceeds of the tax to

every Afterican on a per capita basis 042 - the funds should be channeled

through a reduction in withholding into energy development through

for taxpayers or through appropriate an Energy Development Corporation

state agencies for non-taxpayers or Trust Fund

- dollar for dollar rebate for home

heating oil

P00000133983
ACTION TAKEtt ON TilE NATIONAL ENERGY PLAN

Administration Proposal House Action Senate Action

CONSERVATIOt3

Industrial Cogeneration

- provides for an exemption

from PUC regulation of

industrial cogenerators

- cogeneration equipment eligible

for 10% additional ITC

- exemption from oil and gas

conversion requirenents if

necessary to get togeneration

benefits

- prohibits discrimination

by PUC or utilities against

industrial cogenerators

- cogeneration equipment

eligible for a 10% additional

ITC

- qualified cogenerators receive

preferred utility user tax

treatment under the oil and

- cogeneration equipment

eligible for 10% additional

ITC

gas users tax

Mandatory Appliance Standards

- requires establishment of mandatory

efficiency standards for seven categories of base appliances. The

Administrator is given discretionary

authority to set standards for six

other categories

- no deadline is established for

standard setting

- requirco industry standards

for all 13 categories

- establishes a two-year deadline for the first seven

categories, three years

for the last six

- requires industry standards

for the seven categories in

the NEP, plus two additional

categories

- establishes a 1980 deadline

8

1

P00000133984
ACTIONS TAKEN ON THE NAT10ftAI, ENERGY PI,AN

Administration Proposal llouse Action Senate Action

PRODUCT!0:1 Att0 CONVERSION

1. Natural Gas Pricing Policy

- Abandons cost-based pricing of Same as Administration - Dere9ulates new onchore

new gas in favor of a commodity proPosal except that: production immediately

value pricing approach. - New gas is defined - Provides for 5 more years

- Establishco a Btu-related new gas to include gas frota of offshore regulation

price equal to the average price of any new reservoir. based on a new conmodity

all donestic oil, or approximately - Old intrastate con- value formula.

$1.75 per act by early next year, tracts remain at their - New gan is more loosely

which increases to over $3.00 per old price unless a defined, including gas

mcf by 1985. higher price is needed from new reservoirs

- Old interstate contracts stay at to maintain production, and extensions of

the current price unless a higher existing reservoirs.

price is needed to maintain . - Old intrastate con- production, tracts get the deregu-

- Old intrastate contracts lated prices.

increase to the $1.75 level.

- High cost new production is eligible

for a special incentive price (deep

drilling, tight formations, geopressurized methane, Devonian shale,

etc.).

- Incremental pricing passes the

higher costs of new gas first to

the industrial sector.

- New gas is defined as anything

beyond 2 1/2 miles of an existing

well or 1,000 feet deeper than any

well within the 2 1/2 miles radius.

Cost to consorser-$15 billion over . Cost to Consumer-$1 billion cost to consumercurrent approach from '78 to '85. over Administration approach $70 billion over House from '78 to '85

Gas Production Increase-l.1 addi- Gas production Increase-same Gas Production Increasetional trillion cubic feet in '85, as Administration .4 trillion cubic feet over House in 85

9

P00000133985
ACTIONS TAKEN ON TIIE NATIONAL ENERGY PLAN

Administration Proposal House Action Senate Action

PRODUCTION AfID CONVERSION

2. Oil Pricing Policy

(Administrative)

o current upper and lower tiers No action required No action required

are granted increases with

inflation.

O New oil is allowed to rise over

three years to today's world

price, plus inflation.

o Tertiary recovery is allowed

today's world price immediately.

Savingo to Consumers-$10 billion

from '78 to '95.

Oil production increase-100,000

barreia per day by 1985.

3. Oil and Gas tiinimum Tax Treatment

on Intangible Drilling Costs (IDC)

011 and gas producers pay a minimum Adopted Administration - Adopted Administration

tax only on the portion of IDC position, position.

deductions that exceeds the net

income fron oil and gas properties.

This gives all independent producers

the same treatment previously

available primarily to majors.

4. Geothermal Production 042

Grants the same intangible Accepted the Administration's rinance Committeedrilling cost deduction that proposal and also granted a - accepts nouse action on

is available to oil and gas 10% depletion allowance. intangible drilling costa.

Producers. - grants a 22% depletion

allowance.

10

P00000133986
ACTIONS TAKEN Ot1 TilE NATIONAL ENERGY PLAN

Administration Proposal House Action Senato Action

PRODUCTIOtl AND CONVCRSION

5. Geopressurized :lethane

Provided the special high cost Sane as Administration Finance Committeepricing provision discussed In addition to the dereguabove in the natural gas bill. lation provided for in the

gas pricing bill which passed

the senate, the Com:aittee

also provided for a

-S.50 per met tax credit

-20% investment tax credit

-10% depletion allowance

-Intangible drilling coat

deduction.

6. Shale oil

Provided with the world No action Finance Committoo -

oil price (Administrative) provided an additional $3

per barrel tax credit 042

7. Nonconventional Gas

Provided the special high cost Same as Administration Finance Committee -

pricing provision discussed $.50 per scf credit.

above in the natural gas bill.

11

P00000133987
ACTIONS TAMEN ON THE NATIONAL ENERGY PLAN

Administration Proposai llouse Action Senate Action

PRODUCTION AND COtWERSION

8. Peat No action Pinence Committee - Ipereases

depletion allowance from

No action 5% to 10%.

9. Business Energy Tax credits

Additional 10% investment tax Similar to the Adminiscredit fort tration but excludes

- innulation of existing heat pumps from eitgible

facilities, property.

- alternative energy property:

boilera and other combustors Also eliminates the

using coal or other fuels, regular investment

solar, low Btu coal gas, etc. tax credit for any new

- specially defined energy oil or gas fired faciliproperty (conservation lities, unless such

equipment), but only if facilities are exempted

retrofit onto existing from the regulatory

facilities. Program discussed below.

Finance Committee -

similar, out list of

cligible property is

expanded to includo recycling equipment.

Also passed a refundable

40% alternative energy

property credit. This

credit expands the alternative property definition

to include geothermal, feedstocks from coal, hydro

power, solar and wind, and

ocean and tidal power.

P00000133988
ACTIONS TAKEN ON THE NATIONAL ENERGY PLAN

Adminititration Proposal __ llouse Action Senato Action

PRODUCTIOtl Atl0 CONVERSIOH

10. Oil and Gas Users Tax

- Tax on 1000 largest (85,000 bbl/yr

or more) industrial and utility

users. Oil is taxed at a flat

rate, increasing to $3 por bbi

in 1905 for industrial users.

Natural gas taxed at an amount

set to make its cost equal to the

pre-tax cost of distillate oil by

1985. Utilities are taxed at 1/2

the industrial rate for oil and

the phase-in for both the oil and

gas utility taxes is slower.

- Credit against user taxes. Any

investeent in alternative energy

property (defined in the Business

Energy Tax credit section above)

is eligible for a 100t credit

against current year user taxes.

Carry forward of any remaining

credit.

Utilities are eligible for the

credit only to replace existing

oil or gas fired facilities.

Firma must elect between this

credit and the business energy

investment tax credit.

The coverage is expanded by

using a 50,000 bbl/yr exenption,

which includes approximately

the 1400 largest firms. A lower

tax rate is imposed for oil and

gas use by nonboilers. Exemptions are provided for environmental reasons and for

most process uses where

the flame comes into contact with the product.

Finance Coesittee -

rejected the user tax and

rebates. Instead, relled

upon tax credits only,

including the new 40%

alternative energy property investment tax credit

described above.

$1milar to Administration Finance Committee -

proposal, except that if No provisions relied

a company elects to utilize solely upon tax credits.

the user tax credit, it is (See above)

ineligible for either the

regular 10% or the additional 10% energy investnont tax credit.

13

P00000133989
ACTIONS TAKEN ON TilE NATIONAL ENERGY PLAN

Alninantration Progw.nl iluune Action Senato Action

PRODUCTIOtl AND COtNERSION

11. Coal Conversion Renulatory Progran

- Dianket prohibition on any new Accepted Administration similar to Administration

utility or major industrial progran except the program except the

boiler that burns oil or gas. coverage of existing coverage is only down

- Discretionary authority to facilities extends only to 30 negawatts for

prohibit use in nonboilers. to 30 negawatt or larger new oil facilitico,

- Case by case approach for facilitiess snaller units 10 megawatts for gas,

ordering existing facilities to may be included in the

convert to alternative fuels. prohibitions if certain Provides for only 11atted

- Exemptions allowed if coal can- findings are made, nonboiler authority,

not be used for environmental,

economic or technical reasons. No nonboiler authority.

- Covers facilities of 10

megawatts or greater.

- All utilities are required to

be off natural gas for baseload

purposes by 1990.

14

P00000133990
October 19, 1977

1985 Energy and Revenue Impacts of

Administration, House and Senate Energy Bills

(Oil savings in thousands of

barrels per day)

Administration House Senate

Energy Savings Estimates

Congervation Programs

o Transportation 355 275 175

o Buildings,

Appliances

and Industrial 955 1,015 1,025

Subtotal 1,310 1,290 1,200

Production and

Conversion Programs 3,190 1,610 2,200

Total 4,500 2,900 3,400

Revenue Impacts +1,000 -19,0002 -55,0003po

(million current 65,000-

dollars)

1/ Preliminary estimates

2/ Assumes full rebate of crude oil equalization tax. If

rebate is only for FY 1978, net impact is a + $7.6

billion.

3/ Pinal estimates being developed by the Administration

and Joint Committee on Taxation.

P00000133991
COMPARING THE CARTER PLAN

AND PREVIOUS PLANS

Q. It seems to me that the Carter Energy Plan basically

relies on higher prices to encourage conservation.

That is exactly what the Ford Energy Plan did. How

does the Carter plan differ from the Ford Plan?

A. The Carter Plan attempts to affect the invests:ent

decisions of American consumers and industry through

a pragmatic combination of regulation and higher prices.

Both the Ford and Carter plans rely on higher prices.

The basic difference is who receives the proceeds of

those higher prices. Under the Ford Plan, billions

upon billions of these dollars would have gone to the

nation's oil and gas producers.

Under the National Energy Plan, almost all the

increases in price - with the exception of the gas

guzzler tax and a small portion of ,the user taxe - are

returned directly to the American public and the economy.

Thus, the National Energy Plan provides a blueprint for

reaching our energy objectives without disadvantaging or

unjustly enriching any segment of society. It is also

a comprehensive proposal that uses regulation, as well

as the pricing mechanism, in the area of conservation,

coal conversion, and utility rate reform. It covers

many more aspects of the energy problem with a far

broader range of approaches -than previous plans.

P00000133992
INSULATION CREDIT

Q. Your residential insulation credit is likely to

substantially increase the demand for residential

insulation. If the' industry does not have the

capacity to meet this demand, the result will simply

be increased insulation prices which will in turn eat

away at the benefits associated with the credit.

Why has the Administration proposed such a circular

. program that ends up benefiting only the insulation

'manufacturers?

A. A number of different studies of the capacity of the

insulation industry to meet increasing demand under the

National Energy Plan reach differing conclusions. For

this reason we intend to carefully monitor industry

claims that capacity will double in the next several

years and that supply will be sufficient. If prices

begin rising or if anyone takes advantage of tightening

supplies, the Administration will be prepared to act.

It is important to note, however, that the tax credit in

question applies to conservation measures other than

just insulation. If the price of insulation does rise

to the point where an investment in it is not costeffective, then homeowners will shift their conservation

investments from insulation to storm doors or windows or

clock thermostats. Even if insulation prices do rise as

a result of increased demand, the credit will thus result

in much-needed energy savings.

P00000133993
EcottOMIC IMPACT

Q. What is the impact on the economy of the National Energy

Plan? With all the taxes and the money being drained

from the economy, won't it result in reduced GNP, and

increased inflation and unemployment?

A. A number of different analyses, including our own,

. conclude that the Plan will have no significant impact

on the growth of real Gross National Product (GNP) or

unemployment in the 1977-1981 period. The Plan will

have a measurable, but modest net inflationary impact

of 0.3 to 0.4 percent annually over the next two years

and 0.1 to 0.3 percent annually over the following two

years.

Under the plan, taxes collected are recycled immediately

back into the economy. This reduces to an absolute

minimum the potential fiscal drag effects of the

higher energy prices that are designed to help

change energy investment habits. Additionally the

insulation and new construction activity which will

result from the plan will stimulate the economy and

provide jobs. Initiatives like utility rate reform

will reduce utility industry capital requirements by

$40 to $75 billion between now and 1985, thus

offsetting some of the higher energy costs that will

result from the Plan.

P00000133994
2

The National Energy Plan is designed to help the

nation avert the total economic disaster that would

occur if imports are not reduced and the ti:ne

approaches when world oil demand runs into world oil

supply.

P00000133995
THE PLAN AND THE ENVIRONMENT

Q. Isn't the Energy Plan, particularly coal conversion,

detrimental to the environment?

A. Under the coal conversion program we estimate that

over 1/3 of all new industrial facilities will

be burning coal. About 10% of existing facilities

will convert, and an additional 10% will either

convert or be retired earlier than they would

have been without the Plan.

These are relatively conservative estimates and

assume that coal cannot be burned in some areas

of the country because of environmental restrictions.

The Plan does not require that conversion take

place on facilities which would be unable to

meet ambient air quality standards. The Administration

has also supported requiring all coal plants to

use best available control technology to provide

additional margins of protection.

The National Energy Plan recognizes that there are

some questions, such as the impact of carbon dioxide

(CO2), which need further study. These efforts are

currently underway. The Department of Energy will

also be funding a strong research and development

program to develoP better ways of burning coal.

P00000133996
MASS TRANSIT

Q. Mass transit is one of the most efficient means

of saving energy in urban areas, why didn't

the National Energy Plan deal with this issue?

A. The Secretary of Transportation, Brock Adams,

has been working on development of a comprehensive

national transportation policy since last spring.

In recent years, a number of serious economic

questions have been raised about the viability

of traditional, fixed-rail transit options. Since

a detailed analysis of urban transit questions

was to be undertaken in the DoT review, the

Administration determined that it was best to

address these issues in that context.

The Administration does, however, place a high

priority on finding responsible, economically

sound answers to mass transit problems.

P00000133997
ADEQUACY OF PRODUCTION INCENTIVES

Q. The major emphasis in the program appears to be on

conservation. But production of energy in this

country is just as important. Why doesn't your

program have any production incentives in it?

A. The National Energy Plan provides for very generous

' production incentives. New oil will be given the

highest price available anywhere in the world -- the

$14.50 per barrel world oil price. This encourages

producers to explore for new supplies knowing they

will receive the maximum net return per barrel for new

oil.

The Plan does not, however, allow producers of oil

from old wells to receive the world price. Most costs

associated with these wells are already sunk, and most

were drilled in expectation of a substantially lower

price than is available today. The inventory profits

that would result from deregulating such old oil would

be unrelated to any new productive activity on the

part of the producers, and would only contribute to

accelerating inflation of production inputs (rigs,

pipe, etc.) This would not produce any significant new

supplies of energy.

The natural gas pricing provisions in the National

Energy Plan abandon the cost based over-regulation of

P00000133998
2

the past in favor of a, new commodity value pricing

approach that establishes a price for new natural gas

at the stu equivalent price of domestic oil. This

price will start at $1.75 per thousand cubic feet

(mef) later this year and rise to over $3.00 per mcf

by 1985. It will move up with the oil price. This is

a price substantially higher than the regulated price

for new interstate gas of just 50 cents per acf

several years ago. It represents a six to seven fold

increase in natural gas prices since the embargo. It

compares favorably with the $1.45 mef price set last

year by the FPC which allowed for a generous 17% rate

of return and for a 48% tax level (which few if any

oil companies actually pay). Additionally, special

high cost new production from unconventional sources

(such as deep drilling, tight formations, Devonian

shale, geo-pressurized methane) would be deregulated.

The National Energy Plan's gas pricing approach would

increase gas producer revenues by over $15 billion

between now and 1985. It would produce over 1 trillion

cubic feet of additional gas in 1985. While deregulation would increase revenues by at least another $70

P00000133999
3

billion, it would increase production by only 2% in

1985. The National Energy Plan sets the natural gas

price at a level which maximizes production and avoids

unfair and unproductive revenues accruing to the

producers.

P00000134000
DEREGULATION: WHY NOT?

Q.

A.

Natural gas production has been steadily dropping.

Why not give deregulation a try and see what a

free market would produce?

First, the free market isn't free. Gas prices

would be set at the equivalent of the world price

of oil. And that is set by the OPEC cartel.

We currently use a system where expensive supplies

of gas are "rolled in" with cheaper supplies.

Since over half of all interstate gas is still

priced at 32¢ per thousand cubic feet (Mcf),

deregulated prices of new gas could rise well

above the equivalent of the world oil price and

still stay within relatively competitive margins

when rolled in.

But even $4, SS, or $6 per Mcf does not produce

very much more conventional natural gas than

would the $1.75 per Mcf price in the National

Energy Plan. The President's proposal will increase natural gas production by over 1 trillion

cubic feet in 1985 as compared with the production

which would result from the current controlled

price of $1.45 per Mcf.

The cumulative increase in gas producer revenues

is S15 billion from 1978 to 1985 over the current

system.

Deregulation would cost another $70 billion, but

would produce only 2% more gas (400 bef) in that

year. Under deregulation, the price of this

increment of supply would be $64.00 per Mcf --

an exorbitant price to pay for so littic supply.

P00000134001
CAMPAIGN PROMISE ON

NATURAL GAS

Q. During the campaign, the President pledged

to work with the Congress to deregulate

natural gas. Why did he change his mind so

drastically on such a critical issue?

A. The President carefully reviewed his campaign

statement on natural gas deregulation prior

to announcement of the National Energy Plan.

A key consideration in his analysis was

what the economic impacts of such a step would

be at this time. The President determined

that the consequences of deregulation would

be disastrous for the economy. He added

that it would not solve long range problems

of dwindling supply.

In his April 20 address to the congress, the

President stated, "I want to work with the

Congress to give gas producers an adequate

incentive for exploration, working carefully

toward deregulation of newly discovered

natural gas as market conditions permit."

By providing a substantially higher price

for new natural gas -- which phases upwards

to the world price over time -- the National

Energy Plan provides producers with fair

incentives for production without substantial

economic disraption or unwarranted windfall

profits.

P00000134002
LAST MINUTE EFFORT

Q. Why did the Administration wait until so late

to begin what appears to be a last minute,

desparation blitz to save its energy bill?

A. It is important to remember that the National

Energy Plan contains some 113 proposals. After

the President's initial announcement and meetings

with House members, the legislation was spread

out in sections to numerous Committees in both

the House and Senate. It has been difficult to

focus public attention on all the elements of

the plan under these circumstances.

The House-Senate conference which begins soon is the

first time since late last spring when attention

could be drawn to one group and one set of issues.

It has been clear for some time that the Conference

would be a critical phaso in the shaping of the

National Energy Plan. To all minds, this is the

most appropriate time to launch an all-out effort

to enact the Administration's -proposals.

P00000134003
GAS OUZZLER TAX AND THE IARGE FAMILY

Q. Doesn't the gas guzzler tax seriously discriminate against the large family that needs

a station wagon or sedan as a family car?

A. It does not, because Detroit has already begun

manufacturing family size sedans and station

wagons which get very impressive mileage. While

these cars are not high-speed, high performance,

their driveability represents a sound and

acceptable trade-off for increased fuel economy.

Numerous makes and models are available to

meet the needs of larger families while meeting

the required mileage as well.

P00000134004
GAS OUZZLER TAX AND THE IARGE FAMILY

Q. Doesn't the gas guzzler tax seriously discriminate against the large family that needs

a station wagon or sedan as a family car?

A. It does not, because Detroit has already begun

manufacturing family size sedans and station

wagons which get very impressive mileage. While

these cars are not high-speed, high performance,

their driveability represents a sound and

acceptable trade-off for increased fuel economy.

Numerous makes and models are available to

meet the needs of larger families while meeting

the required mileage as well.

P00000134005
OPEC PRICES

Q. If a major concern about the energy problem is

OPEC prices, why does the Administration

tie its crude oil equalization tax to the OPEC

price?

A. The crude oil equalization tax (COET) taxes the

difference between the price of controlled

domestic oil and the 1977 world oil price, adjusted for inflation. The tax would be phased in

over a three year period. Whether we like it

or not, the world oil price reflects the cost

of replacing a marginal barrel of oil. If the

cost of domestic oil is less than the world

price, the U.S. will continue to subsidize

increasing levels of imports which we cannot

afford.

The COET will recoup for the consumer the difference between the controlled oil price and the

world price. This provides a strong measure of

protection to U.S. consumers and to our economy.

Additional protection is provided in the AdIninistration's plan by tying COET to the 1977

world price, adjusted for inflation. If the

actual world price should increase faster than

inflation, the U.S. costs need not go up that

quickly.

P00000134006
FOREIGN COMPETITION

Q. Doesn't the proposed oil and gas user tax

discriminate against United States industries

vis a vis their foreign competitors?

A. The oil and gas user tax should not have any

appreciable impact on the competitive position

of United States.industries for the following

reasons:

1. The price impacts resulting from the tax

average less than 1% for all industrial

categories, and, except for aluminum,

less than 2% for any individual industry.

2. The taxes will be equivalent to the world

price excePt for boiler gse of oil. In

that case, the tax is $3.00 above the world

price. If oil isn't made more expensive

than gas, boiler users would likely shift

to increasing amounts of residual fuel

oil, putting a further strain on imports.

P00000134007
IMPACT ON THE FEDERAL BUDGET

Q. What is the impact on the Federal Budget of

the massive expenditures of the National Energy

Plan, particularly the tax portions?

A. As submitted to the Congress, the National Energy

Plan would yield about a $1 billion surplus to

the Treasury, on a cumulative basis between now

and 1980.

The bill passed by the House would result in

a $19 billion cumulative deficit between 1978

and 1985. This loss of revenue is due primarily

to changes in the the oil and gas user tax which exempt

various categories of industry.

The budget deficit created by the action of the

Senate (with the tax portions calculated on the

basis of Senate Finance Committee action) would

be $55 billion, 1978-1985. This level of deficit

is not necessary and is unacceptably high.

The Administration has stressed its concern that

the energy plan not raid the Federal Treasury.

The Administration will work with the Conferees

to develop legislation which comes as close as

possible to providing a balanced energy budget.

P00000134008
IMPACT OF PROGRAM

Q. Won't this program impose the largest peacetime tax in

the Nation's history? The Chamber of Commerce, among

others, have claimed that the program will cost S1,400

per person in increased energy costs. How can we

tolerate such impacts?

A. Those who would make such claims are deliberately

misleading the public.

There are two major taxes in the Plan -- the crude Oil

Equalization Tax (COET) and the oil and gas users tax.

Neither is designed to raise revenues, but rather to

change price relationships for the purpose of affecting

energy investment decisions.

COET is designed to bring the price of domestic oil up

to its true marginal OPEC cost and almost the entire

proceeds of the tax are rebated to American consumers.

It is interesting that many of those who oppose the tax,

nonetheless favor deregulation of natural gas prices.

Deregulation would result in an equivalent amount of

billions over the same period of time being drained

from the economy. Instead of being rebated, however,

such revenues would permanently accrue to a handful of

oil companies. The real danger to the economy from a

drain on disposable income is deregulation, not COET.

P00000134009
IMPACT ON POOR

Q. The cornerstone of the plan seems to be higher energy

prices. Those who can least afford these prices are

the poor. But the plan does nothing for them. How

can you have a plan that relies on higher prices

without helping the poor?

A. .While the National Energy Plan recognizes that energy

prices must increse, it also recognizes that these

increases cannot occur at the expense of the poor and

near poor. The Plan is orogressive.

Through rebates from the well-head tax, the total income

of poor people is increased by $3.5 billion during the

first three years of the program.

The overall impact of the National Energy Plan on the

poor will be to increase disposable income by 3 percent over what it would otherwise be in 1985 without

the Plan. By 1985, the Plan will reduce home fuel

expenditures by about $100 for poor households.

The Plan contains a number of specific programs designed

to help keep energy costs down for low income people:

o The National Energy Plan increases the monies

available for weatherization orants to $585

million. This is three times higher than the

previous program and will cover 14 million U.S.

families.

P00000134010
2

o Continuation of natural gas price controls and

and use of incremental pricing for industry

which will shield consumers from natural gas

price increases,

o Emergency assistance orogram administered through

HEW to aid in times of special need, such as an

extremely cold winter.

o Minimum requirements for utility rate reform to

help reduce costs of electricity for low income

families. (Note: the Administration plan does

not require "life-line" rates to provide subsistence levels of energy at low prices, but

the Administration has been supportive of

initiatives undertaken by scate public utility

commissions to develop these types of programs.)

P00000134011
NUCLEAR POWER

Q. In the Energy Plan and during the President's campaign,

he spoke of nuclear energy as the energy source of last

resort. But the plan seems to call for a substantial

increase in the number of nuclear plants, and nuclear

licensing legislation, which your Administration now

has under consideration, would appear to facilitate

that expansion of our reliance on nuclear energy. How

do you account for the difference between the campaign

rhetoric and the actual substance of the Plan?

A. The real danger from nuclear energy is the possibility

of our moving toward a plutonium economy. The threat

to our health, as well as the political stability of

the world, from the proliferation and free trade of

plutonium is serious.

That is one of the reasons why the President has opposed

construction of the Clinch River Breeder Reactor

Project. He is taking the lead in curtailing the spread

of plutonium-based nuclear technologies by asking other

countries to join with us to evaluate alternatives to

the plutonium economy.

The Light Water Reactor can provide a reliable and safe

source of needed electricity.

As we face the reality of the need to lessen our

dependence on oil and natural gas, coal and nuclear

energy are essential options which both must be pursued.

P00000134012
BIG GOVERNMENT

Q. Doesn't the National Energy Plan represent a

massive increase in Federal power over the economy?

A. The National Energy Plan was designed to keep

Government's intervention into the lives of American

citizens to an absolute minimum. It is for this

reason that the tax on crude oil, the oil and gas

users tax on large industries, and a tax on gas

guzzling cars were proposed. They are all measures

designed to affect investment decisions while preserving the individual's freedom of choice.

We could have gone the heavy regulation approach,

relying on initiatives such as rationing, and

allocation. But we didn't. Through the use of

incentives, the President wanted to give the

American public a chance to act voluntarily. The

President has stated, however, that if this fails,

mandatory measures will be proposed.

P00000134013
GOALS OF THE PLAN

Q. Numerous studies have indicated that the national Energy

Plan simply falls short of the goals set by the

President. Why bother if the plan is so deficient?

A. It is interesting to note that all the studies of the

Plan had positive things to say about it. CBO, GAO,

. and OTA, all agreed with the general thrust of the Plan,

Only CBO did an independent estimate of the Plan's

total savings. They found that the Plan would achieve

about 75% of the savings outlined in the President's

goals. The basic area of difference was in the

projected savings under the Coal Conversion program.

CSO estimated a lower level of coal use by new facilities -than the Administration did. The Administration

believes its estimates are more realistic since it

would have authority to ban oil and gas use in new

facilities. For most other areas in the Plan, CBO

agreed with our projections.

To the extent that any projections fall short of the

goals laid out by the President, such findings tend to

argue for a plan even stronger than the Congress is

now considering.

P00000134014