Restructuring the Department of Energy

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Mr. Chairman and members of the committee, thank you forinviting me to appear here today to offer my views on proposals torestructure the Department of Energy. In brief, I recommend thatthe Congress.

  • Eliminate the U.S. Department of Energy;
  • Create the National Nuclear Weapons Agency (NNWA) under thedirection of a sub-cabinet civilian official to supervise thenuclear weapons program, civilian radioactive waste, and weaponscleanup undertakings. The NNWA should operate as an independentsubcabinet agency under the budget and weapons program review ofthe U.S. Department of Defense (DOD);
  • Renegotiate nuclear weapons cleanup programs assumed by theNNWA to reflect prioritization of containment and neutralization ofrisk rather than removal and return of sites to pristineconditions;
  • Privatize all laboratories managed by DOE save for two of thethree weapons laboratories;
  • Eliminate the direct funding for all research and developmentprograms overseen by DOE;
  • Sell all of the assets held by the Power MarketingAdministrations to the highest bidder;
  • Sell the Strategic Petroleum Reserve, the Naval PetroleumReserve, and all oil shale reserves;
  • Eliminate all energy conservation and renewable fuelsubsidies;
  • Eliminate the Energy Information Administration, the EnergyRegulatory Administration, the Home Weatherization Program, and alluniversity and science education programs managed by DOE.

A back-of-the-envelope calculation finds that the above agendawould, when fully carried out, lead to annual savings ofapproximately $10 billion and a one-time gain of approximately $25billion through asset sales that could be used to reduce thenational debt.

The Department of Energy in Brief

The DOE is a large department by any measure. It employs 20,000federal bureaucrats and has a budget of $17.5 billion per year.Another 150,000 workers are employed at DOE's nationallaboratories, cleanup sites, and other facilities.

The department is actually more of a "bomb factory" thananything else. Fully 67 percent of its budget -- $11.7 billion - -is directed at nuclear weapon or nuclear cleanup activities. Lessthan 17 percent of its budget -- $3.1 billion -- is actuallyrelated to energy activities. The remaining 15 percent of itsbudget -- $2.7 billion -- is devoted to general scientificresearch.

Even so, DOE's management of the power marketingadministrations, uranium enrichment activities, and oil and gasholdings provides total revenues of $5.3 billion to the federalgovernment ($1.5 billion in net "profits"). If DOE's nondefenseactivities were transferred to a private corporation, thatcorporation would number 177 on the Forbes list of the 500 largestcorporations in America.

DOE's current mission statement, drafted during two meetings in1994 involving more than 90 people, is "In partnership withcustomers," to:

  • "contribute to the nation's welfare";
  • "provide technical information & scientific &educational foundation";
  • "achieve efficiency in energy, diversity in energy sources, anda more productive and competitive economy";
  • "improve environmental quality"; and to
  • "secure national defense."

As noted by reporter Timothy Noah of The Wall Street Journal,the above statement "speaks eloquently, if inadvertently, of theagency's peculiarly mismatched goals, many of which overlap withthose of other federal agencies."(1)

It in order to safeguard the future of the nation, this Congressmust cut $200 billion of annual federal appropriations. Whenexamining federal programs for elimination, the most importantquestions that should be asked are, in descending order ofimportance:

  • Is the program in question a constitutional exercise ofgovernment authority?
  • Can the objectives of the program in question be met bynongovernmental entities? In other words, if a particular programwere eliminated, would market actors prove capable of achievingthat program's goals without government assistance?
  • Is the program's original mission obsolete or stillrelevant?
  • Does the program's societal benefits exceed its record ofsocietal costs?

While the latter two questions will be addressed directly foreach program below, the former tests are certainly applicable forthe Department as a whole.

Constitutional Questions

As was the Supreme Court recently affirmed in United States vs.Lopez, the Constitution establishes a federal government ofenumerated and thus limited powers. Nowhere in the Constitution isthe government expressly or even implicitly authorized to "providetechnical information" or to "achieve energy efficiency ordiversity." More generally, as the Lopez decision made clear, theConstitution establishes general federal police power. Apart fromthe explicit power of the federal government over federalterritory, therefore, any police power there may be to regulateenvironmental affairs belongs to the states, as the 10th Amendmentindicates.

A strict and proper reading of the Constitution thus draws intoquestion much of DOE's mission. The traditional arguments used tojustify those undertakings is hardly tenable. The General Welfareclause is not properly construed as allowing government to doanything it likes as long as a majority of Congress thinks it"good." Otherwise, the Founders would hardly have bothered writinga Constitution of enumerated powers in the first place. As Madison,Jefferson, and others made clear, the General Welfare Clause wasmeant to constrain the exercise of enumerated powers, not to beitself the source of some general power to spend for the generalwelfare.(2) The Commerce Clause, likewise, was meant to empower thefederal government to preempt state protectionism and littlemore.(3) The tortured legal acrobatics that were employed to defendthe federal law against firearms in the proximity of local schools(acrobatics that defy common sense even according to the WashingtonPost and were explicitly rejected in Lopez) are no more convincingthan the tortured justification for energy efficiency investments,federal petroleum fields, electricity generations facilities, orresearch and development programs.

Program Necessity

DOE's energy mission is completely unnecessary given that mostof its objectives are not only met in the marketplace but can bebetter met by private parties. Technical, economic, and scientificinformation, for instance, is routinely generated and distributedby private agents (usually far more accurately as well -- recallDOE's estimate in 1980 that oil would cost $41 per barrel in 1979dollars by 1990, more than triple today's price(4)). No one canseriously argue that, were it not for the DOE, the energy industrywould be flying blind in the marketplace. Nor can anyone seriouslyargue that, were it not for government subsidy, privatecorporations would cease to invest in technological research.Market actors also have every incentive to use energy asefficiently as possible -- does anybody seriously contend thatgovernment bureaucrats know better than businessmen or consumershow to do anything more efficiently? The proper mix of energysources is best determined by entrepreneurs directed by marketprices. Government's attempt at "diversifying" energy sources ledit in the past, for example, to ban natural gas for electricitygeneration in 1978 on the theory that it was too scarce (althoughnow it is generally deemed by the very same government to be theenergy choice of the future), the boondoggle Synfuels program, andquixotic advocacy of extremely expensive and operationallyunreliable renewable fuels. Finally, "productive and competitiveeconomies" are the creation of free markets, not governmentbureaucracies, and environmental and defense undertakings are bestmanaged by environmental and/or defense agencies, not energydepartments.

Energy is no different from any other commodity in themarketplace. Energy production and distribution is better directedby market forces than by government planners and bureaucrats. Thereis no more reason for a Department of Energy than there is for aDepartment of Automobiles.

The existence of DOE is generally defended, however, on thegrounds that (1) energy is far too important to the economy not tobe managed somehow by government agents, (2) the Department isnecessary in the event that some new energy crisis were to occur,and (3) that the Department is necessary (in the words of PresidentJimmy Carter), "to alleviate the consequences of the inevitableshortages of oil and gas and other energy supplies."

Regarding the first argument, the more important an industry,the more important it is to keep it in the hands of the freemarket. It is simply unreasonable in light of the economic eventsof the last century to believe that government is better able to"manage" markets than are the millions of individual actors in themarketplace. Moreover, if an industry's importance to the nationwere to qualify it for a seat at the cabinet table, then one couldsimilarly argue that there ought to be a TelecommunicationsDepartment, a Computer Software Department, an EntertainmentDepartment, or a Department of Moral Values.

Popular opinion to the contrary, the impact of energy on theeconomy is generally overstated. Oil purchases, for example,account for only 2 percent of GNP. Recent macroeconomic analysisfinds that the 1974 energy crisis, by means of perspective, onlyled to a 0.35 percent reduction in Gross National Product duringthe recession.(5)

Regarding the second argument, the federal government hasrepeatedly mangled the job of managing energy crisis. For example,the gasoline lines and shortages of 1974 and 1979 were caused notby shortages (global supplies were only reduced by 3 percent and 6percent respectively) but by wage and price controls adopted in1972 and the 1975 Petroleum Allocation Act. When the 1990 Kuwaitcrisis arose, global supplies were initially cut by 5 percent but,without such federal meddling, prices stabilized and no shortagesoccurred.(6)

In the event of a new energy crisis, the Congress would be bestadvised to manage energy supply, demand, and fuel diversity byallowing prices to freely guide the invisible hand of themarketplace. Government planners simply do not have a very goodtrack record when it comes to the centralized allocation ofresources. Indeed, maintaining a cabinet-level energy department isrisky given that it provides a ready structure for thereintroduction of federal energy market interventions and a perfectcommand post for some future "Energy Czar" to once again punishenergy producers and consumers.

Finally, there is no logical reason why increased energyscarcity (note, however, that energy supplies -- whether measuredby proven reserves, ultimately recoverable stock, or by pricetrends -- have been increasing, not decreasing(7)) should lead usto abandon the free market and turn to government resourceplanning. Markets may theoretically fail here or there, but theacademic literature on the subject clearly establishes that marketsexcel at efficiently distributing scarce resources.(8) Thatphenomenon is compounded in the energy market by the existence ofthe OPEC semi-cartel ("semi" because the OPEC cartel is not aparticularly effective monopoly(9)). In OPEC nations, whereproduction costs are far below market price and depletion effectsare small, underexploitation of reserves is the norm given theirdesire to monopolize. Thus, existing energy markets are clearlycharacterized by, if anything, overcompensation -- notundercompensation -- for energy scarcity.

The above views might be rare in Washington, but they areorthodoxy among serious economists in academia. As noted by Dr.Robert Gordon, professor of Mineral Economics at Pennsylvania StateUniversity and recent recipient of the International Association ofEnergy Economists' Outstanding Contributions Award, "the dominanttheme of academic writings is that governments have done more harmthan good in energy," a view "almost universally supported byacademic energy economists, whatever their political outlook."(10)Professor Colin Robinson, the British Institute of Energy Economics"1993 Energy Economist of the Year" and fellow of London'sInstitute of Economic Affairs, likewise observes that "publicchoice theorists and Chicago-school empirical researchers have soclearly demonstrated the serious problems inherent in governmentaction that the traditional deus ex machina case which used to bemade by old- style welfare economists (that government could alwaysbe brought in to set to rights the mess markets were making) issurely untenable."(11) And America's dean of energy economics,Morris Adelman of the Massachusetts Institute of Technology, haslong held that the federal government should get out of the energybusiness.

The Military/Industrial Complex

Nuclear weapons production, maintenance and cleanup programsaccount for the bulk of DOE spending. The former obligation -- $4.5billion annually or 26 percent of the Department's budget -- washistorically separated from the Department of Defense out ofconcern for independent civilian control of nuclear weaponsproduction. The latter obligation -- $7.2 billion annually or 41percent of the entire Department's budget -- largely stemmed fromthe mismanagement of the former. The national laboratories, theprogeny of the Manhattan Project, were originally dedicated tonuclear weapons research, testing, and development, although otherlabs were put into place up until 1977 to specialize in variousresearch and development activities.

Although the stockpile maintenance and cleanup operationscertainly need to be continued, the agency responsible for thoseactivities hardly needs to sit at the President's cabinet table.Nor is it there any compelling reason for those activities to beunder the administrative umbrella of an "energy" department, since"energy" has virtually nothing to do with either administrativefunction.

It makes far more administrative sense for those activities tobe assumed by the Department of Defense. A National Nuclear WeaponsAgency (NNWA) should thus be established under the direction of asub-cabinet civilian official at DOD to supervise the nuclearweapons program and related cleanup undertakings. Theweapons-related activities of Los Alamo, Lawrence Livermore, andSandia should be reduced to reflect post-cold war realities andconsolidated within two of the three aforementioned nationallaboratories and placed under the direction of the NNWA.

Turning the weapons-related programming over to DOD makes sensefor a number of reasons:

  • defense-related activities belong to the agency and budgetresponsible for national defense;
  • submerging those programs in an existing Department helpsprotect against bureaucratic "mission creep" as was the case at theold Atomic Energy Commission, the predecessor to DOE;
  • merging those weapons producers with the weapons customers helpensure coordination of national strategy; and
  • such an administrative structure more honestly tells theAmerican people exactly how much we are paying for our nationaldefense instead of scattering such expenditures throughout thebudget.

Some will undoubtedly decry giving DOD authority over thenuclear weapons program out of concern for civilian control of suchweapons of mass destruction. Yet DOD itself must have a civiliansecretary and the NNWA should likewise be required to have acivilian secretary. Although such concerns are understandable, themilitary is already theoretically capable of marshallingoperational warheads currently in missile silos, nuclearsubmarines, and long range strategic bombers. Compared to thosetools, authority over weapons design, engineering, and stockpilemaintenance seems rather benign.

Environmental Cleanup

Nuclear weapons facilities such as Rocky Flats, Colorado andHanford, Washington, are among the most contaminated environmentalsites in America and are expected to take 30 years or more toremediate. Current cleanup standards negotiated by DOE with stateand local communities establish rigorous protocols based on thefederal Superfund statute that are aimed at returning sites to nearpristine conditions. The U.S. General Accounting Office believesthat "the effort to clean up federal hazardous waste sites islikely to be among the costliest public works projects attempted bygovernment."(12) Estimates of the ultimate cost of such cleanupsvary dramatically, but even the most conservative estimate of $200billion rivals the Savings & Loan bailout. Others peg ultimatecleanup costs as high as $1 trillion.(13)

While cleaning up those sites is certainly a federalresponsibility, there are two fundamental problems with DOE'scleanup effort. First, the Department's environmental remediationprojects are hamstrung by gross administrative inefficiencies.Similar private section remediation projects cost 32 percent lessand 18-50 percent less time to complete, while other governmentagencies undertake equivalent cleanup projects at 15 percent lessthe final costs incurred by DOE.(14) One of the reasons for thecost differential, according to the Congressional Budget Office, isthat "at least 40 percent of the cleanup program's funds aredevoted to administrative and support activities, a level that manyreviewers have considered excessive ... [they] represent aproportion that is significantly higher than the share spent bysome other government agencies that may be forming similartasks."(15)

Second, the cleanup standards adopted by the Department areunachievable and thus inordinantly costly. Although this is widelyunderstood in the scientific community, the point was perhaps bestmade in a report issued three months ago by an advisory boardappointed by DOE to study the National Laboratories:

Probably the most important reason behind the slow pace ofassessment and cleanup is the low quality of science and technologythat is being applied in the field. Many of the methods, such as"pump and treat" for contaminated groundwater remediation, cannotprovide the claimed benefits. There is a lack of realization thatmany -- and most experts believe most -- existing remediationapproaches are doomed to technical failure. Others would requireunacceptable expenditures and much extended time to reach theirstated objectives.(16)

Nuclear weapons cleanup programs assumed by the NNWA should berenegotiated to reflect prioritization of containment andneutralization of risk rather than removal and return of sites topristine conditions. In fact, most of the cost associated with DOEcleanups stems from the fact that an attempt is being made toensure that future residential use of a site like Rocky Flats wouldpose no risk whatsoever. Simply protecting adjacent landowners fromexposure to risks from a site would just as effectively preventhuman health risks and do so in a far less costly manner. Mostenvironmental engineers believe that such a change in cleanupprotocols on federal sites would cut total remediation costs by atleast 50 percent.(17)

The fact of the matter is that current standards for cleanup ofnuclear sites negotiated by DOE are, even is desirable, untenableboth economically and politically. Unless those agreements arerenegotiated, sites will simply remain undealt with given thebudgetary restrictions upon the Congress. Moving to a standard ofrisk neutralization allows far more sites to be cleaned up andcorrespondingly speedier health protection for the generalpublic.

Finally, the director of the NNWA should be empowered tonegotiate pilot remediation programs such as community cleanuppartnerships and dutch auctions with private parties. Such auctionsentail the federal government asking private companies to bid onhow much money the government would have to pay them to assumetitle and liability for contaminated federal land. Companies wouldbase their bids on how cost effectively they could neutralize asite's risk to others, the amount of liability insurance necessaryfor protection in courts, and an appropriate profit margin fortheir efforts. In short, such a system would harness the creativityand inventiveness of the private sector while still holding themliable for harm. Moreover, dutch auctions would, in all likelihood,dramatically speed the cleanup efforts at hundreds of sites.

National Laboratories

DOE maintains 10 major laboratories and 18 minor laboratorieswith a joint annual budget of $6 billion and a 50,000 employeepayroll. Although funded by the federal government, most aremanaged by private corporations or universities. The nationallaboratories today are no longer focussed exclusively on weaponsprogramming, but have instead branched out to includeenvironmental, commercial, and various other research activitiesnow that the cold war is over. For example, 40 years ago, 90percent of Lawrence Livermore's budget was devoted to defenseactivities. Today, only 40 percent of their budget is sotargeted.(18)

The most compelling analysis yet presented regarding thenational laboratories is found in the February, 1995 Galvin Report,the product of a distinguished corporate/academic task forceappointed by the Secretary of Energy. Although the Report was moreinclined to support certain federal research and developmentactivities than was warranted (more on this later), it trumpeted"one critical finding" as "so much more fundamental than weanticipated that we could not in good conscience ignore it. Theprinciple behind that finding is: government ownership andoperation of these laboratories does not work well."(19) Theprescription?

The principle organizational recommendation of this Task Forceis that the laboratories be as close to corporatized as isimaginable. We are convinced that simply fine tuning a policy or amission, a project, or certain administrative functions willproduce minimal benefits at best.(20)

Accordingly, the Congress should turn over each laboratory feesimple to the management agent currently contracted by the federalgovernment to operate the facility. That agent would then retainfull ownership rights to the laboratory and be free to operate itas they wish, contracting with public and private entities in thefree market. The federal government would retain liability over anyenvironmental contamination at the site and would be responsible --through the NNWA -- for remediating any environmental contaminationthat threatened public health. As noted by the Galvin Report:

We suggest that the country must try one or more concepts thatare radically new in order to revitalize the laboratories and toachieve significant improvements. If some parts of a bold solutionwere to prove to be not as beneficial as this Task Force isconfident that they would be, that unto itself should not be amatter of concern. The laboratories and the country would still bebetter off than they otherwise will be from the continuedrepetition of federal governing policies.(21)

Indeed, the bill of particulars presented in the Report are canbe boiled down to the finding that "The national laboratory systemis oversized for its current mission assignments. This appears tobe the result of inefficiencies that stem from the currentmanagement practices of the laboratories and the DOE; excesscapacity in areas associated with nuclear weapons design anddevelopment; and political considerations which have inhibiteddownsizing and laboratory restructuring."(22) The Report furtherremarked that "Numerous instances of poor DOE regulatory andmanagement practices have come to the attention of all members ofthe Task Force during its investigation of the nationallaboratories. The system has been tried long enough; the evidenceis in."(23)

The vision offered for the labs by the Galvin Report makessense. "The government should be the customer of the laboratories,"says the Report. "World-class commercial customers do not telltheir suppliers how to do things. They simply buy a result for agiven price. World-class commercial suppliers are not audited bytheir customers."(24)

Even if the same level of public research and developmentfunding is directed through the labs after privatization, theGalvin Report conservatively estimates that 20 percent of currentexpenditures -- $1.2 billion annually -- could be saved throughreorganization.(25)

The Galvin Report, of course, is not the first such warningabout the deteriorating state of the national labs. A long line ofU.S. General Accounting Office and Congressional Budget Officereports have similarly concluded that the labs are largely aprogram in search of a rationale, having lacked for years acoherent or definable mission and suffering greatly from ineptmanagement from DOE.(26) Even Dr. Eric Bloch, former director ofthe National Science Foundation and currently a fellow at theCouncil on Competitiveness, agrees that, while much of theirresearch is needed, federal ownership of the labs leads tomismanagement, politicization, and scientific atrophy.(27)

Research and Development

DOE is one of the premier research and development agency in thefederal government. Approximately $5.8 billion was spent by the DOEon research and development in 1995: $3.2 billion for "applied"energy supply research and development; $1.4 billion for "basic"science research and development (generally high energy and nuclearphysics), $490 million for energy conservation research anddevelopment; $430 million for fossil energy research anddevelopment; and $288 million for the Clean Coal TechnologyProgram. A large chunk of that funding is appropriated in the formof grants and partnerships with private industry in a wide range ofindustrial areas. Most of it is funnelled through the nationallaboratory system where the actual work is performed.

It should be noted that the Constitution grants Congress thepower to "promote the progress of science and useful arts," butexpressly detailed in Article I, Section 8, the means by which itmay do so -- "by securing for limited times to authors andinventors the exclusive right to their respective writings anddiscoveries."

Nevertheless, over the past four decades the federal governmenthas pored $17 billion into general nondefense nuclear science and$63 billion into general energy research and development.(28)"Priority for federal funding of R&D," observes Dr. MaxineSavitz, "has been given to projects where the risks are so great(but potential awards are so great), the time for commercializationis so long, or potential returns based on present energy price areso low that private investment alone cannot rationally be expectedto be adequate."(29) DOE further justifies those expenditures onthe basis that:

Private firms are finding it increasingly difficult to recouptheir R&D costs by appropriating exclusively to themselves thetrue benefits of the R&D. In today's highly competitive globalmarket, technical secrets are short-lived and too easily stolen,scientists are hired away, and inventions are slightly modified inorder to circumvent intellectual property rights. Morefundamentally, the R&D itself is often too challenging,requiring large interdisciplinary teams of scientists, working yearafter year on expensive and unique laboratory equipment. Finally,the structure of certain industries is often to fragmented, or thefirms to small, to mount the sustained R&D campaign necessaryfor success.(30)

Recently, Energy Secretary Hazel O'Leary has further argued thatfederal energy research and development is crucial for America'sinternational competitiveness. "All of the U.S.'s competitors haveindustrial policies," she told House Appropriations Committee onJanuary 19, 1995. "If the U.S. is to remain competitive, it toomust have an industrial policy. This can be done either through adirect investment policy or a taxing policy ... The government mustaid the private sector in using jointly developed technologies tocapture these markets." After noting that other nations supportenergy research and development, she asked, "Do we permit someother nation to beat us?"(31)

In essence, the charge is that, in the field of research anddevelopment anyway, we find significant, systemic, and fundamentalmarket failure. Although some of the above observations have somemerit, many do not. For example, when markets find that aparticular research activity involves high risk and minimal returndue to low energy prices, the market does not "fail" by notinvesting in the project; it operates rationally. The fact thatemployees are free agents who can sell their services to thehighest or most satisfactory bidder likewise is not a marketfailure. If it were, it would be a wonder that the market couldoperate at all. Complex, long range undertakings are routinelyaccomplished by the private sector in every other industrialendeavor and are certainly not beyond the capability ofuniversities or even Corporate America. Finally, small companies infragmented industries are not necessarily disadvantaged in the racefor new technologies and developments. In fact, most analystsrecognize that it is precisely those firms that produce the mostvaluable new technologies and radical ideas that advance the marchof science. Moreover, joint ventures and industrial researchconsortiums are certainly capable of overcoming the problem whereit might exist.

The proper comparison, however, is not between an imperfectmarket and a theoretically perfect government, since postulatingtextbook perfection on the part of government agents is just asunrealistic as doing so for market actors. The proper comparison isbetween market failure and government failure. And in order tobring the R&D debate back to reality, there are several"government failures" which we might note.

First, many of the imperfections noted by DOE in the privatesector apply as much if not more so to federal R&D. Long termgovernment projects are difficult to sustain politically given theshort time horizons of legislators forced to face constantelections and thus quick results. Government finds that doing evensimple thinks like growing crops and delivering mail a constantchallenge. It's record at accomplishing complex tasks is even morespotty, as the record of NASA, the Strategic Defense Initiative,and various large-scale projects like the Clinch River BreederReactor and the Superconducting Supercollider can attest. Federalemployees and contractors are scarcely the indentured servants DOEimplies are necessary to make a market run efficiently.Governmental undertakings are also plagued by duplication,fragmentation, contradictory efforts, and lack of coordination tosay the least. And finally, the technological "breakthroughs"achieved in any single nation are quickly spread throughout theglobe just as those breakthroughs can quickly be spread from onecorporate competitor to another. "Beating" the Japanese to newsolar technology applications, for example, would mean little whenJapanese industry has demonstrated time and again its ability to befirst in bringing to market technological breakthroughs achievedelsewhere.

Second, private actors are motivated by the pursuit of profitand are thus constantly driven to efficiently meet the demands ofconsumers. Public officials, as noted by nobel laureate JamesBuchanan -- founder of the "public choice" school of politicaleconomics -- are driven by an entirely different set of incentives;budget maximization, expansion of regulatory power, job security,etc.(32) As noted by Milton Friedman, "People who intend to serveonly the public interest are led by an invisible hand to serveprivate interests which was no part of their intention."(33)

This is because government tends to decide which industries,technologies, and projects to support on the basis of political - -not economic or scientific -- considerations. Older, morelabor-intensive companies typically exercise the most clout. Newand growing firms -- the kind that typically produce the mosttechnological breakthroughs -- may be economically strong but areusually politically weak. And as former Senator William Proxmireonce remarked, "Money will go where the political power is. Anyonewho thinks government funds will be allocated to firms according tomerit has not lived or served in Washington very long."(34)

Third, the idea that basic science (supposedly underinvested inby the private sector and corrected by federal appropriations) is amajor catalyst in industrial innovation is simply outdated. Rather,as John Deutch of M.I.T. explains, "The potential contribution ofthe national laboratories to improve the competitiveness of U.S.commercial industry is oversold. The principle barriers toimproving industrial productivity in U.S. industry are not due toour inability to generate new technology, but rather to ourinability to apply existing technology and to produce qualityproducts."(35)

Fourth, as noted by the Galvin Report:

To be effective, near-term R&D work must take place in anenvironment rich in interactions with users and customers.Market-based influence, direction, and control are critical tosuccess ... The more distant the laboratories are from themarketplace, the more remote the likelihood that they will havesomething useful to contribute to such activities."(36)

Clearly, Congressional appropriators or bureaucratic servants,isolated as they are from the marketplace and the incrediblydetailed and varied knowledge held by millions of private agents,are incapable of intelligently directing societalresources.(37)

Finally, the portfolio of federal energy R&D investments isdirected, according to the DOE, at supporting "high-risk,precompetitive research," which results in a "high-risk portfolioof capital investments in the Nation's future."(38) It should notsurprise us when government's "high-risk capital investments" don'tpan out -- they are, after all, risky by definition. Governmentofficials, however, are not as worried about losing the money oftheir stockholders -- taxpayers -- as is Corporate America.

The likelihood of systemic "government" failure in the realm ofenergy research and development is not simply a matter of theory.It is a clear matter of record.

Perhaps the most serious examination of federal R&D programs-- conducted for the Brookings Institution by economists LindaCohen of the University of California at Irvine and Roger Noll ofStanford University -- found that energy R&D has been an abjectfailure and nothing but a pork barrel for political gain. "Theoverriding lesson from the case studies is that the goal ofeconomic efficiency -- to cure market failures in privatelysponsored commercial innovation -- is so severely constrained bypolitical forces that an effective, coherent national commercialR&D program has never been put in place."(39)

Other dispassionate observers note that, despite the occasionalR&D success, DOE energy research expenditures fail to pay forthemselves. Simply put, if the energy research and developmentinvestments made by the DOE were made by a private corporation,that company would have gone bankrupt long ago. Given the dramaticsums invested in energy R&D over the past four decades, thegovernment has little to show for its effort save for light waternuclear reactor technology, and even that breakthrough has yet toshow significant commercial gain. Although a small success here orthere can obviously be demonstrated, the commercial returns on the$80 billion spent in the last 40 years don't even come close tomatching the sums allocated. As the Galvin Commission reported:

The Task Force learned of significant examples oflaboratory-developed technology being usefully transferred intoindustry and of the laboratories providing useful technicalservices to industry. However, the laboratories are not now, norwill they become, cornucopias of relevant technology for a broadrange of industries. A significant fraction of the laboratories'industrial competitiveness activities concern technologies whichare of less than primary importance to their industrialcollaborators and/or which these partners could obtain from othersources. There are only a relatively few instances in which thelaboratories have technology that is vital to industry and that isuniquely available at the laboratories ... [such R&Dinvestments] are unlikely to produce results that will benefiteither the agency's industrial partners or the public in the longrun ... While there are instances of successful "by-product"R&D, the historical evidence demonstrates that such events arestatistically improbable.(40)

Federal energy research and development expenditures should thusbe immediately eliminated. Any research needs the government mighthave to accomplish otherwise constitutional ends -- such as thecleanup of federal facilities -- should be bid out to privatesector entities under the direction of the newly created NationalNuclear Weapons Agency at the Department of Defense.

Power Marketing Administrations

In 1994, DOE sold $2.9 billion worth of electric power, a totalof 8 percent of the nation's annual power production. Thefacilities that generate that power are mostly dams; Hoover, GrandCoulee, and 129 other smaller dams operated by the Army Corps ofEngineers and the Bureau of Reclamation. DOE's five power marketingadministrations -- the agencies that deliver public power wholesale(with the exception of the Bonneville Power Administration, whichalso sells power retail) to publicly owned utilities and ruralpower cooperatives -- are together as large as major private powercompanies. Baltimore Gas and Electric's sales last year, forexample, were $2.8 billion, while Boston Edison's were $1.5billion, about half those of power marketing administrations'.

The PMAs were originally justified on two premises; thatmonopoly electricity corporations would not find enough profit inelectrifying rural America and thus government must step in andprovide the power; and second, that government could provide powercheaper to consumers because it could do so "at cost" withoutworrying about a capital costs or profit margins. The formerpremise is now irrelevant. Rural America is thoroughly electrifiedand would remain so with or without the PMAs. Moreover, 60 percentof rural America is already served by investor-owned utilities.(41)The latter premise was a socialist chimera. Public electricitygeneration has proven to be far more costly than privatepower.(42)

  • The five power marketing administrations overseen by DOE varyin size and significance. Four of them are relatively small and aretargeted for privatization by the Clinton administration:
  • The Alaskan Power Administration (APA) delivers power from onlytwo public power plants with a total capacity of 108 megawatts. APAsupplies 8 percent of the market in the region served with annualpower sales of only $9 million;
  • The Southwestern Power Administration (SWPA) delivers powerfrom 24 public power plants with a total capacity of 2,200megawatts. SWPA supplies 4 percent of the market in the regionserved with annual power sales of $103 million;
  • The Southeastern Power Administration (SEPA) delivers powerfrom 22 public power plants with a total capacity of just over3,000 megawatts. SEPA supplies 2 percent of the market in theregion served with annual power sales of $155 million; and
  • The Western Area Power Administration (WAPA) delivers powerfrom 53 powerplants with a total capacity of over 10,000 megawatts.WAPA supplies 9 percent of the market in the region served withannual power sales of $758 million.

The granddaddy of them all, however, is the Bonneville PowerAdministration (BPA), which delivers energy from 30 public powerplants with a total capacity of 22,000 megawatts. BPA supplies 65percent of the market in the region served with annual power salesof $1.9 billion. The Clinton administration proposes to"corporatize" BPA along the lines of the Tennessee ValleyAuthority.

Defenders of the PMAs claim that they do not cost taxpayersmoney. In fact, they argue that PMAs provide an infusion of cash tothe federal treasury and that any sale of those assets would mean anet loss to the taxpayer. That argument, however, is spurious onseveral grounds. First, PMAs generally operate free of local,state, and federal taxes, and the opportunity cost of maintainingpublic ownership in not figured into the previous calculations.Second, PMAs are not required to amortize their federal loans(received at below market interest rates in the first place at acost of $1.2 billion to the treasury(43)) on schedule and canextend the term of repayment for years. Old debt with very lowinterest rates have thus been kept on the books for decades afterit would have been normally amortized and paid in full by a privatecompany. Third, PMAs sell power from 100 percent to 300 percentbelow the prevailing market price in the regions they serve, andthat lost revenue -- calculated at $2 billion by DOE -- is alsoignored in the above argument.(44) Fourth, the PMAs that report netrevenues due so by not employing generally accepted accountingprinciples to depreciate their property. A brief review by Deloitte& Touche in January 1995 found that WAPA, for example, was notoperating in the black as was claimed but actually lost $250million in 1993 and $130 million in 1992. Finally, a congressionalreport titled "Taking the Taxpayer: Public Subsidies for NaturalResource Development" (known general as the "Miller Report") foundthat PMAs receive certain site-specific benefits and interagencysubsidies that cost the U.S. taxpayer additional money notconsidered by proponents.

All five of the PMAs should be privatized by asset divestitureand sold to the highest bidder by an Asset Privatization WorkingGroup under the management of the Treasury Department.(45) Thedivested assets should include the right to market power producedat federal facilities (without any price constraint) and thegeneration equipment associated with energy production at thosefacilities. The privatization of PMAs should grandfather inexisting operating conditions at hydroelectric generatingfacilities including minimum flows from the dams and provide a"preference" to current customers that relieves them from currentcontract requirements if they so desire. Sale of the four PMAsproposed by the Clinton administration are estimated to bring inbetween $3.4 billion (according to the administration) and $9billion (according to the EOP Group(46)) to the federal treasury,with Bonneville likely to bring in approximately $9billion.(47)

It is occasionally argued that, however attractive selling thePMAs might be, there are no buyers for the administrations, thatsome PMAs like BPA have a negative net value, and no market existsfor most of the public generation facilities that provide thepower. Nothing could be further from the truth. PMAs are commercialbusinesses with marketable assets that could readily be sold. Avariety of investors -- including independent power producers,municipal utilities, investor-owned utilities -- are alreadylobbying for the right to purchase PMA assets, prima facia evidenceof a ready market. If power marketing rights were sold with thesame restriction on wholesale prices, it might indeed be the casethat selling the PMAs would bring in scant revenue to the treasury.Allowing power to be sold at market rates, however, increases thevalue of those assets tremendously. Finally, much of the debt atBonneville is held not by the PMA but by the WPPSS and would notgreatly affect the value of Bonneville's assets.

Although there might not be a market for the largest federaldams, such as Hoover or Grand Coulee (although that remains to beseen), there are more than a hundred smaller dams that would findready buyers. More than 2,000 hydropower facilities are owned bythe private sector (compared to 172 facilities owned by the public)and 56 percent of the nation's hydropower is generated by privatecompanies. Nor are those facilities necessarily small generators.The Conowingo Dam, a 500 megawatt facility in Maryland's SusquhannaRiver, and the Brownlee Dam, a 585 megawatt facility on the SnakeRiver, are both owned by non-federal power companies.

Indeed, current PMA customers complain that the Army Corps ofEngineers and the Bureau of Reclamation are failing to maintainpower facilities or upgrade them. Both organizations are underorders not to expand power facilities so that federal dollars canbe used for other priorities. Sale of those facilities wouldmobilize private capital to fill this need.

The real argument against privatization, however, rests on thecharge that selling public power at market rates would increaseelectricity bills and amount to a "hidden tax increase" onconsumers. But even if true, the removal of a subsidy does notconstitute a tax increase. Moreover, only 6 percent of America'sconsumers receive their power from federal facilities, so thenumber of power customers effected of any rate increase would berather small.

Nonetheless, most retail customers of public power wouldexperience no rate increases. The reason is that, even thoughpublic power is sold to intermediary wholesale purchasers atbetween 1 to 3 cents per kilowatt hour, those wholesalers (ruralelectric cooperatives and municipal utilities) typically resellthat power to their customers at market rates -- 4 to 9 cents perkilowatt hour.(48) In other words, its not the retail customers ofpublic power that receive the public subsidy; its the ruralelectric cooperatives and municipal utilities that receive thepublic windfall. Why those "non-profit" entities choose to mark- uptheir rates so dramatically is unclear. But privatizing the PMAscould easily be absorbed by those public enterprises withouteffecting rates. If rates increase regardless, it would be due tothe inefficiencies of those public enterprises and not the act ofprivatization.

Even if wholesale price increases are passed on directly tocustomers of rural electric cooperatives and municipal utilities,The Edison Electric Institute estimates that rate impacts would berelatively minor:

  • In the Southeastern Public Power Administration, 94 percent ofpublic power customers would experience rates hikes from 0 to 5percent while only 6 percent of the customer base would experiencerate increases of between 5 and 10 percent.
  • In the Southwestern Public Power Administration, 73 percent ofpublic power customers would experience rates hikes from 0 to 5percent; 17 percent would experience rate hikes of between 5 and 10percent; 7 percent would experience rate hikes of between 10 and 20percent; and only 3 percent would experience rate hikes of over 20percent.
  • In the Western Public Power Administration, 90 percent ofpublic power customers would experience rates hikes from 0 to 5percent; 8 percent would experience rate hikes of between 5 and 10percent; and only 2 percent would experience rate hikes of between10 and 20 percent.(49)

Continued subsidy of electricity prices does economic andenvironmental damage to those regions served by PMAs. Energy is butone input in the manufacturing process and, like capital or labor,can be substituted for other inputs. When energy prices are heldartificially low, manufacturers are encouraged to substitute energyfor other manufacturing inputs which can often have the effect ofreducing job opportunities. Moreover, artificially low electricityprices lead to greater electricity consumption than would otherwisebe the case, which correspondingly increases air and wateremissions. Those who highly value energy conservation should alsobe reminded that maintaining energy subsidies is the surest way topromote excessive energy use.

Governments around the world are privatizing government operatedpower systems, including Poland, Hungary, Spain, Italy, Argentina,and Peru. In fact, the United States budgets $400 million annuallyto encourage other countries to adopt market based economicpolicies and to advance the privatization of industrial assets. Itis indeed ironic that the U.S. refuses to take its own advice andhas even made it illegal to study the question of powerprivatization on government time.(50)

Federal Energy Reserves

The federal government maintains a 591 million barrel StrategicPetroleum Reserve (SPR) of unrefined, generally high- sulfur crudeoil in five caverns in Texas and Louisiana and a Naval PetroleumReserve (NPR) consisting of major oil and natural gas fields inBuena Vista, California (the Elk Hills facility), Teapot Dome nearCasper, Wyoming, and Naval Oil Shale Reserve Number 3 near Rifle,Colorado.

The Naval Petroleum Reserve was originally set aside to ensurethe navy a supply of oil as it converted its fleet from coal to oilbefore World War I. The fields went undeveloped through two worldwars. During the energy crises of the 1970s, Congress decided thegovernment should produce oil and gas at those fields and sell themon the commercial market. Today, NPR includes some of the largestoil fields in the lower 48 states, producing about 60,000 barrelsof crude oil a day. Those commercial oil fields are managed by DOEwith contractor support.

The Strategic Petroleum Reserve was established in 1975 to serveas an emergency source of petroleum. The SPR can be released byeither by an administrative finding of a "severe energy supplydisruption" or as a consequence of the mandatory energy-sharingprogram of the International Energy Agency. Although $21 billionhas been spent to build and maintain the stock of unrefined,high-sulfur crude, the SPR has never been used to any significantextent. The SPR had 80 million barrels in the ground during the1979 energy crisis, but there was no drawdown capability at thetime. Although the government had an excellent but rare opportunityto recoup the cost of the reserve in the summer of 1990 during theKuwait crisis, DOE held on to the reserve out of concern that thecrisis could get worse before it got better. By the time pricescame down and stabilized, DOE announced an extremely limitedwithdrawal of oil that was too late to positively affect eithermarkets or consumer confidence.

The high sunken costs for the various SPR facilities will soonincrease even further. The temperature of the sorted crude has beenelevated by geothermal heating and methane contamination from thecavernous salt formations of the storage facilities, makingwithdrawal difficult. Major problems in the nearly 20- year oldmechanical, civil, and electrical systems also require quickattention. DOE conservatively estimates that the cost for those andseveral related problems will total approximately half a billiondollars over the next several years.

The various oil reserves of the federal government should beprivatized immediately. There is simply no reason for the federalgovernment to be owning productive oil or shale fields. Nor can anyStrategic Petroleum Reserve, no matter how large, insulate theUnited States from the effect of international supply disruptions.Selling the SPR would bring anywhere from $7 billion to $10 billionin revenue to the treasury, while sale of the NPR would, accordingto the Office of Management and Budget, bring another $1.6 billioninto the treasury.

Although it often argued that membership in the InternationalEnergy Administration (IEA) precludes selling the SPR, membernations are given the option of securing public or private reservesthat can replace oil imports for 90 days. Private reserves in theUnited States are more than adequate to meet IEA's requirement.Congress would be well advised to withdraw from the IEA in anyevent, but that is another matter outside the immediate topic athand.

The Strategic Petroleum Reserve

First of all, the Strategic Petroleum Reserve is simply notlarge enough to meet America's oil demand even in the short termand could never provide significant help in the (extremelyunlikely) event of wrenching supply disruptions. The effectivewithdraw capacity of the SPR is only about 2 million barrels a day,enough to replace but 25 percent of America's daily oil imports forapproximately 90 days.(51) Happily, however, this will make nodifference for the military in the event of a complete cut-off offoreign oil. Joshua Gotbaum, Assistant Secretary for EconomicSecurity at the Department of Defense, testified before the Senateon March 29, 1995, that the military could fight two major regionalwars nearly simultaneously while using only one-eighth of America'scurrent domestic oil production.(52)

Moreover, most of the SPR is stocked with high-sulfur crude(purchased for political reasons from Mexico) that would be amplyavailable during any OPEC-induced crisis. It's low-sulfur crudethat the U.S. imports from the Persian Gulf and low-sulfur crudecannot easily be substituted for high-sulfur crude without a greatdeal of cost and performance sacrifices. Thus, the SPR would be ofonly limited usefulness in the event of a Persian Gulf crisis.

The SPR is not only incapable of replacing America's foreign oilneeds, it is incapable of dampening price spikes that may resultfrom oil supply disruptions. First, the Congressional Budget Officepoints out that any announced intent to open the Reserve will addto market uncertainty due to inherent delays between such adecision and final sale. After such a tentative decision to releasewas announced in 1990, for example, CBO observes that:

Greater uncertainty caused individuals and businesses to holdonto their [oil stocks] ... and that additional demand for privatestocks raised oil imports and prices -- just the opposite of theoriginal intent of the release."(53)

Second, petroleum is a fungible international commodity. Indeed,Great Britain's "energy independence" was of little help during theenergy crisis of the 70s; domestic price increases were no lesssevere there than in Japan or any other western nation. Oil pricesare heavily influenced by global supply and demand curves, and theSPR is nowhere near large enough to effect international marketsand thus incapable of significantly effecting domestic prices.Economists Chantale LaCasse and Andre Plourde point out that theonly way an economy can be adequately insulated from internationalsupply disruptions is for it and every other country with which ittrades to cease trading with OPEC -- an obviously unlikelyscenario.(54)

According to virtually all observers, oil supply disruptions areless likely now than ever before. Daniel Yergin, President of theCambridge Energy Research Associates and author of The Prize, notesthat "Present circumstances require a balanced perspective. Thereis a much more secure base to the world's energy economy than wasthe case in 1973 and -- under the right conditions -- that basecould well extend in to the end of the century and into thenext."(55)

Likewise, the CBO has found that "Concern over the inability tosecure needed oil during a supply disruption may also be smallertoday. Internationally, the number of oil-exporting nations hasincreased, and the large oil companies have worked to diversifytheir sources of oil. Thus, oil-exporting nations find it moredifficult to cut off supplies totally to individual companies orcountries."(56) Moreover, CBO found that "One of the most importantchanges that affect energy policy is the smaller effect that oilprice shocks have on the economy today compared with thepast."(57)

And as Robert L. Bradley, Jr., president of the Institute forEnergy Research has noted, "While volatility with oil supply andprices can be expected given governmental control over the majorityof world's crude, an energy crisis, defined as prolonged pricespikes with or without physical shortages, cannot be considered alikely scenario."(58)

Support for the SPR is little more than an economic securityblanket for those traumatized by the fear of some dramatic foreignoil squeeze on the United States. Yet short of a seamless navalembargo, no oil boycott could prevent the U.S. from purchasing oilfrom the international marketplace, and no serious energy economistexpects oil prices to ever equal on a sustained basis the price ofputting a barrel of oil -- approximately $45 per barrel -- in theSPR. If one thinks of the SPR as the functional equivalent of aninsurance policy, then the premium on the policy exceeds thebenefits under virtually any imaginable scenario.

Often ignored, however, is that the price spikes experienced in1973, 1979, and 1990 were not caused primarily by international oilshortages. Professor Edward Erickson of North Carolina StateUniversity observes rightly that, "we know full well that the pricespikes that characterized past oil market dislocations were as muchor more demand driven phenomena than they were the effects of anysustained overall supply diminution or uncompensated disruption inthe pattern of world oil flows."(59) Rationing, punishing taxation,trade restrictions, and political embargoes -- not dramatic supplycutbacks by producing nations -- are what caused the priceincreases of those years. As noted earlier, international oilsupply was only reduced by 3 percent in 1974. It was reduced bydouble that amount for a few months in 1990 (not because Saddamrefused to sell the West oil, remember, but because we refused toallow him to do so) but the economic impact was relatively minor.The difference, of course, was that the United States allowedmarkets to work properly 5 years ago, whereas the government'smassive intervention in energy markets 21 years ago magnified theimpact of the disruption and caused massive economicdislocations.

It is important to bear in mind that periodic, politically-caused supply disruptions are not unique to OPEC oil markets. Aspointed out by Professor Richard Gordon:

Supply crisis also have a long history outside OPEC oil --namely draught, flood, and storm damages to crops, coal strikes inthe United States, Britain, and Australia, copper strikes in theUnited States, the effects of oil industry nationalization inMexico and Iran, the 1956 Suez Canal closing, the 1980 Iran-Iraqwar, the civil war in Lebanon (through which oil flows to theMediterranean), the disruption of cobalt supplies from Zaire, andrevolutions in Iraq and Libya. In many of these cases, world supplywas not significantly affected. In the others, only temporary risesin price occurred. Political disruption rarely has long-runeffects. Even short-run damages can be small.(60)

Also forgotten is the fact that, as pointed out by Erickson,"concerns about oil supplies have long captured the attention ofboth analysts and the popular audience while revolutions andcounterrevolutions were quietly sweeping the demand sidemarkets."(61) Those revolutions in the advent of the booming oilfutures market, the present 120 day reserves now maintained bydomestic oil companies (reserves larger than the SPR), andincreasing slack in domestic production. Says Gordon, "It can beargued that the absence of well-organized spot markets andgovernment-produced uncertainties were the key problems during oilcrises up to 1980."(62) Indeed, private stockpiles would be evenlarger were it not for corporate fear of the government's tendencyto impose windfall-profit taxes or price controls when supplydisruptions occur.(63) If business is convinced that they will bepenalized for recouping the cost of their reserves during pricespikes then they will be reluctant to put oil away for use on somefuture "rainy economic day."

Even if needed, it is unlikely that the SPR will ever be usedgiven the government's reluctance to ever pull the trigger andstart crude oil withdrawals. There is always a concern thatpremature draw downs will spook the markets and perhaps deplete a"rainy day" supply that could be more important later if a crisiswere to take a worse turn of events. That reluctance to "pull thetrigger" is an institutional problem that manifested itself duringthe 1990 Kuwait crisis and is likely to prevent the Reserve fromever being used according to many observers and former energyofficials.

The Naval Petroleum Reserve

The Naval Petroleum Reserves don't even pretend to operate for a"rainy day," but instead amount to straightforward federalownership of productive oil and gas lands. There is no economicrationale for such an arrangement; no military need for the fields;and no credibility to the argument that federal ownership of "themeans of production" is superior to private ownership. EvenPresident Clinton concedes the need for selling the NPR. As his FY1995 budget stated (Appendix, p. 406), "producing and selling thisoil is a commercial, not a governmental activity. There is goodreason to believe industry can run Elk Hills quite well since it[private industry] accounts for most U.S. domestic oilproduction."

Many fiscal conservatives have long opposed the sale of the NPR,maintaining that the Reserve's assets are worth more in governmenthands. But the federal government is not producing the assets asaggressively or cutting costs as much as possible, reducing theirvalue compared to what they would be under private ownership. Nordoes the federal government have any business operating strictlycommercial enterprises simply as a means to produce revenue. It isnot empowered Constitutionally to do so and smacks of economicsocialism.

Energy Conservation and Renewable FuelSubsidies

The Department of Energy funds numerous programs that aredesigned to directly and indirectly subsidize the adoption ofenergy efficient technologies and the use of renewable fuels.Favored industries receive federal money for technical assistance,information programs, grants, export subsidies, and demonstrationprojects. More directly, the DOE -- under direction of the 1992Energy Policy Act -- pays utilities 1.5 cents per kilowatt hour forpower generated from solar, wind, geothermal, or biomass conversionfacilities. Those programs should be removed root and branch fromthe federal budget and all enabling legislation amended or repealedas necessary.

Even is one supports energy conservation subsidies, it must berecognized that State public utility commissions already mandateenergy conservation programs and dictate renewable fuel use wherepracticable. In fact, such state subsidies dwarf the less than $2billion spent by the federal government in this area.

That is not to suggest, however, that such subsidies are a goodidea. The massive, 10 year experiment with state mandatory energyconservation programs (termed "demand-side management" or"integrated planning") has proven a multi-billion dollar bust withfew efficiency gains and significant rate increases for electricpower customers.(64) State renewable fuel subsidies and mandates inCalifornia -- the state most aggressive in promoting such programs-- have resulted in electricity rates twice the national averageand have sparked a counterrevolution to free electric powercompanies from monopoly regulation.(65)

In fact, a recent study by Resource Data International preparedfor the Center for Energy and Economic Development calculatesthat:

  • Current policies will only increase the market share ofrenewable fuels from today's 2 percent to 4 percent of the marketby 2010 but at a cost to ratepayers of $52 billion; and
  • Even if the public subsidized 50 percent of the productioncosts, renewable fuels would only comprise 11 percent of the marketby 2010 and cost ratepayers $203 billion in the process.(66)

Decisions about appropriate fuel choices can be best made byexamining prices which, after al

Jerry Taylor

Subcommittee on Government Reform and Oversight
Committee on Government Reform and Oversight
United States House of Representatives