The Senate Appropriations Committee recommends spending $21.7 billion on energy and water programs in fiscal year (FY) 2000. This is almost $279 million below the budget estimates and nearly $440 million under the enacted appropriations for these programs for the current fiscal year. It is significant that the committee succeeded in limiting discretionary budget authority for these programs to the Section 302b funding allocations¹ it established in order to maintain the spending caps in the Balanced Budget Act of 1997.

The Appropriations Committee is attempting to keep U.S. Department of Energy (DOE) and other agencies on track to maintain the budget targets and to assure that money from the surplus remains for Social Security reform and tax cuts. By contrast, President Bill Clinton's budget proposal includes cap-shattering allocations that would make Social Security reform and tax cuts much more difficult to achieve. The committee's display of fiscal discipline masks the fact, however, that many energy and water programs have outlived their usefulness and are little more than mere monuments to the federal government's inability to cut spending, and to the near-immortality of federal programs.

This year, Congress consistently demonstrated its commitment to fiscal discipline in its budget resolutions, subcommittee funding allocations, and committee-reported appropriations legislation. Yet many of the most difficult decisions lay ahead. It is anticipated already that the funding of critical programs may not be possible without raiding the Social Security surplus unless Congress makes further savings in the bills already reported out of the Appropriations Committee.

After having pledged to maintain the spending caps and devote 100 percent of the off-budget surplus to save Social Security, Congress faces the need to fund an uncertain but escalating U.S. military deployment to Kosovo--a problem exacerbated by the chronic underfunding of the military in the past. Congress cannot allocate 100 percent of the off-budget surplus to saving Social Security and still support military operations in the Balkans without standing firm on domestic discretionary spending.

Congress must find savings in energy and water programs if it is truly committed to maintaining the budget caps. Such action would make it more likely that Congress would deliver on its pledge to strengthen Social Security and cut taxes. Fortunately, the Energy and Water Appropriation Bill, S. 1186, includes many programs that could be scaled back or eliminated. More than $2.4 billion in domestic discretionary spending could be saved in FY 2000 if Congress took steps to (1) eliminate the unnecessary; (2) consolidate the redundant; (3) privatize and make use of market forces; and (4) devolve services to state and local communities. For example, the first four DOE programs that follow are examples of outdated or unnecessary agencies that could be eliminated, thereby providing substantial savings for U.S. taxpayers. The last program is a prime example of a program that should be privatized.

Recommendation:
Eliminate the Energy Programs (Science).

Rationale:
The DOE is fundamentally incapable of effectively operating these programs, which are conducted at its national laboratories and government-owned but contractor-operated laboratories, as well as by independent researchers with DOE grants. Oversight of these programs has focused on the management of the national laboratories, in which most of the research is conducted. In a U.S. General Accounting Office (GAO) report issued September 1998, Uncertain Progress in Implementing National Laboratory Reforms, auditors remark:

For nearly 20 years, many advisory groups have found that while DOE's national laboratories do impressive research and development, they are unfocused, are micro-managed by DOE and do not function as an integrated national research and development system.... [I]ts Strategic Laboratories Missions Plan, which was developed to give more focus and direction to the national laboratories, does not set priorities and is not tied to the annual budget process.³

The GAO notes that, as far back as 1982, the DOE's Energy Research Advisory Board reported that the "national laboratories duplicate private sector research."⁴ Chart 1 shows that, generally, as federal funding for energy research and development (R&D) decreases, industry support increases. If Congress were to ask basic questions about the department's R&D programs--such as "what have they produced?"--it would be likely to identify many that are unnecessary or wasteful, or that duplicate other programs.

As the GAO notes, the DOE's ability to adhere to its mission and priorities is difficult because of the rapid changes in energy generation and energy requirements over the past two decades:

In 1992, DOE's Secretary of Energy Advisory Board found that the laboratories, broad mission, coupled with rapidly changing world events, had "caused a loss of coherence and focus at the laboratories, thereby reducing their overall effectiveness in responding to their traditional missions as well as new national initiatives."⁵

Finally, the GAO mentions a previous task force report, the Galvin Task Force report, which concludes, "[T]raditional government ownership and contractor operation of the laboratories has not worked well."⁶ And three years after releasing that report, GAO notes that "DOE lacks an effective strategy for addressing the advisory group's recommendations,"⁷ and "DOE's actions offer uncertain progress."⁸ The GAO concludes that the DOE

has not developed a way to show how its actions will result in practical and permanent laboratory reform. We believe that without a strategy for ensuring that reforms actually take place, DOE will make only limited progress in achieving meaningful reforms.⁹

Many of the DOE's science programs would be of dubious value even if they were well managed. For example, the DOE:

• allocated $1 million to "begin planning for the marine mammal research and education center at the National Energy Laboratory,"¹⁰ even though marine mammals have little to do with energy research;

• allocated $7 million to West Virginia University and the University of South Carolina "to support the utilization of positron Emission Tomography,"¹¹ but product promotion is not research; and

• allocated $8 million to "Sacramento County as the local redevelopment authority for medical research in conjunction with the University of California, Davis."¹² California is capable of handling its own redevelopment needs without receiving tax dollars from other states.

In 1997, analysts at The Heritage Foundation recommended the elimination of many DOE programs,¹³ which would have saved U.S. taxpayers $2.24 billion in FY 1998 and more than $2.5 billion in FY 1999. Congress should carefully examine the reports by the GAO before finalizing appropriations for these programs.

Recommendation:
Eliminate the Energy Supply Research programs.

Rationale:
The DOE's Energy Supply Research programs, coordinated by the same national laboratories that mismanage the DOE's science and defense research, are fundamentally cost-ineffective. Previous attempts by the federal government to predict the energy market have produced such expensive and well-known failures as the Synthetic Fuels Corporation and the Clinch River Breeder Reactor.¹⁵ In the case of wind power, as analyst Robert Bradley points out in a Cato Institute report on renewable energy R&D,

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.¹⁶

Bradley explains that, although the United States spent nearly a half a billion dollars on the aerospace industry between 1974 and 1992 for wind power R&D, no major U.S. manufacturers were selling commercially proven wind turbines by the mid-1990s.¹⁷

Even so, the DOE continues to fund questionable renewable energy research programs. The Congressional Budget Office (CBO) reported in April 1999,

the Department of Energy (DOE) will spend $336 million on research and development for solar and renewable energy sources [in 1999].... Phasing out the research would save $1.5 billion over the 2000-2004 time frame.¹⁸

The CBO estimates that FY 2000 savings from eliminating this program would equal $202 million,¹⁹ and it is only one of several programs funded by this account. Other examples of questionable energy supply studies funded by the DOE are:

• $1.5 million for the "Million Solar Roof Initiative";²⁰

• $4 million for the "Sacramento Valley Ethanol Project, biofuels research and development project";²¹

• $300,000 for the "Vermont Methane Energy Project, biofuels research and development";²² and

• $4.6 million for "Feedstock development, biofuels research and development."²³

These alternative energy sources consistently have not proved to be viable. As the CBO recently noted,

Federally sponsored researchers lack the complex market feedback that helps researchers in private companies realize when their technologies become too esoteric or expensive for the market...many of these alternative energies are simply not economical.²⁴

POWER MARKETING ADMINISTRATIONS

FY 2000 Outlay Savings:
$110 million.²⁵

Program Description:
The GAO reports that the DOE's power marketing administrations (PMAs)--the Bonneville Power Administration, Southeastern Power Administration, Southwestern Power Administration, and Western Power Administration--primarily market wholesale power in 33 states produced at large multipurpose water projects.²⁶

Recommendation:
Eliminate these programs and privatize their assets.

Rationale:
The federal government is not capable of operating these utilities in an efficient and cost-effective manner. According to the GAO,

divesting the three PMAs and federal power assets would eliminate the government's presence in a commercial activity and, depending on a divestiture's terms and conditions and the price obtained, could produce both a net gain and a future stream of tax payments to the Treasury. Corporatization or divestitures of government assets have been accomplished recently in the United States and also overseas.²⁷

The CBO recently reported that

The organization and financing of federal power operations can make it hard for government managers to function efficiently, even when they are motivated to do so.²⁸

It concludes with the observation that

The government could save money over the long term by selling many of the facilities that it now uses to supply electric power.²⁹

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 taken place around the world since 1988. In the United States, the relatively small Alaskan PMA was sold in 1998 for over $82 million.

There is widespread consensus that privatization would benefit both consumers and the electricity industry. Douglas Houston, professor of business economics at the University of Kansas, estimates that privatizing the Tennessee Valley Authority and the PMAs would generate $15 billion to $30 billion for the U.S. Treasury.³⁰ The OMB estimates that selling the relatively small Southeastern and Southwestern PMAs could generate $1 billion ($500 million each).³¹ 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 fees to various utilities to market power through transmission lines. Southwestern PMA, which accounts for 4 percent of the energy sold in its region, could be sold to regional investor-owned utilities as well.

Congress recognized the duplication of efforts in 1998 when it ended separate funding of ARC Appalachian highway projects and brought them within the jurisdiction of the highway trust fund. By the ARC's own admission, non-highway programs are equally redundant. Its 1993 annual report shows that "other federal funds" made up 28 percent of funding in related projects and that a significant portion of ARC grants were for supplemental grants:

Under this program, the federal share in grant programs may be raised (from the usual 50 percent) to as much as 80 percent of the cost of construction so that the state or community can participate by putting up as little as 20 percent as its matching share.³³

At the same time, communities served by the ARC receive supplemental grants so they can qualify for more federal funding; 9 of the 13 member states cut their taxes by a total of $2.6 billion.³⁴ Even West Virginia, traditionally the poorest state in Appalachia, raised per capita spending by 36.3 percent between 1990 and 1997. There appears to be more than enough state money available to meet local needs.

The GAO also notes that

the use of federally subsidized water to produce federally subsidized crops results in the government paying double subsidies....The Department of the Interior estimated that irrigation subsidies used to produce subsidized crops throughout the 17 western states totaled $203 million in 1986; the Bureau of Reclamation placed the figure at $830 million.³⁷

The GAO's most recent study on water transfers, "Water Markets: Increasing Federal Revenues through Water Transfers," indicates that

Water transfers, in which water rights to use water are bought and sold, are a mechanism for reallocating scarce water resources to new users by allowing those who place the highest economic value on the resource to purchase it. Water transfers are a valuable tool for improving the efficiency of water use and environmental quality and can be a promising way to increase federal revenues.³⁸

Unfortunately, the GAO's study is five years old, and it assumes that the Bureau of Reclamation, rather than the private sector, would market water transfer rights. Congress should direct the GAO to reexamine federal water programs to determine whether it would be practical to establish a separate water utility, similar to PMAs, that then could be privatized.