The
Results Act process provides a forum for the Congress to examine
DOE's current missions to ensure that the Department's priorities
are in line with those of Congress and that DOE's functions are
complementary, appropriate in scope, and not unnecessarily
duplicative.
--
U.S. General Accounting Office, 1997
The
103rd Congress passed the Government Performance and Results Act in
1993 to make federal agencies more responsive and accountable to
the American people. The Results Act requires federal agencies to
submit to Congress strategic plans that clearly specify their
missions and goals. House Majority Leader Richard Armey (R-TX), who
leads the congressional effort to evaluate and grade these agency
plans,
believes the Results Act enables Congress to ask "What's working,
what's wasted, what makes any difference, [and] what's
duplicative" before appropriating more money
for an agency.
The
agency plans submitted to date, however, only reinforce the
concerns of Congress and many Americans--concerns which led to
passage of the Results Act--that federal agencies are plagued with
serious problems. The plans' debut was marked by a torrent of
questionable missions, goals, and objectives; faulty tools with
which to measure agency performance; and clear evidence of waste
and duplication. Ironically, these agencies are submitting plans
that highlight the very internal problems that government
watchdogs--such as the U.S. General Accounting Office (GAO) and
agency inspectors general (IGs)--have been documenting for
years.
The
U.S. Department of Energy (DOE) is a textbook example of such an
agency. Its final strategic plan (the result of four years of
planning, drafts, and revisions) was submitted to Congress on
September 30, 1997. It received an anemic ranking of
43.5 out of 100 possible points. DOE's fiscal year (FY) 1999 annual
performance plan linking specific performance measures to elements
of its budget request was submitted in February 1998.
This plan fared even worse: a miserable 30 out of 100. (See Chart
1.)
Fortunately, some Members of Congress are
asking why an agency that submits poor plans and lacks a clear
mission should continue to exist, let alone receive a funding
increase as requested in the President's budget. For example,
Representative John Kasich (R-OH), chairman of the House Budget
Committee, has proposed that the Department of Energy be eliminated
in FY 1999. His assessment is substantiated by the federal
government's own evaluations, from the report card issued by the
congressional staff team tasked with grading DOE's agency plans to
recent GAO and agency IG reports.
FIVE GOOD REASONS TO CLOSE DOWN DOE
Given the Department of Energy's poor
performance record, Congress increased its budget by only $13
million (from $16,547,147,000 to $16,560,608,000) between FY 1997
and FY 1998, holding its total budget to about $16.5
billion.
On September 30, 1997, DOE submitted a five-year strategic plan
that ranked 12th out of the 24 graded; in February 1998, it
submitted an FY 1999 performance plan that ranked 20th out of 24.
Even worse, for FY 1999, the Department is asking Congress to
reward its dismal Results Act report card with a budget hike that
would be 100 times larger than the one it received in FY 1998--a
$1.5 billion (or 9 percent) overall increase to a funding level of
more than $18 billion. (See Chart
2.)
The
available evidence--including DOE's unacceptable and poorly graded
strategic and performance plans, as well as the relevant GAO and IG
reports--clearly indicates that Congress has been on the right
track in holding down DOE's budget. Recent reports suggest that DOE
has done little to improve its problems and that Congress would
only be wasting more tax dollars by continuing to fund the agency.
These Results Act reports underscore, more clearly than ever
before, that there are at least five persuasive reasons to close
down the Department of Energy.
REASON #1: Ever-Changing Missions and
Bureaucratic Growth.
During the past 20 years, the Energy
Department has grown in the number of tax dollars spent as well as
functions performed. As Victor Rezendes of the GAO has testified,
"DOE's mission and priorities have changed dramatically over time
so that the Department is now very different from what it was in
1977. While energy research, conservation and policy-making
dominated early DOE priorities, weapons production and now
environmental cleanup overshadow its budget." Today, 75
percent of DOE's budget is spent on activities other than energy
resources: Nearly $12 billion is budgeted for environmental quality
and nuclear waste disposal, and about $4 billion for fundamental
science research, each year.
Since its creation in 1977, the Department
of Energy has changed its mission numerous times. Its original
mission--oversight of energy resources and administration of a
complex set of regulations, price controls, and allocation laws
established in response to the oil embargo of 1973 and 1974--was
too broad for its programs to be effective. The result: higher
energy costs and increased dependence on foreign oil. During his 1980
presidential campaign, Ronald Reagan promised that he would
eliminate the Department of Energy. Instead, he changed its mission
from energy conservation, imposed through a centralized structure
of regulations, to energy promotion by means of market mechanisms.
DOE also was given responsibility for the production of nuclear
weapons during the 1980s because of a misguided belief that
production and stockpile management should be controlled by a
civilian agency, not the military.
With
the end of the Cold War, DOE's central mission changed yet again.
The high level of weapons production was no longer necessary, and
world energy supplies remained constant. DOE began to concentrate
on environmental remediation of past actions, including cleaning up
its own contaminated weapons facilities. In addition, a large
portion of the department's budget is now dedicated to research and
development of alternative energy supplies, including solar, wind,
geothermal, and nuclear power generation. Despite this massive
effort to find alternative sources of energy, however, petroleum
and coal remain the dominant sources of power in America today. Chart 3
shows just how much of DOE's proposed FY 1999 budget would be
dedicated to each of these efforts.
The
fourth change in mission came with the creation of Cooperative
Research and Development Agreements (CRADAs)--contracts allowing
individual companies to use federal laboratories, and even conduct
research and development (R&D), at taxpayer expense. CRADAs are
meant to increase the competitiveness of American companies and
support quality jobs at a time when much of the defense-related
work that used to be completed at DOE's laboratories is seen as no
longer necessary. Proponents of CRADAs argue that they provide
private companies with free research capabilities and prevent the
closing of federal facilities.
DOE's September 30, 1997, Results Act
five-year strategic plan suggests that the agency still cannot
answer the basic question: "What are we supposed to be
accomplishing?" One of the more revealing and inappropriate
performance measures buried in the agency's strategic plan is to
"Map capabilities, core strengths, and leadership roles across the
DOE research enterprise in FY 1998." It is hard to imagine how the
department could have accomplished anything before this without
understanding what role, if any, it plays in energy research.
Another revealing statement from the Results Act plan: "complete a
comprehensive national energy strategy that integrates major
federal government energy related activities." Clearly, DOE
continues to look for ways to justify its existence.
REASON #2: Wasteful Spending.
Not
only has the Department of Energy strayed from its original mission
of energy resources oversight, but it also has failed to conduct
efficiently the services it now provides. Moreover, much of the
government-funded research does not meet its intended objectives.
Regarding nuclear fission research, for example, the Congressional
Budget Office (CBO) observed that the department "has little in the
way of commercial applications to show for its investment."
Energy Research and
Development. DOE spends nearly $3.2 billion per year on a
variety of applied and basic research projects. In FY 1998,
Congress approved $1 billion for applied research on solar and
renewable energy sources and research on nuclear energy and fusion,
and $2.2 billion for research on basic science topics in human
genetics, fusion power generation, materials and metals, and
computers. Federal agencies such as the National Science Foundation
(NSF) and the National Oceanic and Atmospheric Administration
(NOAA) fund complementary or parallel research programs on such
technologies as photovoltaic, solar, and geothermal energy.
Terminating DOE's research would not necessarily affect these
programs.
Remarkably, despite evidence that many DOE
energy R&D programs have failed to produce appreciable
results,
the Administration wants Congress to appropriate even more money
for such efforts, especially its Climate Change Technology
Initiative (CCTI). In response to a request from Representative
Kasich, the GAO issued an April 1998 report on how DOE plans to
"alter its climate change spending from fiscal year 1998 to fiscal
year 1999" and provide "observations about funding for research and
development, based on our previous work in the area." According to
this report, DOE is seeking to increase its energy R&D budget
from $729 million in FY 1998 to $1.06 billion in FY 1999. The $331
million increase (see Chart 4)
would go to climate change-related programs, in addition to the
$729 million from FY 1998 that is being "recoded as CCTI" and that would
"support and expand existing R&D programs in energy efficiency
and renewable energy as well as other programs related to climate
change."
For
FY 1999, DOE requested a more than 30 percent increase in funding
for solar and renewable energy programs as part of the Climate
Change Technology Initiative. Currently, the department spends
approximately $356 million--nearly $90 million more than FY
1997--in this area despite House language that lawmakers remain
"concerned about the Department's administration of the
programs." Examples of requested funding
increases for FY 1999 include:
-
A 20 percent increase for photovoltaic
energy systems (from $65.5 million to $78.8 million);
-
A 52.6 percent increase for
biomass/biofuels energy systems (from $58.8 million to $89.7
million);
-
A 33.7 percent increase for wind energy
systems (from $32.5 million to $43.5 million); and
-
A 540 percent increase for
international solar energy research (from $1.4 million to $8.8
million).
In
addition, DOE is requesting a 43.7 percent increase (from $74.4
million to $106.9 million) for nuclear energy research and
development.
The
type of eco-energy planning envisioned by the Administration in its
budget request requires large taxpayer and ratepayer subsidies as
well as government mandates for renewable energy generation. The
Energy Department, for example, has spent approximately $5.1
billion (in 1996 dollars) on solar energy since FY 1978 but has
little to show for it. According to a recent Cato
Institute study, renewable energy plants produce electricity that
is, on average, twice as expensive as electricity from the
most economical fossil-fuel alternatives and three times
as expensive as surplus electricity. Not only are renewable energy
sources not economically efficient, but every major renewable
energy source has drawn criticism from environmental groups:
hydroelectric power for river habitat destruction; wind generators
for avian mortality; solar power for desert overdevelopment;
biomass electricity for air emissions; and geothermal for depletion
and toxic discharges. Yet between 1978 and 1996, the
federal government provided more than $10 billion (in 1996 dollars)
for solar, wind, hydroelectric, geothermal, and other renewable
energies.
In light of these criticisms, federal funding for renewable and
non-renewable energy research and development efforts should be
halted immediately. Congress had begun to cut back these programs,
but funding levels are again increasing. (See
Table 1.)
And the huge investment the Administration wants all Americans to
underwrite will produce few distinguishable effects on climate
temperature, compared with what would have occurred if current
trends were simply allowed to continue. (See
Table 2.)
In
its report on the Administration's FY 1999 Climate Change
Technology Initiative, the GAO notes that the "concept is to
accelerate technology `more faster.'" But past attempts by the federal
government to outguess the energy market have produced expensive,
well-known failures, such as the Synthetic Fuels Corporation and
the Clinch River Breeder Reactor. In the case of wind power, as
Robert Bradley points out in a recent Cato Institute report on
renewable energy research and development, "the federal
government's crash course in wind-related research and development
has been a bust to date, and further commitment may be doomed as
well."
Bradley points out that "the United States lavished nearly a half a
billion dollars on the aerospace industry from 1974 to 1992 [for
wind power R&D]. . . . By the mid-1990s there were no major
U.S. manufacturers selling commercially proven wind turbines. . .
." (He
recounts similar stories for other renewable resources.)
Although the current costs of generating
power through alternative energy sources are high, it frequently is
argued that current subsidies eventually will bring prices to a
level that is competitive with conventional sources. This is
unlikely, however, because market competition is far stronger than
protectionism as a motivating factor in technological advance and
price reduction. As the GAO points out, competitive energy
resources consistently provide lower prices than do protected
sources.
Energy Conservation and
Research
The Department of Energy also is proposing a 32 percent
increase (from $611 million to $808.5 million in FY 1999) for
energy conservation and research targeted toward improving energy
efficiency in various sectors of the economy, such as
transportation, industry, private and public buildings, and
utilities.
This
program funds research and grants that should be financed by the
private sector and state or local governments. For FY 1998, for
example, Congress approved over $380 million for research targeted
toward private industry, including building systems, heating and
cooling technology, alternative fuels utilization, vehicle systems
materials, and international market development. Congress also
earmarked $125 million for state-based weatherization programs and
$30 million for state conservation programs. However important
these conservation measures may be, they are not properly a
function of the federal government. Congress should not be in the
business of funding and micromanaging purely private research and
purely local responsibilities.
In
its report, the GAO suggests that Congress consider five questions
in assessing whether to fund particular energy research and
development programs:
-
Would the private sector be inclined to
do the research?
-
Will consumers buy the product?
-
Do benefits exceed costs?
-
Have efforts been coordinated?
-
Have implementation concerns been
addressed?
Chart 5
clearly shows that, as federal funding for energy R&D
increases, industry support decreases. Industry will invest in
technologies for which it sees a market and a benefit. DOE's track
record demonstrates that it is far less likely than the private
sector to invest in winning new technologies. Furthermore, the
federal government, after decades of failure, is clearly less
capable of picking technology winners than industry has been. If
Congress asked these basic question about DOE's energy R&D
programs, it most likely would conclude that many are unnecessary
and wasteful, and that they duplicate other programs.
Environmental Cleanup
The Department of Energy was responsible for the
production of nuclear weapons during the Cold War, and the pressure
of competing with the Soviet Union kept environmental protection
from being a top priority at weapons production facilities. Today,
although production has ceased, environmental remediation at DOE's
facilities remains. The vast majority of contamination problems at
the department's nuclear weapons plants involve some level of
radioactivity. Since 1989, the department has managed, stored, and
cleaned up hazardous wastes produced at these plants under its
Environmental Management (EM) program.
The
proposed FY 1999 budget for this program is $6.123 billion. The GAO
has estimated that the total cost of remediation at federal nuclear
waste disposal sites will run as high as $200 billion. However, given
DOE's poorly graded performance in estimating costs in the past,
this could be only a fraction of the total cost. DOE should
reevaluate its original goals and strategies to deal with this
problem. Contamination of these sites is not insignificant, and the
amount of radioactive and hazardous waste at its nuclear weapons
complex is so great that more effective action is essential.
The
Environmental Management program was supposed to clean up all sites
within 30 years. Agreements signed by DOE, the Environmental
Protection Agency (EPA), and state regulatory agencies specify
requirements and set milestones for achieving those requirements.
But cleanup costs have escalated rapidly, breakthroughs in
technology have not occurred at the pace originally estimated, and
the nature and scope of the contamination problem simply are not
known. "As a result," notes the GAO, these cleanup "agreements
taken together do not reflect a national strategy of targeting
resources based on the highest risks to human health and the
environment." It is now clear that DOE will
not be able to clean up the sites either within the 30-year period
or any time soon thereafter.
Beginning with FY 1999, DOE's new
structure for managing the EM program will be in place in an
attempt to accelerate its cleanup strategy. The FY 1999 request
consists of five appropriations: Defense Facilities Closure
Projects, Defense Environmental Restoration and Waste Management,
Defense Environmental Management, Non-Defense Environmental
Management, and Uranium Enrichment Decontamination and
Decommissioning Fund. It would seem that DOE deserves credit for
trying to initiate a very modest privatization of cleanups (focused
largely on its Hanford, Washington, site), yet a review of the
program's strategic plan suggests that policymakers would be
naïve to expect that things will get better. For example, the
plan indicates that DOE wants to "prioritize and fund high risk
projects, such that risk to workers, the public and the environment
decreases over time." The only problem is that the
plan gives no indication of how it will accomplish this fundamental
task; and because no effort is made to tie the work to any
measurable health benefits, it will never be clear whether DOE
addressed the most serious health risks first. Furthermore, DOE has
not developed "comprehensive land use plans for DOE sites that
provide information on alternative uses, ownership, environmental
requirements, and implementation schedules" at the Hanford (Washington),
Savannah River (South Carolina), Rocky Flats (Colorado), and all
other DOE sites, and has set no clear goals for cleaning up the
sites. How the land would be used would have a significant impact
on the costs associated with the cleanup.
REASON #3: Costly Management
Deficiencies.
In
1995, GAO official Victor Rezendes warned that "DOE suffers from
significant management problems, ranging from poor environmental
management of the nuclear weapons complex to major internal
inefficiencies rooted in poor oversight of contractors, inadequate
information systems, and work force weaknesses." These
management problems and the inefficiencies that flow from them are
primarily a result of DOE's continual efforts to realign itself and
justify its own existence. Although the department has reorganized
many times over the years to correct these deficiencies, its
efforts have failed. DOE's Results Act strategic and annual
performance plans have not demonstrated any improvements that would
allay these fundamental concerns.
In
May 1995, DOE unveiled its Strategic Alignment and Downsizing
Initiative Plan, largely as a response to plans by Members of the
104th Congress to terminate the agency. It was estimated that this
Strategic Initiative would save about $1.7 billion over five
years--a mere 2.5 percent of the $67.5 billion projected to be
spent on DOE programs during the same period.
Also
in May 1995, DOE published Success Stories: The Energy Mission
in the Market Place, a report highlighting over 60
technologies supposedly developed or supported by DOE's applied
research and development programs. Success Stories represented an
attempt by DOE to justify its existence in the face of attacks from
Members of Congress; instead, congressional criticism was given new
impetus by a GAO analysis of 15 randomly selected "success
stories." The GAO found "problems with the analysis DOE used to
support the benefits cited in 11 out of the 15 cases" it had
reviewed. "These problems include basic math errors, problems in
the supporting economic analysis, and unsupported links between the
benefits cited and DOE's role or the technology. These problems
make DOE's estimates of the benefits for these cases
questionable."
Despite attempts at reform, DOE's Office
of Inspector General (OIG) continues to uncover widespread
financial management and accountability problems throughout the
agency. In its Semiannual Report to Congress for the
period from April 1, 1997, to September 30, 1997, the OIG found,
for example, that:
-
"[T]he Department's Los Alamos National
Laboratory did not generate the information needed to assess
whether specific sites were remediated cost effectively. . . . Los
Alamos paid up to $540,000 more than necessary to validate
results."
-
"[T]he Department's Headquarters and
field sites had also paid an estimated $1.8 million to develop and
implement a Departmentwide database, while at the same time, the
contractors were maintaining their own duplicative database.
Neither of the systems tracked the [leased] property
accurately."
-
"On two requisitions the Department
could have saved almost $850,000 out of $1.6 million if the prime
contractors had used normal procurement channels. . . ."
-
"[A]bout $500,000 out of the $895,000
spent on the [groundwater quality control] program in Calendar Year
1995 was unnecessary."
-
"[T]he Department may incur $4 million
to $8.5 million more than necessary each year to
continue...operations at the Mound Plant."
-
"Basin [Electric Power Cooperative]
overcharged WAPA [Western Area Power Administration] approximately
$23.8 million."
REASON #4: An Inability to Measure
Performance.
In
attempting to explain to Congress how it plans to determine how
well its programs are achieving their goals, the Energy Department
seemed incapable of suggesting suitable performance measures. The
congressional evaluation of DOE's FY 1999 performance plans gave
the department a score of 10 out of a possible 30 points. As noted
earlier, one of the more revealing performance measures buried in
the agency's strategic plan was to "Map capabilities, core
strengths, and leadership roles across the DOE research enterprise
in FY 1998." Clearly, the agency already
should have understood what role, if any, it plays in energy
research. Other examples of its recommended performance measures
that received poor Results Act grades include:
- Climate
Change Related Measures
-
Support the President's initiative to
reduce greenhouse gas emissions so that the nation will have
installed 7,000 solar roofs in FY 1999 and 1 million by
2010.
-
In FY 2000, for the seven most
energy-intensive industries, complete development and pursue
implementation of R&D "roadmaps," whereby the federal
government and industry develop a strategic vision of the
industry-desired future and the technology road map to achieve
it.
-
In FY 1998, continue to help 18
developing countries and countries with economies in transition to
develop national action plans for reducing greenhouse gas emissions
and adapting to climate change, and initiate assistance to an
additional two to three countries.
- Duplicative Tasks
-
In FY 1999, initiate a program to
develop more accurate monitoring capabilities and identify
cost-effective mitigation strategies for fine particulate
matter.
The EPA also proposes to undertake such steps.
-
By FY 1999, develop improved
technologies and systems for early detection, identification, and
response to weapons of mass destruction proliferation and illicit
materials trafficking. These programs duplicate
Department of Defense programs.
- Throwing Money Away
-
Increase the already extensive amount
of committed research to competitive solicitations through FY
2000.
-
Increase the number and extent of
collaborations with others on complex problems, such as climate
change and fuel-efficient vehicles, that require interdisciplinary
research capabilities.
-
In FY 2000, validate new DOE
technologies that deliver benefits faster, better, and more cheaply
than existing technologies.
-
Increase the total dollars leveraged
through FY 2000.
-
In FY 2000, implement innovative
funding options for R&D activities.
REASON #5: Programs That Should Be
Privatized.
Major programs within the Department of
Energy should be privatized, including the Strategic Petroleum
Reserve (SPR), the Power Marketing Administrations (PMAs), the
Federal Energy Regulatory Commission (FERC), and the Energy
Information Administration (EIA).
Strategic Petroleum
Reserve
Created by the Energy Policy and Conservation Act of 1975, the
Strategic Petroleum Reserve is a government-owned stockpile of 563
million barrels of crude oil to be made available in the event of
market disruptions, such as the Arab oil embargo of 1973 and 1974
or the Persian Gulf crisis of 1990 and 1991. DOE operates six
underground salt dome storage sites on the Gulf Coast of Louisiana
and Texas. One, at Weeks Island, is scheduled to be decommissioned
by July 1999 because of serious structural problems.
The
SPR has become an expensive monument to the heavily regulated oil
markets that existed before the advent of deregulation in 1981
under President Reagan. Over the past 20 years, according to the
CBO, the United States has spent about $4 billion to construct SPR
storage facilities and another $17 billion to fill its
reserves.
Since deregulation, the oil market has
become increasingly diversified, and the futures market (which
hedges against price fluctuations) has become highly sophisticated.
As a result, recent interruptions in the world oil supply, such as
those that occurred during the Persian Gulf crisis, have not had
the same impact on the economy they once would have had. The
Congressional Research Service (CRS) concluded that when SPR oil
was sold during the Gulf War (the only time emergency sales were
authorized since SPR's creation), "the SPR drawdown did not appear
to be needed to help settle markets." Indeed "it became clear
during the fall of 1990 that, in a decontrolled market, physical
shortages are less likely to occur. Instead, shortages are likely
to be expressed in the form of higher prices as purchasers are free
to bid as high as they wish to secure scarce supply."
Congress and the Administration should
consider selling the SPR facilities to a consortium of oil storage
companies. The Administration has proposed leasing SPR excess
storage capacity to foreign countries, such as the Czech Republic
and South Korea. This proposal should be considered as well. But if
a potential market for such lease options does exist, private
companies--not the Department of Energy--should be engaged in that
activity.
Power Marketing Administrations
and the Tennessee Valley Authority
DOE operates five Power Marketing Administrations (Alaska,
Bonneville, Southeastern, Southwestern, and Western Area) which
sell wholesale electricity generated by approximately 130 power
plants (mostly dams) built and maintained by the U.S. Army Corps of
Engineers and the Bureau of Reclamation. These entities sold nearly
$3 billion worth of electricity in 1994, according to the Energy
Information Administration. Congress so far has authorized only the
sale of the Alaska Power Marketing Administration (budgeted for
completion by mid-1999), despite the fact that all five PMAs could
be sold. The federal government also operates the Tennessee Valley
Authority (TVA), which serves much of the Appalachian region.
Customers of the PMAs and the TVA enjoy
hidden taxpayer subsidies because these government-owned utilities
are allowed to borrow from the Treasury at below-market interest
rates and take as long as 50 years to pay back their loans. Of the
more than $16 billion lent to the PMAs by the Treasury, only about
25 percent has been repaid. Douglas A. Houston, professor of
business economics at the University of Kansas, estimates that the
TVA and PMAs together receive roughly $7 billion to $10 billion in
subsidies each year. These subsidies are neither
targeted nor means-tested; according to Professor Houston, they
"simply transfer wealth to a set of lucky citizens who are no less
affluent than their fellow citizen-taxpayers."
PMAs
generally lose money when they resell power. Instead of being sold
to the highest bidder, PMA-generated electricity is sold at varying
rates to municipal utilities, cooperatives, industrial users,
government facilities, and investor-owned utilities. Municipal
utilities and rural cooperatives buy electricity at cost, often
paying as little as half the rates paid by customers in other parts
of the country. Industrial users pay according to a different rate
schedule. The rate paid by aluminum companies, for example, "is, by
contract, tied to aluminum prices." Thus, as aluminum prices fell
over the past five years, Bonneville was buying power "for as much
as 3.5 cents a kilowatt hour, [but] it had to sell it to those
utilities for 1.8."
Congress should terminate all federal
assistance to the PMAs and the TVA, including direct appropriations
and the authority to borrow from the Treasury. The government
should sell the remaining PMAs and the TVA to private investors
through a variety of privatization plans by the end of 1999, and
sell the hydroelectric power plants by the turn of the century.
Selling the PMAs is the only way to bring sound business practices
to these utilities.
Congress should follow the example of
other countries that are privatizing their state-owned utilities.
In 1993, Argentina, Germany, and the United Kingdom raised a total
of $4.4 billion by selling state-owned electric utilities to
private investors, including U.S. investors. Almost 25 major
utility privatizations have been undertaken around the world since
1988.
There is an overwhelming consensus that
privatization will benefit both consumers and the electric
industry. Douglas Houston estimates that privatizing the TVA and
the PMAs would generate $15 billion to $30 billion for the
Treasury. The Office of Management and Budget (OMB) estimates that
selling the relatively small Southeastern and Southwestern PMAs
could generate $1 billion ($500 million for each one sold). The
Southeastern PMA, which sells less than 2 percent of the power in
the region, could be sold swiftly to regional utilities because it
does not own or operate any transmission facilities; it simply pays
a fee to various utilities to market power through its transmission
lines. The Southwestern PMA, which accounts for 4 percent of the
energy sold in the region, also could be sold to regional
investor-owned utilities.
The
OMB estimates that selling the much larger Western Area PMA,
headquartered in Golden, Colorado, could generate some $2.6
billion. According to DOE, while WAPA markets about 9 percent of
the power in the region, its service area covers 1.3 million square
miles and its wholesale power customers provide service to 16
million consumers in 15 central and western states. Because of its
large distribution area, WAPA should be broken up and sold in
manageable pieces to investors.
Selling Bonneville (BPA) will be more
complicated, because it is very large and provides about 65 percent
of the electric power in the Northwest. One method, used in such
countries as Britain, would be to sell BPA through a broad-based
stock option plan in order to neutralize opposition from the
interests served by BPA and win support from public investors.
Stock could be sold at favorable prices to employees, residential
customers, environmentalists, fishing and agricultural interests,
or others who feel that they stand to lose from the privatization
of Bonneville. Such a move might generate support from many
investor-owned and public utilities in the region which, according
to the Portland Oregonian, have threatened to build their
own power generators to free themselves from BPA's near-monopoly
status.
There are many creative and successful
privatization options and alternatives on the books that can help
ensure a smooth and beneficial transition. Under any privatization
scenario, however, Congress should set a strict timetable for
selling the PMAs and their power-generating assets, such as
turbines and powerhouses. The PMAs should be sold by the end of
1999, and their generating assets should be sold by the end of
2000. This is vitally important, not only to ensure that taxpayer
dollars are no longer squandered, but also to ensure the success of
congressional reform efforts aimed at bringing competition to the
industry.
If
PMA and TVA privatizations do not occur, electricity consumers will
be hurt because the development of competitive opportunities will
be discouraged. Public power providers would continue to hold
unique and important advantages over private providers who might
want to enter new markets to offer competitive services. In other
words, if legislators attempt to open electric markets to
competition without simultaneously privatizing the TVA and the
PMAs, the likely result will be an uneven playing field, with fewer
rivals coming forward to offer electricity and consumer service in
areas traditionally served by public power entities. Electricity
deregulation cannot be considered complete until public power
entities are privatized and special preferences eliminated.
Federal Energy Regulatory
Commission
The $146 million-per-year FERC is charged with regulating
certain interstate aspects of the natural gas, oil pipeline,
hydropower, and electric industries. It is basically self-financed
through fees paid by regulated industries. It could be an
independent agency like the Federal Communications Commission.
Congress should begin a serious debate over the extent to which the
federal government should continue to regulate the private energy
sector.
Energy Information
Administration
The EIA is a quasi-independent agency within the Energy
Department that collects and disseminates data on petroleum,
natural gas, coal, nuclear power, electricity, alternate fuel
sources, and energy consumption. EIA's FY 1998 budget is $66.8
million, and the Administration is requesting a 5.5 percent
increase for FY 1999, which would bring the agency's budget to
$70.5 million. All of the activities and functions performed by the
EIA are also carried out by private firms, newsletters, trade
magazines, and industry associations. The utility-funded Edison
Electric Institute, for example, publishes its own statistical
yearbook of the electric utility industry; and many of its
statistics originate with the EIA. Based on the marketability of
the information it provides, the EIA should be privatized and all
federal funding eliminated.
CONCLUSION
The
1993 Results Act was intended to trigger congressional decisions to
resize and reshape the federal government. The Department of Energy
is a textbook example of an agency that has failed. The
government's own evaluations, from report cards issued by the
congressional staff team tasked with grading agency plans to
reports prepared by the GAO and inspector general, highlight at
least five good reasons why Congress should consider pulling the
plug on the DOE. An ever-changing mission, wasteful spending,
costly management deficiencies, poor performance measures, and many
programs that the federal government should simply get out of the
business of doing all make the DOE a programmatic umbrella that is
too costly to maintain.
Rather than allow the Clinton
Administration to play upon unfounded fears about global warming
rather than to significantly increase the budgets of DOE's
long-failed energy research and development, Congress should take a
bold, giant step to eliminate this unnecessary, grossly mismanaged,
and wasteful agency
Angela Antonelli is a former Director of The
Thomas A. Roe Institute for Economic Policy Studies at The Heritage
Foundation.
Endnotes