National Energy Policy: Inventory of Major Federal Energy Programs and Status of Policy Recommendations
Released: 2005-06-14T00:00:00

Letter

Over 150 Different Federal Government Program Activities Address Energy

At least 18 different federal agencies, from DOE to HHS, conduct at least 158 energy-related program activities. These programs address eight major categories of activities, ranging from energy supply to energy conservation. In fiscal year 2003, for the energy program activities we identified, the federal government provided at least $9.8 billion in estimated budget authority. In addition, 11 federal energy-related income tax preferences were estimated at $4.4 billion in outlay equivalent value for fiscal year 2003. On the revenue side, in fiscal year 2003, the federal government collected about $10.1 billion through various energy-related programs that include fees and royalties on development of federal energy resources and about $34.6 billion in excise taxes on gasoline and other fuels.

Major Energy Program Activities Fall into Eight Categories

Federal energy-related programs and income tax preferences address eight major energy activity areas: (1) energy supply, (2) energy’s impact on the environment and health, (3) low-income energy consumer assistance, (4) basic energy science research, (5) energy delivery infrastructure, (6) energy conservation, (7) energy assurance and physical security, and (8) energy market competition and education. On the basis of our analysis of fiscal year 2003 estimated budget authority for energy-related programs and outlay equivalent estimates for energy-related income tax preferences, resources to address energy supply activities accounted for almost one-half of the $14.2 billion in federal energy-related resources. Table 1 provides a summary of fiscal year 2003 resources for energy-related programs we identified and income tax preferences by the eight major energy activity areas. Appendix II provides additional details on energy-related programs by major activity area, by agency, and by energy type. In addition to programs and income tax preferences, other federal policies that are not quantified also affect these major energy areas. For example, in the supply area, the federal government provides electricity support through federal utilities and loan programs. Also, regarding energy’s impact on the environment and energy conservation, the federal government, as a major energy user, has energy use policies that influence both the type and amounts of energy used.

On the basis of our analysis of fiscal year 2003 resources, energy supply programs and related income tax preferences accounted for about $6.6 billion, or almost one-half of the federal resources provided to energy-related programs. We identified 6 agencies, conducting 65 different program activities, addressing supply issues such as access for energy development on federal lands, research and development for energy sources ranging from clean coal to nuclear fusion, and nuclear energy regulation. In addition to these 6 agencies, Treasury reports on 9 different income tax preferences that address energy supply. Specifically, several provisions of the Internal Revenue Code grant favorable tax treatment to activities such as the recovery of the actual capital investment costs of discovering, purchasing, and developing energy. These income tax preferences accounted for about $4.18 billion in fiscal year 2003 outlay equivalent estimates, more than the total estimated budget authority of $2.39 billion for energy supply programs. Table 2 shows fiscal year 2003 outlay equivalent estimates for supply-related income tax preferences and fiscal year 2003 estimated budget authority for energy supply programs by major federal agency. Appendix II provides details on energy supply programs by agency and energy type.

Supply programs address four primary types of energy: fossil, renewable, nuclear, and alternative. Fossil energy supply includes coal, oil, and natural gas production and accounted for $4.7 billion of the almost $6.6 billion in fiscal year 2003 resources for energy supply programs. Fossil resources included $1.1 billion in estimated budget authority for programs such as clean coal technology research and development. Resources addressing fossil supply also included an estimated $3.6 billion in outlay equivalent value from 6 different income tax preferences. These income tax preferences include the support of fossil fuel production from nonconventional sources such as synthetic fuels produced from coal. Renewable energy supply includes hydropower, biomass, geothermal, wind, and solar energy. Estimated budget authority for renewable programs was at $349 million in fiscal year 2003, and these programs generally address renewable energy research and development. In addition, 2 income tax preferences, a new technology credit and exclusion of interest on facility bonds, supported renewable energy at an estimated outlay equivalent of $510 million in fiscal year 2003. Nuclear energy supply-related programs, with estimated budget authority of about $507 million in fiscal year 2003, address nuclear fission and mainly consist of DOE’s nuclear energy research and development programs and the Nuclear Regulatory Commission’s (NRC) regulation of nuclear energy. Finally, alternative energy programs, with estimated budget authority of $439 million in fiscal year 2003, include transportation fuels other than gasoline or diesel; traditional energy sources used in untraditional ways (distributed energy); and energy sources of the future, such as hydrogen and fusion. Hydrogen and fusion programs account for most of the programs under alternative energy. In addition, 1 tax preference, providing tax credits for alcohol fuels, supports alternative energy supply. Table 3 shows the fiscal year 2003 level of resources by energy supply type. Appendix II provides additional details on the types of energy supply addressed by specific agency programs.

In addition to resources for programs and income tax preferences directed at the energy sector, the federal government provides other forms of support, largely to users of electricity. While this support is not captured in the programs or income tax preferences, it does provide benefits that represent implicit federal support for certain users of electricity. Specifically, there are five federal utilities, four Power Marketing Administrations (PMA) and the Tennessee Valley Authority (TVA), that provide electricity and transmission services to customers in their regions. The PMAs market power produced primarily at federal hydroelectric dams and projects that are owned and operated by either the Department of the Interior’s (DOI) Bureau of Reclamation, the U.S. Army Corps of Engineers, or the International Boundary and Water Commission. TVA markets electricity produced at its own fossil, nuclear, and hydroelectric energy facilities. In addition, another federal agency, the Rural Utilities Service (RUS), provides federal loan guarantees and other services to rural utilities. The federal support provided through these agencies differs from that of the other programs and incentives described in this report because it does not provide any federal funding to electricity customers. Revenue from sales of electricity generated by federally owned facilities and from loan repayment (in the case of RUS) is intended to largely pay the costs to the federal government of providing the electricity and loans. Therefore, the programs undertaken by these agencies are intended to be revenue-neutral to the federal government. Nonetheless, the electricity support provided by these agencies constitutes a benefit to users—an implicit federal subsidy—because the revenues collected by the agencies have generally been below what would have been collected for the same services by private entities. Appendix III provides additional details on these support programs.

Energy’s Impact on the Environment and Health

We identified 29 program activities, implemented by 11 different agencies, that address the impact of energy development and use on the environment and health. In fiscal year 2003, these programs represented estimated budget authority of $1.87 billion. In addition, an income tax preference for clean-fuel burning vehicles amounted to an estimated $90 million outlay equivalent in fiscal year 2003. Major program focuses include nuclear waste cleanup and environmental science research. The largest portion of the funding in this energy policy area goes to DOE, which received an estimated $1.6 billion for energy-related programs in fiscal year 2003. The Environmental Protection Agency (EPA), with a primary mission of protecting the nation’s environment, is also a major agency involved in addressing energy’s impact on the environment and health. EPA is a major regulator of energy development and use through its implementation of environmental laws, such as the Clean Air Act. We were able to quantify an estimated $24.2 million in fiscal year 2003 that supported EPA programs addressing energy’s impact on the environment. However, EPA regulatory activities affect more than the energy sector, and, because EPA does not track costs by industry sector, the agency was not able to determine with complete certainty how much of its $8 billion annual budget is energy-related. Thus, we believe the estimate for EPA programs related to energy’s impact on the environment is understated. Finally, because energy development and use can have a significant impact on the environment and health, other programs that primarily address other areas, such as renewable supply and energy conservation, also address the environmental impacts of energy. However, within this inventory, those programs are accounted for under their primary area of energy supply and conservation and are not also included here. Table 4 summarizes fiscal year 2003 resources for energy’s impact on the environment and health, by major agency; appendix II provides more details on the agencies’ individual programs.

In addition to these programs, the federal government addresses energy’s impact on the environment through policies that are difficult to quantify. For example, the federal government has set standards and offered incentives to the private sector and citizens to reduce the effects of fossil fuel use and to reduce reliance on fossil fuel for energy. These include standards for smokestack and motor vehicle emissions, home appliances, and building materials and practices. In addition, the federal government is a significant consumer of energy and, through its consumption decisions, can choose to consume energy that is less harmful to the environment. In the late 1990s, the federal government embarked on its “greening of the government” initiative and sought to reduce reliance on the use of fuels in its buildings and vehicles that contribute the most to pollution. Executive Order 13123, Greening of the Government Through Efficient Energy Management, signed June 3, 1999, addresses greenhouse gas emissions from federal facilities and makes energy-efficiency targets more stringent. This order requires that each agency reduce its greenhouse gas emissions by 30 percent by 2010 when compared with 1990 emissions levels.

Low-income Energy Consumer Assistance

The federal government provides funding to assist low-income consumers through two block grant programs: (1) the Low-Income Home Energy Assistance Program (LIHEAP), managed by HHS, provides grants to states to fund fuel payment assistance and home energy efficiency improvements for low-income households and (2) DOE’s Weatherization Assistance Program provides funds to make dwellings more fuel efficient in the long term for low-income housholds. The total estimated budget authority for these two programs in fiscal year 2003 was $2.212 billion, with the majority of the budget authority ($1.988 billion) being for LIHEAP.

LIHEAP seeks to increase the health and prosperity of communities and tribes by assisting low-income households, particularly those with the lowest income that pay a high proportion of household income for home energy, in meeting their immediate home energy needs. LIHEAP operates in the 50 states, the District of Columbia, Indian tribes or tribal organizations, and U.S. territories. LIHEAP offers three types of assistance: heating/cooling bill payment, energy crisis, and weatherization and energy-related home repairs. Each state operates its own program, which includes taking applications, establishing eligibility, and making decisions on the kinds of assistance it will offer. In fiscal year 2003, LIHEAP received $1.988 billion in budget authority. During that fiscal year, approximately 4.4 million households received heating assistance; 494,000 households received cooling aid; 1.1 million received winter/year-round crisis aid; 71,000 received summer crisis aid; and 113,000 received weatherization assistance. Households may receive more than one kind of LIHEAP assistance. Thus, even though the precise number of households assisted is not known, 4.8 million households are estimated to have received assistance in fiscal year 2003.

DOE’s Weatherization Assistance Program is part of the department’s Weatherization and Intergovernmental Program (WIP). The overall goal of WIP is to develop, promote, and accelerate the adoption of energy efficiency, renewable energy, and oil displacement technologies and practices by a wide range of customers—including state and local governments, weatherization agencies, communities, companies, fleet managers, building code officials, technology developers, tribal governments, and international agencies. In fiscal year 2003, DOE received about $224 million in budget authority for the Weatherization Assistance Program to provide weatherization assistance for low-income residences. The weatherization program also provides technical assistance and formula grants to state and local weatherization agencies to help low-income residents with weatherization services. Also, the weatherization program, as part of WIP, addresses energy conservation areas as it helps to reduce demand for fuels and peak loads on constrained electricity systems and modernizes conservation technologies and practices.

Basic Energy Science Research

Basic energy sciences consist of general energy-related research within DOE’s Office of Science. The Office of Science’s Basic Energy Science (BES) Program (fiscal year 2003 estimated budget authority of $1.0 billion) and its Advanced Scientific Computing Research (ASCR) Program (fiscal year 2003 estimated budget authority of $163 million) encompass the basic energy science research programs we identified. The BES program is a multipurpose, scientific research effort aimed at expanding the foundation for new and improved energy technologies and for understanding and mitigating the environmental impacts of energy use. BES touches virtually every aspect of energy resources—that is, production, conversion, efficiency, and waste mitigation. Energy-related research includes (1) advancing hydrogen production, storage, and use and developing new concepts and (2) improving existing models for solar energy conversion and for other energy sources. BES states that it provided the basic knowledge that resulted in an array of energy-related advances, including high-energy and high-power lithium batteries, highly efficient photovoltaic solar cells, and solutions for nuclear fuel purification/reprocessing and for cleanup of radioactive waste. Also, the BES research for the Hydrogen Fuel Initiative is based on the BES workshop report entitled Basic Research Needs for the Hydrogen Economy. The ASCR program supports DOE’s strategy to ensure the security of the nation and succeed in its science, energy, and environmental quality missions. ASCR provides the fundamental mathematical and computer science research that enables the simulation and prediction of complex physical and biological systems. Its energy-related objectives include providing the science base to enable the development of bioenergy sources and laying the groundwork for DOE's Fusion Simulation Project.

Energy Delivery Infrastructure

The primary purpose of energy delivery infrastructure programs is to facilitate the development, maintenance, and improvement of the comprehensive energy delivery system—for example, electricity transmission and distribution systems, oil refining and gas processing, and oil and gas pipelines. We identified 13 program activities at 6 federal agencies that accounted for estimated budget authority of $882 million in fiscal year 2003 that addressed energy delivery infrastructure. The largest investment of program dollars in energy infrastructure that we identified in fiscal year 2003 involved international infrastructure funded by the U.S. Agency for International Development (USAID) in its programs in Iraq and Afghanistan. The total USAID infrastructure effort amounted to about $561 million—or 64 percent of the total energy infrastructure funding—with the great majority of the effort in Iraq ($558 million). Domestically, several programs involve the regulation of energy infrastructure on federal lands by DOI. In addition, Federal Energy Regulatory Commission (FERC) activities related to energy infrastructure include pipeline certification, hydropower licenses, and dam safety inspections, while the Department of Transportation (DOT) conducts regulatory work on pipeline safety. Table 5 provides a listing of infrastructure estimated budget authority for fiscal year 2003, by agency, while appendix II offers more details on specific programs.

Energy conservation programs include those efforts to increase energy efficiency and reduce the amount of energy used in all sectors, such as buildings and transportation. We identified 27 program activities related to energy conservation at 5 federal agencies that accounted for about $788 million in estimated budget authority for fiscal year 2003. Energy conservation programs at DOE represent the bulk of the conservation efforts, accounting for about $657 million of the $788 million. In general, the program activities at DOE and the other major agencies, particularly EPA, DOT, and the National Science Foundation (NSF), involve research and development efforts aimed at improving energy conservation. In addition, an income tax preference provides $110 million in exclusions from income of conservation subsidies provided by public utilities. Table 6 provides a listing of energy conservation resources for fiscal year 2003, by agency, while appendix II provides program details.

In addition to these programs, the federal government has addressed energy conservation through policies that seek to minimize the federal government’s own energy use. The federal government is the largest institutional user of energy in the world and can influence the amount of energy used in the marketplace. The National Energy Conservation Policy Act, as amended, requires federal agencies to achieve reductions in energy use. The legislation also contains provisions concerning energy management requirements and incentives, life-cycle cost methods for energy management decisions, and new technology requirements. In addition, Executive Order 13123, June 3, 1999, is one of a series of executive orders over recent years directing federal agencies to demonstrate leadership in energy and environmental management, including energy efficient building design, construction and operation, and the reduction of petroleum use through improvements in fleet fuel efficiency. Chartered in 1973, the Federal Energy Management Program, administered by DOE, is charged with coordinating federal government energy management efforts. DOE’s most recent Annual Report to the Congress on Federal Government Energy Management and Conservation Programs for Fiscal Year 2002, dated September 29, 2004, provides information on federal energy consumption and costs submitted to DOE by 29 federal agencies. Specifically, the report provides information on (1) consumption and costs of energy by fuel type for buildings, vehicles, and equipment and (2) agency appropriations for energy conservation retrofits and capital equipment. In summary, the report noted that fiscal year 2002 federal consumption costs were $9.7 billion, with 92 percent spent on two categories—62 percent on vehicles and equipment and 30 percent on standard buildings. DOD, through such energy uses as jet fuel and diesel, was by far the largest federal energy consumer—DOD spent $7.1 billion of the $9.7 billion and accounted for 73 percent of the total federal government energy use. In addition, the report provides information on progress toward energy conservation goals. For example, Executive Order 13123 requires a 30 percent reduction by 2005 in energy consumption per square foot for buildings and a 35 percent reduction by 2010 from the base year of 1985. The report indicates that energy consumption per square foot for buildings in fiscal year 2002 was about 24 percent less than the fiscal year 1985 base year.

Energy Assurance and Physical Security

Energy assurance and physical security activities incorporate federal programs designed to respond to or prevent energy emergencies and major reliability and supply disruptions. This includes energy supply reserves, such as the Strategic Petroleum Reserve, and protection of energy production and delivery infrastructure from natural events, accidents, equipment failures, or deliberate sabotage. DOE has two programs to provide oil reserves to offset supply disruptions: the Strategic Petroleum Reserve and the Northeast Heating Oil Reserve. In addition, DOE’s Energy Security and Assurance Program supports the national security of the United States by working in close collaboration with state and local governments and the private sector to protect the nation against severe energy supply disruptions. The Department of Homeland Security (DHS) is responsible for coordinating the national effort to enhance critical infrastructure protection, including energy-related infrastructure. However, DOE is the sector-specific agency for the energy sector. DOE’s Office of Energy Assurance is responsible for fulfilling the roles of critical infrastructure identification, prioritization, and protection for the energy sector, which includes the production, refining, and distribution of oil and gas and electric power—except for commercial nuclear power facilities. NRC has programs that address security for commercial nuclear power facilities. Table 7 lists all of the energy assurance and physical security-related programs that we identified and provides estimated program funding for fiscal year 2003.

The issue of energy market competition and education includes efforts to ensure that competitive domestic and international energy markets are functioning, as well as efforts in energy education and consumer protection and awareness. We identified 14 program activities implemented by 11 different agencies that play some role in facilitating competitive and informed energy markets. For those programs for which we could obtain estimates, these programs’ estimated budget authority was at least $238 million in fiscal year 2003. Major program focuses include providing federal oversight of the domestic natural gas, petroleum, and propane markets; providing energy information and education; and facilitating secure, stable, and competitive international energy markets that support investment in developing countries. DOE’s EIA represented the largest program in this area with estimated budget authority of $80 million. While most of EIA’s budget goes for domestic data collection and analysis activities, these activities serve to enhance competitive domestic and, to a lesser extent, international energy markets. EIA is responsible for providing energy information that promotes sound policy making, efficient markets, and public understanding. In addition, FERC, through its competitive market and market oversight programs, was the next significant program, with estimated budget authority of about $73 million. FERC has responsibility for ensuring “just and reasonable rates” for the interstate transportation of natural gas and the wholesale price of electricity sold in interstate commerce. Internationally, the U.S. Trade and Development Agency (USTDA), Commerce, State, and USAID promote economic development and/or U.S. commercial interests in the energy sector. It was difficult to quantify the funding specifically associated with energy-related aspects of various programs in this energy activity area, and some agencies were not able to provide us with funding information for their energy-related programs or activities. Significant among these programs were those agencies—Commodity Futures Trading Commission (CFTC), Department of Justice (DOJ), Securities and Exchange Commission (SEC), and Federal Trade Commission (FTC)—that can play a role in market oversight, including energy markets. Table 8 provides a summary of major federal agencies that play a role in energy market competition and education and the available estimates of budget authority for fiscal year 2003. Appendix II provides additional details on individual programs.

While the federal government has a limited role in setting energy prices or dictating buyer purchasing strategies, the federal government has an interest in promoting a competitive and informed energy marketplace that protects the public from unnecessary price volatility. Recent investigations of market manipulation, by companies such as Enron, have heightened the relevancy of the federal government’s role in ensuring that a lack of competition or reliable market information do not exacerbate energy prices. Tools available to federal agencies to promote a competitive energy marketplace and protect the public from price volatility include monitoring for anticompetitive behavior; taking appropriate enforcement actions when necessary; and providing decision makers with sound, up-to-date, energy marketplace information, such as short-term price movements and long-term demand and supply trends.

In addressing this area of market oversight, we attempted to quantify 4 relevant agencies’ level of effort in energy-related activities—CFTC, FTC, SEC, and DOJ. However, these 4 agencies, with overall budgets of $85 million for CFTC in fiscal year 2003; $177 million for FTC; $717 million for SEC; and $22 billion for DOJ, were not able to develop reliable estimates of the amount of effort devoted to energy-related activities. CFTC officials roughly estimated that about 20 percent of CFTC’s annual budget of $85 million, or $17 million, could be associated with energy-related activities. They noted that their work has increased in recent years because of concerns about energy markets, but they were not able to quantify the increase. DOJ officials told us that the majority of DOJ’s energy-related work falls within their Antitrust Division and their Environment and Natural Resources Division (ENRD). The Antitrust Division was able to provide us with an estimate for energy-related work, which totaled almost $4 million in fiscal year 2003, but ENRD was not able to provide us with a similar estimate of their energy-related work. Although we were not able to quantify energy-related funding for these 4 agencies, we were able to gather some basic information on major energy-related activities. For example: CFTC resolved its natural gas manipulation case against Enron in fiscal year 2004. CFTC also undertook a broader energy investigation that focused on energy trading firms that allegedly engaged in (1) the reporting of false, misleading, or knowingly inaccurate market information, including price and volume information; (2) manipulation or attempted manipulation; and/or (3) “round tripping,” which is a risk-free trading practice that produces “wash” results and the reporting of non-bona fide prices, in violation of the Commodity Exchange Act. As a result of its efforts in this area, as of February 1, 2005, enforcement actions commenced by the commission have resulted in civil monetary penalties totaling over $297 million, among other sanctions, imposed against approximately 27 entities and individuals.

FTC, from 1981 to 2004, alleged that 15 proposed petroleum mergers would have resulted in significant reductions in competition and harmed consumers in one or more relevant markets. Four of the mergers were abandoned or blocked as a result of FTC or court action. In the other 11 cases, FTC required the merging companies to divest substantial assets in the markets where competitive harm was likely to occur. FTC has, since 2000, brought seven energy-related law enforcement actions to prevent consumer injury from unsubstantiated, false, or deceptive claims concerning energy or energy-related products.

SEC officials reported that in 2003, there were 23 energy-related cases or enforcement actions brought by SEC. In addition; SEC issued about 100 orders under the Public Utility Holding Company Act in fiscal year 2003. Also, SEC’s Division of Corporation Finance performed 4,088 full reviews and full financial reviews of filings from all types of companies; of these, 619 were for energy-related companies. The division also performed 190 targeted reviews related to those energy-related companies.

DOJ’s Antitrust Division has energy-related responsibilities that include promoting competition and enforcing antitrust laws in the energy industries. DOJ energy-related activities within ENRD include (1) defending EPA’s more stringent clean air standards for heavy-duty trucks and diesel fuel; (2) safety standards for the Yucca Mountain nuclear waste repository in Nevada; and (3) administrative enforcement actions, such as a major clean air enforcement action against coal-fired power plants.

Federal Government Collects Revenues through Energy-Related Programs and Excise Taxes

The federal government collects about $10.1 billion a year through various energy-related programs and about $34.6 billion in energy-related excise taxes. Most of the collections are royalties, rents, and bonuses from oil and gas on federal lands or offshore areas; while taxes on gasoline and other fuels account for most of the excise tax revenue.

Energy Program Collections

A number of energy-related programs, especially those dealing with the use of federal energy resources, radioactive waste, and regulation of the energy industry, involve the collection of federal revenues that are deposited into the Treasury. In fiscal year 2003, these collections amounted to about $10.1 billion. The majority of these collections come from collections associated with the production of energy resources on federal lands and in offshore areas. DOI’s Minerals Management Service (MMS) collected about $8.0 billion in royalties, rents, and bonuses in fiscal year 2003 for the development of energy resources in federal lands and offshore areas. The remainders of these collections are generally fees to pay for energy-related programs. In some cases, federal agencies are authorized to use these collections to offset program costs. For example, the Office of Civilian Radioactive Waste Management in DOE collected over $1 billion from generators of nuclear waste in fiscal year 2003 to manage and dispose of high-level radioactive waste and spent nuclear fuel. FERC collected fees from the entities it regulates that funded all of the cost of its regulatory activities related to energy, while NRC collected fees from the entities it regulates, including nuclear power plants, that cover about 90 percent of its costs. Table 9 provides a breakdown of federal energy-related collections for fiscal year 2003.

The Internal Revenue Code, which is administered by the Department of the Treasury, provides for federal excise taxes on energy fuels that are used in many sectors across the United States. Revenue from these energy-related taxes totaled over $34 billion in fiscal year 2003. The excise taxes, some applied at the retail and some at the manufacturers’ level, were typically applied on a unit basis, typically by the gallon, and rates varied according to the content of the fuel. In general, these excise taxes fund certain trust funds. The largest of these, the excise tax on gasoline and gasohol, resulted in $24.2 billion in collections in fiscal year 2003 that support the Highway Trust Fund. The next largest revenue raiser was the excise tax on diesel fuel, which amounted to $8.6 billion in the same fiscal year. Most of the excise taxes on liquid fuels include 0.1 cent per gallon to finance the Leaking Underground Storage Tank Trust Fund. In addition to funding various trust funds, excise taxes can be used as a tool to achieve federal energy-related objectives. For example, alcohol fuels and fuels containing a portion of alcohol are generally taxed at a lower rate. The standard rate for gasoline is 18.4 cents per gallon. However, a partial exemption of 5.4 cents per gallon from the federal excise tax is provided for ethanol that is derived from renewable sources and used as fuel. The exemption encourages the substitution of alcohol fuels produced from renewable sources for gasoline and diesel to reduce reliance on imported petroleum and to contribute to energy independence. In addition, dyed diesel fuel and kerosene meant for use in trains, school buses, and local and mass transit buses are exempt from the 24.3 cents per gallon excise tax on the normal varieties of these fuels. Another excise tax, the “gas guzzlers” levy on certain vehicles that do not meet standards for fuel economy per gallon, raised $127 million in fiscal year 2003. Table 10 provides a listing of fiscal year 2003 energy-related excise tax collections and the associated trust funds.

It Is Difficult to Assess Progress of Federal Efforts to Implement the National Energy Policy Report Recommendations

It is difficult to fully assess the status of progress made in implementation of the NEP recommendations because the information DOE has reported has been limited. Moreover, some of the recommendations are open-ended and lack measurable goals, which contribute to the difficulty in assessing implementation progress. Finally, because the NEP recommendations do not reflect all federal energy-related efforts, understanding the overall status of federal efforts to address energy issues is challenging.

Since the May 2001 NEP report, publicly reported information on the status of the recommendations has been limited. For example, on the first anniversary of the NEP report, in May 2002, DOE issued a press release highlighting progress made in implementing the NEP recommendations. According to DOE, at that time all but 1 of the 22 recommendations, that it reported required legislative action, had either been enacted into law or were contained in House or Senate energy bills. However, DOE provided no detail on what the 22 recommendations that required legislation were or what the status was of the other 84 recommendations. On the second anniversary of the NEP report, in May 2003, DOE again issued a press release that described progress in implementing the NEP recommendations. This document provided the first status information on each of the 106 recommendations in the form of an NEP scorecard that characterized each recommendation as either under way or complete. The scorecard reported that 96 of the 106 recommendations were complete, although it noted that 16 of the “complete” recommendations involved legislation that was then being considered by Congress. However, DOE did not provide information on the progress cited specifically related to the 96 recommendations the scorecard reported as complete or on what actions were planned or then under way to complete the remaining 10 recommendations. DOE’s next report on the NEP recommendations was its January 2005 report. In contrast to the May 2003 scorecard that characterized most of the recommendations as complete (but had provided no specific information pertinent to each), DOE’s January 2005 report (1) characterized most recommendations as implemented but involving ongoing activities or requiring legislation and (2) provided the first information on specific actions taken to implement each recommendation.

Although DOE’s January 2005 report represents an improvement in the level of information DOE has provided on the status of NEP recommendation implementation, the information is still incomplete. For example, the NEP report recommended the development of energy educational programs, including possible legislation to create education programs funded by the energy industry. However, the January 2005 status report provided only an overview of federal energy education efforts, and it made no mention of creating education programs through legislation. Similarly, the 2001 NEP report made a recommendation to the Secretary of Transportation to work with Congress to enact legislation to implement congestion mitigation strategies. However, while the reported status outlined various DOT congestion mitigation efforts, it did not address the legislative aspect of the recommendation nor did it reflect DOT efforts to propose legislation to address this recommendation. In addition, another recommendation was made to DOE and DOI to promote new oil and gas well technology, but the status report addressed only DOE’s efforts to implement the recommendation. Appendix IV provides a complete list of the 106 NEP recommendations, DOE’s reported status of the recommendations, and our observations.

DOE’s ability to provide consistent and complete information on the status of NEP implementation may have been limited by a lack of sustained, centralized efforts to monitor and report on the ongoing implementation of the NEP recommendations. For example, one of the first recommendations in the NEP report was that the National Energy Policy Development Group (NEPDG) continue to work and meet on the implementation of the NEP. However, the NEPDG was terminated on September 30, 2001, and did not meet or work on the implementation of the NEP recommendations after that time. Nevertheless, according to DOE, individual agencies have continued to coordinate implementation efforts and to measure and track implementation progress. Also, according to DOE, an interagency working group led by DOE was established to coordinate agencies’ implementation of the NEP recommendations. According to DOE officials, the agency’s Office of National Energy Policy is responsible for coordinating, and providing strategic direction for, the implementation of the NEP report recommendations. However, additional information we obtained in our review raises questions about the extent to which centralized monitoring of recommendation implementation has been sustained. For example, according to DOE, its NEP Office did not assume leadership of the interagency working group until the fall of 2003. Also, DOE officials told us in November 2003 that the NEP Office had not been fully staffed because of budget constraints. Finally, at that time, DOE officials also told us that implementing the NEP recommendations was the responsibility of individual federal agencies, and that there was no centralized, formal system to monitor implementation and report on the status of the NEP recommendations.

The nature of some of the NEP recommendations also makes it difficult to assess the progress made in implementing them. Specifically, some of the recommendations are open-ended and lack measurable goals. For example, a NEP report recommendation is that the President make energy security a priority of our trade and foreign policy. In reporting on the status of this recommendation, DOE states that the recommendation has been implemented, with activities ongoing, because energy security has been made a priority of our trade and foreign policy through various bilateral and multilateral activities, such as the U.S.-China Oil and Gas Industry Forum and the International Partnership for the Hydrogen Economy. However, this recommendation is open-ended and does not contain a specific, measurable goal, thereby making it difficult to understand how or to what extent the activities described have helped to implement the recommendation. In contrast, another NEP report recommendation directs the Secretary of Energy to authorize the Western Area Power Administration to explore relieving an electricity transmission bottleneck in the western United States. The DOE status report noted that a new transmission line to relieve this bottleneck was completed on December 14, 2004. This recommendation sets a measurable infrastructure-related goal, and the status report demonstrated progress toward that goal. (See app. IV.)

Finally, some federal energy-related programs that address the same issues as some of the NEP recommendations are not mentioned in either the NEP recommendations or the status report, making it difficult to assess the overall status of federal efforts to address energy issues. For example, one NEP recommendation calls for the Secretary of Energy to conduct a review of current funding and historic performance of energy-efficiency research and development programs. In response, the status report noted that DOE completed a detailed review of its programs. However, at least one other federal agency, NSF, funds energy-efficiency research and development activities as part of its overall science program. These activities were not specified in the recommendation or recognized in the status report. Other federal energy efforts that relate to some of the same issues that the NEP recommendations addressed, but were not specifically addressed in the recommendations or the status report, include some NRC programs and most USTDA and USAID programs. (See app. IV.) These agencies are not represented on DOE’s NEP interagency task force. When we spoke with representatives from these agencies, they said that even though their programs address some of the same issues as the NEP recommendations, they were not involved in the development of the NEP, nor were they charged with implementation of the recommendations. Additionally, we found that the NEP report recommendations omit discussion of some federal energy-related efforts and the issues they address. Such omissions preclude a full accounting of the results of federal energy efforts in any NEP status report. For example, the NEP report recommendations do not address all energy-related excise taxes and energy-related income tax preferences. Regarding programs, our review of the NEP report did not find that it addressed basic energy science research; DOE nondefense nuclear waste cleanup; federal electricity support; FERC energy market oversight; and the overall market oversight roles of agencies such as CFTC, FTC, DOJ, and SEC.

Federal Resources Devoted to Energy-Related Activities Have Grown since 2000

Federal energy-related program resources have grown since the release of the NEP report as programs continue to address the major energy activity areas. For example, compared with fiscal year 2000 estimated budget authority, fiscal year 2003 estimated budget authority funding grew by about 30 percent, from $7.3 billion to $9.6 billion for those programs where we could identify estimated budget authority for both years. In addition, over the same time period, outlay equivalent estimates for energy-related income tax preferences grew by over 60 percent, from $2.7 billion to about $4.4 billion. While we did not review changes within individual programs and tax policies, federal efforts have continued to address the eight major energy activities of supply, environment and health, low-income assistance, basic science, infrastructure, conservation, assurance and security, and competition and education. Energy supply continues to be a major emphasis of the federal efforts, accounting for a majority of the growth. For example, income tax preferences associated with energy supply have represented almost all of the $1.7 billion growth in income tax preferences. Within energy supply income tax preferences, growth has occurred primarily with efforts targeting fossil and renewable energy supplies. Table 11 shows changes in program estimated budget authority, by major energy issue, in fiscal years 2000 and 2003. Appendix V provides a breakdown of the change in estimated budget authority for each program addressing the major energy issues.

Income tax preferences do not compete in the budget process and do not have to seek budget authority—they are already “fully funded” as long as they remain in effect. However, as has been demonstrated, they can represent significant resources. Current fiscal year 2005 projected estimates indicate energy-related income tax preferences have continued to grow—to $5.15 billion in outlay equivalent estimates. Table 12 provides a profile of changes in energy-related income tax preferences in outlay equivalent estimates between fiscal years 2000 and 2003.

Along with the growth in energy-related federal resources, budget requests for federal energy-related programs have also grown since 2000. However, budget request information is not available for all of the programs identified in our inventory for which we have obtained estimates because many energy-related programs are part of larger programs and separate, distinct budget requests are not made for them. For those programs that had specific, energy-related budget requests, budget requests grew between fiscal years 2000 and 2003 by about 27 percent—from $5.9 billion to $7.5 billion. This growth continued into fiscal year 2005, when requests reached $8.4 billion. Table 13 shows budget requests in fiscal years 2000, 2003, and 2005 by major energy activity area. Appendix VI provides a breakdown of requests for each program that has a budget request under the major energy areas.

Observations

The nation’s energy problems are not new. In the 1970s, we issued a series of reports to Congress on the need for both a focal point for dealing with energy problems and a coherent set of energy policies that would stand the tests of the future. While the United States does have, and has had, a series of energy-related programs and tax policies, calls for a “national energy policy” persist. Currently, hundreds of energy-related programs funded by the federal government, energy-related income tax preferences, and federal regulatory requirements that impact energy encompass the federal government’s role in energy policy. At the federal level, development and implementation of our national energy policy is a shared responsibility of the executive and legislative branches of government. Any progress toward understanding the role that the federal government plays in energy policy and improving upon it must start with a comprehensive inventory of these federal energy-related programs, tax policies, and regulatory activity. The NEP report, as other national energy policies have in the past, offers such a start toward the development of this inventory. Furthermore, although we are not making recommendations in this report, we have noted a lack of information on the results of federal energy-related efforts. DOE’s Office of National Energy Policy has an opportunity to serve as a key focal point in improving upon the measurement of results made in federal energy-related efforts. Establishing clear and measurable goals and having the ability to track, measure, and transparently report on results achieved toward those goals will give policy makers the information they need to provide continually improving direction to the federal government’s energy-related efforts.

Agency Comments and Our Evaluation

We provided DOE with a draft of this report for review and comment and asked DOE to coordinate any formal written comments from the other federal agencies included in this report. In addition, we provided a draft of this report to the other federal agencies in order to obtain comments on specific information about particular agencies’ energy-related activities. In summary, DOE responded in its written comments that it did not believe our report accurately reflected the goals or intent of the NEP, its implementation, or the Administration’s ongoing energy security efforts. Overall, we believe DOE’s comments reflect a basic misunderstanding about the report’s objectives and the approaches we used to address these objectives. Specifically, with respect to our first objective (an inventory of major federal energy programs and their cost) DOE commented that our presentation of estimated budget authority for programs and outlay equivalent estimates for tax preferences represented a quantitative approach to evaluating the NEP report that is not consistent with its purpose. However, our first objective and the resulting inventory of major federal energy programs laid out in our report does not in any way reflect an evaluation of the NEP report. We prepared this inventory independent of the NEP report and did not intend to suggest that the NEP report was intended to reflect an inventory and accounting of resources comparable to the one we prepared.

Our second and third objectives--dealing with the results of NEP report recommendation implementation and changes in resources since the NEP report’s issuance—do have obvious connections to the NEP report. Here too, however, we believe DOE’s comments confuse the issue by suggesting that our report is somehow an evaluation of the NEP report rather than simply a presentation of observations on actions taken and reported results achieved since the report’s issuance. In this connection, DOE defends the NEP report “as an overall blueprint” and that it “is not sufficient to look at the President’s energy policies through specific NEP recommendations alone.” We agree and note that our report suggests nothing to the contrary. However, our report does focus on the reported results achieved in implementing these important NEP recommendations that, as the NEP report states, “taken together, offer the thorough and responsible energy plan our nation has long needed.” Moreover, DOE implies that when we point out that many of the NEP recommendations are open-ended in nature, we were being critical of the recommendations. This is not our intent. We were simply stating as a matter of fact that the open-ended, nonspecific nature of many of the NEP recommendations complicated our reporting on recommendation implementation status. With respect to NEP report recommendation implementation, DOE further commented that DOE’s own NEP status report was not intended to be comprehensive and that supplementary material could be found in unidentified “budget documents and other means.” We recognize that status information may be available from a variety of sources, and we explored those sources in performing our analysis. However, in reviewing the status of efforts to implement the recommendations, we believe it was appropriate to focus on DOE’s most recent report on the status of these recommendations. In our view, it does not seem unreasonable to expect that Congress and the American people could find relatively complete information on NEP implementation status in a direct format through one centralized source, especially if that source is entitled NEP Status Report.

DOE and other federal agencies provided numerous technical clarifications, observations, and editorial comments, and we have made changes to this report as appropriate. DOE’s written comments are reproduced in appendix VII.

As agreed with your offices, unless you publicly announce the contents of this report, we plan no further distribution of it until 30 days from the date of this letter. At that time, we will send copies to the Secretary of Energy and other interested parties. We will make copies available to others upon request. In addition, the report will be available at no charge at GAO’s Web site at http:www.gao.gov.

Questions about this report should be directed to me at (202) 512-3841. Key contributors to this report are James Cooksey, Nancy Crothers, Doreen Feldman, Mark Gaffigan, Michael Gilbert, Erica Haley, Elisabeth Helmer, Chir Huang, Arthur James, Alan Kasdan, Frank Rusco, John Scott, Karla Springer, Anne Stevens, Jena Whitley, and Monica Wolford.

Objectives, Scope, and Methodology

We were asked to (1) identify the federal government’s major energy- related efforts, (2) review the status of efforts to implement the May 2001 National Energy Policy (NEP) report recommendations, and (3) determine the extent to which resources associated with federal energy-related efforts has changed since the release of the NEP report.

To identify the federal government’s major energy-related efforts, we reviewed the federal agencies that have the most responsibility for implementing the recommendations of the NEP report—the Departments of Energy (DOE), the Interior (DOI), Commerce, Transportation (DOT), State, and Agriculture (USDA) and the Environmental Protection Agency (EPA). We asked these key agencies, and other agencies as time allowed, to identify their energy-related work, and we developed an inventory of the energy-related programs that we identified. Other agencies we included were the Commodity Futures Trading Commission, Department of Justice (DOJ), Federal Energy Regulatory Commission, Federal Trade Commission, Department of Health and Human Services, Nuclear Regulatory Commission, National Science Foundation (NSF), Securities and Exchange Commission, U.S. Army Corps of Engineers, U.S. Trade and Development Agency (USTDA), and U.S. Agency for International Development (USAID). In addition to identifying energy-related programs, we relied on the list of energy-related tax expenditures published in the President’s annual budget that provided income tax preferences. We also obtained data on energy-related federal collections, including revenue from royalties and user fees from the agencies. In addition, we also attempted to identify collections from energy-related excise taxes. Although the Department of the Treasury does not provide a specific listing of energy- related excise taxes, we used information on the collection of excise taxes that was published by Treasury’s Internal Revenue Service to identify these taxes. While this information is updated quarterly, the last full fiscal year available is 2003. We collected and analyzed agency-reported program and tax preference descriptions and budget request and funding information at these key agencies. Based on our review of the NEP report and the program and tax preference descriptions and our discussions with applicable program officials, we identified eight categories of energy- related activities and grouped the programs and tax preferences by these eight areas: (1) energy supply, (2) energy’s impact on the environment and health, (3) low-income energy consumer assistance, (4) basic energy science research, (5) energy delivery infrastructure, (6) energy conservation, (7) energy assurance and physical security, and (8) energy market competition and education. Because it was often difficult to quantify the resources associated with energy-related aspects of various programs, where possible, we relied on agency estimates of budget authority for fiscal year 2003—the most recent year for which data were readily available for most of the programs during our review. Since we began our review in late 2003, fiscal year 2003 was the most complete year for which data were readily available.

It was often difficult to quantify the resources associated with energy- related aspects of various programs because agencies could not provide specific estimates. We used the following method to arrive at an estimate of the magnitude of federal energy resources for fiscal year 2003—the most recently completed fiscal year readily available—and for fiscal year 2000. For many programs, we obtained budget request, budget authority, outlay, and obligation information for programs from agency officials and documents to the extent that these numbers were available. To ensure the accuracy of the financial information provided by the agencies, we attempted to obtain documentation and agency verification, but we could not independently verify the estimates for energy-related programs or activities. In obtaining information on resources associated with most programs, we were able to obtain actual budget authority or estimated budget authority from agency officials. However, some programs do not have readily available estimates of budget authority available for their energy-related activities because they are part of a larger appropriation that addresses both energy-related and nonenergy-related activities. For such programs, agencies had to estimate the portion of budget authority associated with the energy-related program activity. In these cases, we asked knowledgeable agency officials to estimate the amount of resources dedicated to the energy-related activities. In some cases, agencies provided estimates of energy-related outlays or obligations. For the following agencies, in consultation with agency officials, we used these agency outlay or obligation estimates as estimates for budget authority: State, U.S. Army Corps of Engineers, NSF, USAID, USTDA, and some USDA, DOT, and EPA programs. On the basis of our examination of the supporting information, we believe that the estimates of budget authority for federal energy-related programs gathered are sufficiently reliable for the purposes of this report, which is to provide the best available estimate of federal resources for energy-related programs.

In addition to obtaining budget authority estimates for energy-related programs, we also obtained outlay equivalent estimates for energy-related income tax preferences—federal income tax provisions that provide preferential tax treatment related to energy supply and use. Revenue losses resulting from these tax preferences—also called tax expenditures—may, in effect, be viewed as spending channeled through the tax system. The Congressional Budget and Impoundment Act of 1974 requires that the budget include a list of tax expenditures. Each year, revenue loss estimates for tax expenditures are prepared by Treasury and the Joint Committee on Taxation. Treasury also produces outlay equivalent estimates—the amount of budget outlays that would be required to provide the taxpayer with the same after-tax income as would be received through the tax expenditure. We used the outlay equivalent measure in quantifying the energy-related tax preferences because it allows the tax preference programs to be compared with federal outlay programs on a more even footing. While the aggregate value for energy-related tax preferences is useful for gauging their general magnitude, summing does not take into account interactions between individual provisions. In addition, tax preferences below $5 million annually are not reported on Treasury’s list and, therefore, are not included in this report.

We focused on federal resources associated with key federal agencies that have direct responsibility for issues addressed in and for implementing the recommendations of the NEP report. We attempted to address other agencies as time allowed, but the inventory did not evaluate the efforts of every federal agency. Principally, in this review, we did not attempt to inventory DOD spending and activities. However, DOD is a large user of energy and engages in a wide range of activities that may impact the energy sector. For example, DOD installations have about 2,600 electric, water, wastewater, and natural gas utility systems valued at about $50 billion. These systems include the equipment, fixtures, and structures used in the distribution of electric power and natural gas; the treatment and distribution of water; and the collection and treatment of wastewater. Because we did not evaluate DOD spending, or every federal agency that may have energy-related activities, this report reflects a significant, but minimum amount of resources associated with federal programs that may play a role in energy.

In addition, although the federal government has a major impact on the energy industry through regulatory actions, this review did not attempt to inventory the federal regulatory actions that affect energy, but rather focused on federal energy-related programs and tax policies. Federal regulatory actions that impact energy have a cost to the industry but are offset by benefits accruing to the population at large or targeted groups. For example, in its report entitled Progress in Regulatory Reform: 2004 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities 2004, the Office of Management and Budget (OMB) estimated the annual costs of all major federal rules implemented between fiscal years 1994 and 2003 at about $35 billion to $40 billion and annual benefits of these rules at between $63 billion to $169 billion. A large fraction of these costs and benefits may be related to energy in that (1) they have come about as the result of regulations to reduce public exposure to fine particulate matter, such as some emissions from burning fuels, or (2) they pertain to regulations promulgated by DOE, in part to address energy efficiency and renewable energy. In this report, we have primarily focused on direct federal programs and tax policies, rather than trying to assess the total economic impact of the federal government on the energy sector. However, the magnitude of the OMB estimates of the costs and benefits of regulation indicates that the federal impact on energy issues may be greater than the sum of resources associated with direct programs and tax preferences.

To review the status of federal efforts to implement the recommendations contained in the May 2001 NEP report, we reviewed publicly reported status information on the implementation of the NEP recommendations, focusing on DOE’s most recent January 2005 report on the status of the 106 NEP recommendations. We discussed efforts to monitor and report on the status of these recommendations with DOE’s Office of National Energy Policy and other federal agencies involved in energy-related efforts. We also discussed the energy-related programs with the appropriate agency personnel and, when possible, determined whether and how the programs were related to the NEP report recommendations.

To determine the extent to which resources associated with federal energy- related efforts have changed since the release of the NEP report, we compared fiscal year 2000 (shortly before the NEP report) federal programs and budget authority estimates with fiscal year 2003 programs and budget authority estimates. However, we were not able to identify estimates of budget authority for every program for both fiscal years 2000 and 2003. Thus, we compared only those programs for which we could identify an estimate for both years. As a result, three FERC programs that were included in the inventory of fiscal year 2003 programs and resources were not included in the fiscal years 2000 to 2003 comparison. In addition, we compared outlay equivalents for energy-related tax preferences between fiscal years 2000 and 2003. We were able to obtain outlay equivalent estimates for all 11 energy-related tax preferences for both years as well as projections for fiscal year 2005. Finally, we compared fiscal years 2000, 2003, and 2005 Presidential budget requests for those major energy- related programs that have specific budget requests. However, many of the smaller programs we identified in our inventory do not have specific budget requests. Thus, those programs are not included in the comparison of energy-related budget requests and cannot be compared with the estimates of budget authority provided for all energy-related programs we identified in our inventory.

Finally, due to the constraints of developing an inventory of federal energy- related efforts and associated resources within the review time frame, we did not assess the changes within the objectives of the individual program activities within our inventory. Instead, we compared the resources and budget requests associated with federal energy-related efforts in the eight major activity areas. We conducted our review between December 2003 and May 2005 in accordance with generally accepted government auditing standards.

Federal Electricity Support

PMAs and TVA Market and Deliver Power Generated at Federal Facilities

The four federal Power Marketing Administrations (PMAs)—Bonneville Power Administration, Southeast Power Administration, Southwest Power Administration, and Western Power Administration—market power produced primarily at federal hydroelectric dams and projects. These facilities are owned and operated by either DOI’s Bureau of Reclamation, the U.S. Army Corps of Engineers, or the International Boundary and Water Commission. In contrast, the Tennessee Valley Authority (TVA) markets electricity produced at its own fossil, nuclear, and hydroelectric energy facilities. Most electricity marketed by the PMAs is generated from facilities built with federal funding through appropriations or Treasury financing. Sales of this electricity are intended to pay back these appropriated funds or financing as well as offset any ongoing expenses associated with operating or upgrading the facilities, including the construction, operation, and maintenance of hydroelectric facilities by the Bureau of Reclamation, the Corps, or the International Boundary and Water Commission.

The Corps has developed hydroelectric power as part of many of its multipurpose water resources projects. The Corps reports that it has an $18 billion investment in hydropower facilities, which include 75 plants and 350 generating units. Hydropower represents 13 percent of the electrical power generated in the United States, and the Corps reports that its facilities generate 24 percent of it. The Corps is the largest owner/operator of hydroelectric power plants in the United States. The Corps reports that its objective is to keep the plants operating at peak efficiency and reliability by replacing aging turbines, generators, and control systems with state-of-the- art equipment. In fiscal year 2003, the Corps received budget authority of $414 million to fund a portion of these activities. The revenues from the power collected were either deposited in the Treasury by the PMAs or, as in the case of the Bonneville Power Administration, used directly to fund the Corps activities. In fiscal year 2003, Bonneville provided $336 million directly for the Corps’ hydroelectric power program in Bonneville’s region. The Bureau of Reclamation’s central mission is to manage water resources for multiple benefits, including the generation of electricity, at its multipurpose water projects in the western United States. Electricity produced at Reclamation facilities either is used internally at projects or sold as surplus power. Surplus power marketed by the PMAs produces revenues used to repay project costs. In fiscal year 2003, Reclamation received $58.6 million in budget authority for operations of hydroelectric facilities in three of its five regions. In the other two regions, PMAs directly fund the hydroelectric facilities. Finally, the International Boundary and Water Commission operates the Falcon-Amistad Project. The project consists of two dams on the Rio Grande River between Texas and Mexico, which share and operate separate power plants on each side of the river.

By law, the federal utilities are nonprofit and provide selected classes of customers with preference in purchasing their power. These “preference customers” include municipal utilities; cooperatives; state utilities; irrigation districts; and, in some instances, state governments and federal agencies. According to the Energy Information Administration (EIA), in 2003, federal utilities sold about 300 million megawatt-hours of wholesale and retail electricity, a volume equivalent to about 8 percent of total U.S. electricity consumption. In 2000, EIA published a report on federal financial interventions and subsidies in energy markets that included an assessment of subsidies to PMA and TVA customers. In its 2000 report, EIA presented three different methodologies for estimating the value of the implicit support to these customers measured by the extent to which (1) electric power was sold by federal utilities at below-market prices, (2) federal utilities paid below-market rates on debt they had incurred, or (3) federal utilities’ rates of return were below those of their private utility counterparts. The estimated value of the implicit support varied significantly, depending on which methodology was used. Further, EIA’s report noted that there are potential problems with each of the methodologies that EIA discussed that make it impossible to choose the best methodology or to conclude that any one of the three methodologies is likely to give a “most accurate” estimate of the actual value. In table 17, we present EIA’s measures of implicit support for 1998 for the PMAs and TVA.

Rural Utilities Service Provides Federal Loans and Loan Guarantees

The Rural Utilities Service (RUS) is an agency of USDA that provides support to rural communities, including loans and loan guarantees for the development and improvement of electricity services. Under the authority of the Rural Electrification Act of 1936 and amendments, RUS loans and loan guarantees are (1) to finance the construction of electric transmission and generation facilities, as well as electric system improvements and replacements in rural areas, and (2) to be used for energy conservation programs and renewable energy systems.

As of September 30, 2003, RUS had approximately $28 billion in outstanding loans and about $520 million in outstanding loan guarantees. Some RUS loans and loan guarantees provide access to financing at below- market rates, which amounts to a subsidy for some rural users of electricity. The size of this subsidy depends on the interest rates at which RUS loans are made as well as the prevailing market interest rates; therefore, the amount of support varies from year to year and according to which measure of market interest is used.

In its May 2000 report on federal financial interventions in energy markets, EIA estimated that the value of the subsidy provided by RUS loans and loan guarantees was between $144 million and $1.557 billion in 1998. We asked RUS to estimate the value of the subsidy associated with these loans and loan guarantees for fiscal year 2003, but RUS does not estimate such values. However, RUS did provide us with a figure derived by OMB of about $5 million that reflects the net cost to the government of the program, which is the amount of direct appropriations to the program that is not recaptured by loan repayments. This figure does not reflect the implied interest rate support as measured by the EIA report.

NEP Recommendations, DOE Reported Status, and GAO Observations

This appendix provides a complete list of the 106 recommendations contained in the May 2001 National Energy Policy report, DOE’s January 2005 reported status of these recommendations, and our observations on the reported status. For each of the 106 NEP recommendations, table 18 contains the following information: The first column contains the number and text of the NEP recommendation as printed in the May 2001 NEP report. This number is used to track the recommendations and refers to the chapter and the order within which the recommendations appear in the NEP. Thus, “4-3” refers to the fourth chapter of the NEP and the third recommendation within that chapter.

The second column contains DOE’s overall assessment of the recommendation, such as “Implemented, Activities Ongoing, or Legislation Proposed,” and DOE’s description of the actions taken to implement the recommendation. This status information was reported by DOE in its January 2005 National Energy Policy Status Report on Implementation of NEP Recommendations.

The third column contains our observations on the status of the recommendation provided by DOE as reported in the second column. Our observations may discuss reported status of the recommendations and observations about it, such as the lack of specific goals and measures that make it difficult to assess the progress of federal energy- related efforts to implement the recommendations. In some cases, we include additional information in this column from (1) DOE’s responses to questions we raised about its status report or (2) agency comments on a draft of this report. Our observations on the status report should not be viewed as either an endorsement or a critique of the NEP recommendations.

Fiscal Years 2000 and 2003 Estimated Budget Authority for Agency Programs, by Energy Activity Area

Cooperative State Research, Education, and Extension Service: Bioenergy and Energy Related Programs I Cooperative State Research, Education, and Extension Service: Bioenergy and Energy Related Programs II Cooperative State Research, Education, and Extension Service: Bioenergy and Energy Related Programs III Cooperative State Research, Education, and Extension Service: Bioenergy and Energy Related Programs IV Farm Service Agency-Commodity Credit Corporation’s Bioenergy Program Forest Service Research and Development: Bioenergy, Energy Efficiency, and Conservation Research Office of Chief Economist, Office of Energy Policy and New Uses-3 Office of Chief Economist, Office of Energy Policy and New Uses-2 Rural Development Business Programs: Renewable Energy and Energy Efficiency (146,000,000) (47,000,000)

Energy Supply-Biomass And Biorefinery Systems Research and Development (R&D)

Comparison of Budget Requests for Fiscal Years 2000, 2003, and 2005 for Agency Programs, by Energy Activity

Cooperative State Research, Education, and Extension Service-Bioenergy and Energy Related Programs I Cooperative State Research, Education, and Extension Service-Bioenergy and Energy Related Programs II Cooperative State Research, Education, and Extension Service-Bioenergy and Energy Related Programs III Cooperative State Research, Education, and Extension Service-Bioenergy and Energy Related Programs IV Farm Service Agency-Commodity Credit Corporation’s Bioenergy Program Forest Service Research and Development-Bioenergy, Energy Efficiency, and Conservation Research Office of Chief Economist-Office of Energy Policy and New Uses-3 Office of Chief Economist-Office of Energy Policy and New Uses-2 Rural Development Business Programs- Renewable Energy and Energy Efficiency (246,000,000) (140,000,000)

Energy Supply-Biomass and Biorefinery Systems Research and Development (R&D)

Appendix VII