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With the proposed increase in FY 85 we expect to double the number of student research appointments and give increased attention to faculty sabbatical appointments. These latter appointments are important to the development of strong and continuing ties with the universities. Both the universities and DOE are involved in the support of these appointments and both benefit from the results.

There has been a growing need for new young talent in many research and energy technology development areas. Our national laboratories provide an unmatched opportunity for young people and the faculty who teach them, to become involved with ongoing research of close interest to the Department. The laboratories have also requested opportunities to increase their interaction with university faculty and students in this area. In addition, in order to continue to attract top quality students a small increase in student stipends will also be provided.

STATEMENT OF HON. DONALD PAUL HODEL, SECRETARY OF ENERGY

PREPARED STATEMENT

Chairman HATFIELD. Mr. Secretary, you may proceed with your state

ment.

Secretary HODEL. Mr. Chairman, I have a prepared statement which I would like to submit for the record, if I may.

Chairman HATFIELD. It will be made part of the record in full. [The statement follows:]

STATEMENT OF DONALD PAUL HODEL

Mr. Chairman and Members of the Committee, I appreciate the opportunity to present you with the FY 1985 budget of the Department of Energy. This budget strongly supports the Department's responsibilities in its three mission areas: Energy, General Science, and National Defense. The budget for energy programs was developed in concert with the fourth National Energy Policy Plan, published in October 1983, and fully supports the goals and strategies set forth in that document. For that reason, a summary of the Plan is a useful way to begin a discussion of the FY 1985 budget.

NATIONAL ENERGY POLICY AND STRATEGIES

The overall goal of national energy policy is to foster an adequate supply of energy at reasonable costs. The policy recognizes that "adequate supply" requires flexibility in the energy system, with no undue reliance on any single source of supply. The goal of "reasonable costs" suggests economic efficiency within the energy system, so that energy consumers; individuals, and commercial and industrial users alike; are not penalized by economic rigidities introduced into the system by ill-advised governmental regulation.

The strategies for achieving this energy policy goal are:

o To minimize Federal control and involvement in energy markets while
maintaining public health and safety and environmental quality.

o To promote a balanced and mixed energy resource system.

The implementation of these strategies is evident in both the Department's legislative program and the FY 1985 budget. Legislatively, the Administration attaches the highest priority to removing controls on wellhead prices of natural gas. The current system of price regulation distorts the allocation of this vital energy source and prevents energy consumers from enjoying the benefits of competition. A second major legislative initiative seeks to reform the nuclear licensing and regulatory process. Nuclear regulatory reform will improve nuclear safety and bring greater rationality, predictability, and stability to the nuclear licensing process. Through these initiatives, two major components of the Nation's energy supply, natural gas and nuclear power, will be free to contribute to the energy economy by not being subject to distortions introduced by unnecessary regulation.

The FY 1985 budget implements the strategy by supporting development of a mix of technologies that can contribute to energy supply and end-use energy efficiency. In allocating our resources, we are concentrating on applying Federal funds only where they are most effective; in sponsoring longer-term, high-risk research and development where the potential payoff is high but which private industry cannot be expected to pursue. The budget continues this Administration's policy against funding commercialization activities which are the proper province of the private sector.

DEPARTMENTAL ORGANIZATION

To further our progress in implementing the National Energy Policy Plan and improve management of our national security programs, I realigned certain management responsibilities within the Department in late January. No functions were eliminated by this reorganization, but our ability to manage certain critical programs was strengthened.

The most significant change involves the transfer of all functions previously under the Assistant Secretary for Environmental Protection, Safety, and Emergency Preparedness to other organizational elements. Emergency preparedness planning and operations are now the responsibility of the Assistant Secretary for International Affairs and Energy Emergencies, reflecting the close

relationship between emergency planning and international energy security. Environmental policy and oversight and responsibilities for nuclear facility and operational safety goes to a new Assistant Secretary for Policy, Safety, and Environment. This ensures closer integration of environmental and safety policy with overall energy policy development and elevates policy development activities to the level of Assistant Secretary. Environmental research and development remain the responsibility of the Director of Energy Research. Management of the Strategic Petroleum Reserve and the Naval Petroleum and Vil Shale Reserves is transferred to the Assistant Secretary for Fossil Energy, thus centralizing the responsibility for all fossil resource management and research and development.

Mr. Jan Mares, who was Assistant Secretary for Fossil Energy and Acting Director of the Office of Policy, Planning, and Analysis, has assumed the new position of Assistant Secretary for Policy, Safety, and Environment. Mr. William Vaughan, formerly the Assistant Secretary for Environmental Protection, Safety, and Emergency Preparedness, has assumed the position of Assistant Secretary for Fossil Energy.

Another element of the reorganization, which I plan to implement upon the nomination and confirmation of a Director of the Office of Civilian Radioactive Waste Management, concerns the Uranium Enrichment program. An Office of Uranium Enrichment will be established reporting to the Secretary, with day-to-day management oversight provided by the Director of the Office of Civilian Radioactive Waste Management. The Office of Uranium Enrichment will be responsible for all enrichment programs except research and development of advanced technologies which will remain in Nuclear Energy. This arrangement should facilitate the business management operations of both the waste and enrichment programs and capitalize on existing expertise available in the Department in dealing with utilities and other outside interests on these important programs. This will also strengthen the opportunity for the Assistant Secretary for Nuclear Energy, Shelby T. Brewer, to focus on the long-term direction of our nuclear energy research and development and to address the problems facing this important energy source.

Other elements of the reorganization include the establishment of a new Deputy Assistant Secretary for Intelligence in the Office of the Assistant Secretary for Defense Programs, and a new Assistant Administrator for Enforcement in the Economic Regulatory Administration to manage the settlement and litigation of alleged violations of oil price controls.

THE CURRENT ENERGY SITUATION

Last year I stated that the Nation faced a more favorable energy situation than at any time in the previous ten years. Oil imports were down significantly, and our dependency on oil from potentially insecure sources had declined as more use was made of imports from Mexico and the North Sea. Conservation was being widely practiced, and we had become much more efficient in using energy. Finally, the mix of energy sources had changed so that most of the growth in energy in that decade had come from coal and nuclear power rather than from oil and natural gas, which had been the norm previously.

Today, that description of a more favorable energy posture remains valid. Our oil demand for 1983 is estimated to have been 15.1 million barrels per day, the lowest annual consumption figure since 1970. It is estimated that net imports in 1983 were about 4.0 million barrels per day, 4.2 million including imports for the Strategic Petroleum Reserve, a very slight decrease from the 1982 level, and less than half the amount we were importing in 1977. Also, we remain much less reliant on imports from the Persian Gulf. Mexico is our largest supplier, and no Persian Gulf exporter is among the top five. Although 1984 may see the first yearly increase in world oil consumption since 1979, the fundamental underlying softness in the oil market is expected to continue. The financial requirements of a number of producing countries, the uncertainties Surrounding the situation in Nigeria, and the continued increase in non-OPEC oil production may create a climate that will make it very difficult for the members of OPEC to stave off further cuts in oil prices.

Another important measure of our energy security is the Strategic Petroleum Reserve, which now contains over 380 million barrels of oil, approximately 90 days of our estimated 1983 net oil imports, and almost 1000 days of our estimated 1983 imports from the Persian Gulf region.

Although the present situation is favorable, we must be prudent in what we do in response to the "breathing room" given us. Even though we are much less dependent on the Middle East for oil than before, the economies of Europe and Japan are still quite vulnerable. This is why we have encouraged those countries to increase their level of emergency preparedness. The international economy is heavily interdependent, and instability in the Middle East producing region could lead to events that could have an effect on their economies as well as ours. The present situation does not call for complacency but for the resolve to take advantage of an opportunity to continue the course for a secure energy future.

BUDGET OVERVIEW

The FY 1985 budget for Department of Energy programs is $15.1 billion, including $1.9 billion in off-budget oil acquisition and transportation funds for the Strategic Petroleum Reserve. The application of prior year balances reduces the need for new budget authority to $14.9 billion. Anticipated outlays in FY 1985 are $13.8 billion, and proprietary receipts collected by the Department are estimated at $2.2 billion.

A new feature of this budget is the savings we anticipate as a result of management initiatives that are being put in place to bring about greater efficiency of operations. Management reform is a priority issue throughout the Federal government. The Office of Management and Budget is directing a six-year management improvement effort entitled Reform 88, which has identified a number of areas where significant gains in governmental efficiency and cost effectiveness can be expected. The President's Private Sector Survey on Cost Control, also known as the Grace Commission, made many specific recommendations for cost savings in its 1983 report. In addition, the Energy Research Advisory Board and the White House Science Council looked at ways to improve the effectiveness of the Department's field offices and laboratories. In response to these various recommendations, the Department is undertaking a number of management initiatives which should result in savings of $47.5 million in FY 1984 and $96.0 million in FY 1985. The attainment of these savings will reduce the need for new budget authority in FY 1985.

The FY 1985 request represents an increase of 19 percent over the amount appropriated in FY 1984 plus proposed supplemental funding requests. This increase results from higher funding levels proposed for the Strategic Petroleum Reserve, Defense Activities, and General Science, which more than offset a decrease in the request for Energy programs.

Energy programs comprise about 26 percent of the Department's FY 1985 budget. In absolute terms, the request for energy programs is about six percent below the FY 1984 level. Within energy research and development, the Basic Energy Sciences program is increased significantly, reflecting the Administration's emphasis on long-term basic research and the availability of important new facilities. Most other major elements of energy research and development show relatively slight changes from FY 1984 appropriation levels, except for Fossil Energy and Solar and Other Renewables, which nonetheless are proposed at levels well in excess of the President's FY 1984 budget request. The FY 1985 budget

for Conservation Research and Development is only $3 million below the FY 1984 Congressional appropriation, but is more than twice the President's FY 1984 request. Fossil Energy is proposed at almost twice the FY 1984 request level, and Solar and Other Renewable Energy programs are increased approximately 87 percent above the previous year's request. These significant changes in our proposed budgets reflect the commitment to support a mix of technologies, which is one of the strategies to achieve our energy policy goal.

A major change in this budget is an initiative to continue funding certain conservation grant programs from sums collected by the Department of Energy as a result of settlements, orders or judgments involving overcharges resulting from alleged petroleum pricing and allocation violations under the Emergency Petroleum Allocation Act of 1973, which are not or cannot reasonably be refunded to injured persons. We will propose legislation to establish a Petroleum Overcharge Restitution Fund which will provide the source of funds for the grant programs. The Fund will be established in a manner that allows for any shortfall in revenues to be made up from the general fund of the Treasury. Whereas in FY 1984 we sought no funding for these programs, the FY 1985 request, assuming enactment of the legislation, totals $238 million, the same as the FY 1984 appropriation.

The Strategic Petroleum Reserve budget of $2,337 million will permit an average annual fill rate of 145,000 barrels per day in FY 1985 and a strong program of facilities development. Under this budget, 482 million barrels of oil should be in storage by the end of 1985, which is about 64 percent of the planned capacity of 750 million barrels.

General Science programs, designed to probe the basic fundamentals of matter and energy, are up about 16 percent over FY 1984, due in large part to increased construction funding for major research facilities.

Defense Activities account for slightly over half of the Department's FY 1985 budget. The request for $7,806 million will permit us to meet the requirements of the Department of Defense for nuclear weapons and special nuclear materials, and to continue the modernization and upgrade of aging facilities.

Finally, supporting activities, primarily accounted for in the Departmental Administration appropriation, decline slightly from FY 1984, primarily as a result of the introduction of improved management practices.

I would now like to discuss the funding requests for selected major programs.

CONSERVATION

The Department's conservation activities include research and development in a variety of technology areas and grants to State and local governments. Within Conservation research and development, program funds support activities in the building and community systems, transportation, and industrial end-use sectors, as well as a broad gauged multi-sector program of basic research and development. The FY 1985 budget provides program funding of $148 million for conservation research and development, which is almost equal to the FY 1984 appropriation and more than twice the FY 1984 request. Building wall and roof systems, indoor air quality, infiltration and ventilation, lighting and retrofit of existing buildings will be primary areas of research activities in the Buildings program. The Transportation program will continue to support private sector efforts to improve the energy efficiency of vehicle systems, with particular emphasis on continued development of the automotive gas turbine and research in adiabatic diesel technology and advanced batteries for electric and hybrid vehicles. The request also provides funds to complete construction of the High Temperature Materials Laboratory.

The Industrial program will continue to provide the technology base to support development of technologies for waste heat recovery and more efficient

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