QUESTIONS SUBMITTED BY SENATOR DECONCINI

Power Marketing Administrations

Mr. DeConcini: What indication do you have that there would be competent private firms ready and able to step in to perform this vital function?

Secretary Herrington: While no specific proposals have been submitted in response to defederalization, I am informed that the Department has received informal inquiries of interest from both the private and public utility sections.

Mr. DeConcini: Under the privatization proposal what would be the fate of the employees who now operate these Power Marketing Administrations?

Mr. Herrington: In developing plans for the sale of PMA's, one of our goals is to recognize and provide appropriate protection for federal employees effected by the

defederalization effort. We intend to keep this goal in the forefront at all times.

Mr. DeConcini: Do you have any studies or other indicators to show that the long range effect would not be a mushrooming of the rate schedules?

Secretary Herrington: The Department is currently beginning its efforts to study PMA defederalization through the process I have mentioned. We have recently assigned staff to this effort. As the defederalization efforts proceed and issues related to sale are identified, objective studies may be undertaken to assist in the decision-making process. At present, we have not performed electric rate studies relating to defederalization effort.

Mr. DeConcini: Under your proposal what will happen to the rates charged to customers for power generated at Federal facilities?

Mr. Herrington: The price of each Power Marketing Administration and the terms for defederalization of each Power Marketing Administration have not yet been determined. The effect on rates charged to the customer cannot be determined until a specific proposal for sale of each Power Marketing Administration is available. One of the primary principles we will be guided by in pursuing defederalization of the Power Marketing Administrations is to recognize the benefits currently enjoyed by existing customers and other interests.

Mr. DeConcini: The Administration has stated that power marketing is "not a proper Federal function". Since marketing of federal power has been ocurring since the inception of large scale hydropower in this country and since Bonneville Power Administration will celebrate its 50th birthday this year, could you please explain to me how you came to this conclusion?

Mr. Herrington: Utilities are not normally a Federal responsibility, and we believe non-Federal owners can operate the Power Marketing Administrations as efficiently, or more efficiently, than the Federal government. The Administration believes the proper responsibilities of the Federal government are to provide for the common defense, conduct foreign policy, administer a system of justice, and provide other services that benefit the nation as a whole. We further believe we need to scale back the role of the Federal Government to those activities that are most appropriately Federal in character. Thus, we can best contribute to the general welfare by allowing regional activities of a commercial business nature to be run by people and institutions within those regions.

Mr. DeConcini: What specific evidence do you have, beyond speculation, that there would be an overall benefit to the American taxpayer from selling the Power Marketing Administrations?

Mr. Herrington: The reduction of the Federal deficit is a high national priority at the present time. The Power Marketing Administrations currently have an unpaid federal investment of 12.7 billion dollars. Although specific sale prices have not yet been determined, it is believed that the sale of the Power Marketing Administations may have a substantial impact on deficit reduction. The President's fiscal year 1987 budget assumes that over the five year period of FY 1987 through FY 1991 the repayment proposal would contribute an additional $741 million to reduction of the deficit. Over the same time period defederalization of the Power Marketing Administrations is projected to contribute $13,879 million toward deficit reduction. This would be partially offset by $1,888 million of future revenues foregone.

Also, we believe that non-Federal organizations will be able to operate the Power Marketing Administrations equally or more efficiently than they have been by the Federal Government, and that regional organizations will be better able to operate the Power facilities of the PMAS in the best interests of their areas.

Solar Power

How

Question: Your budget submittal proposes cutting funds for solar research and development by 50% in the name of deficit reduction, yet your overall request represents an increase! do you justify such a dramatic cut in solar when you are not reducing your overall budget?

Answer: In each of the applied research and development areas, the need to accomplish reduced Federal outlays has prompted us to critically examine every funding proposal. No area of technology has escaped this review process. In the case of renewable energy, the proposed reductions in new budget authority reflect a variety of considerations including the successful completion of previous lines of research, a focussing of public investment in the more basic areas most appropriate to the Federal role in technology research, and tough business

decisions among competing technical priorities. The Departmental request for renewable energy reflects a commitment to sustaining a balanced effort among the renewable energy technology options in a manner which focusses expenditures on the highest priority scientific and technical investigations.

Solar Research

Question: What are your long range plans in the area of solar research?

Answer: For each of the solar programs, a great deal of effort has been expended in developing a consensus between DOE and industry regarding the collective technical priorities of the public and private sector in advancing these technologies towards viability. These priorities are employed by DOE in making its annual budgetary decisions. While various economic factors such as the general health of the economy or the price projections of competing supply technologies, or the annual resources available to either private or public researchers, will effect the timing of technology viability and the pace of progress toward R&D objectives; the priorities remain relatively constant. It remains the Department's view that the solar technologies offer considerable promise for diversification within the energy supply system and for becoming an increasingly important component of the energy supply mix over the long term.

Solar Program

Question: Based upon the level of proposed funding, it looks as though you are eliminating the solar program. Do you intend to phase this program out? If so, do you have a predetermined timetable?

out.

Answer: The solar program is not being eliminated or phased In every area of applied R&D, deficit reduction has prompted us to critically examine all of our solar projects and make tough decisions involving technical priorities. DOE believes that it is important over the long term to supply a mix of technologies to sustain a balanced effort among the renewable energy technology options in a manner which focusses expenditures on the highest priority scientific and technical investigations. At this time it appears that most of these technologies will require further public and private investment in R&D in order to reach viability. The FY 1987 budget request reflects a commitment on our part to fund the more basic and longer term research most suited to public investment and of broader payoff to industry in the longer term. The request will support moving forward in each of the priority areas of each renewable technology and DOE has no specific plan at this time to terminate our funding participation according to a defined timetable.

Privatization of Solar Programs

Question: What evidence, if any, do you have that the private sector is ready to pick up the ball in this area?

Answer: The Renewable Energy industry is comparatively new and is extremely broad in scope ranging from elements of established major industries to more entreprenurial interests dedicated to pursuing individual technologies. Data concerning the specific financial capabilities and intent of individual firms is both proprietary and comparatively sketchy and assessments of industrial capability must therefore represent professional judgements on our part based on our ongoing dialogue with industry counterparts. It is our view that industrial interests will remain involved with solar R&D under the DOE funding requests and that the technical progress which can be accomplished under public and private investment will maintain a competitive domestic industrial base. The financial risk sharing

that could be achieved through cooperative R&D ventures would have a goal of achieving greater private sector R&D support.

Energy Conservation

Question: Your proposal for the Energy Conservation Research and Development program amounts to more than a 75% cut when carryover funds are discounted. Again, how do you justify such a dramatic cut when your overall program is not decreasing?

Answer: Reductions have been taken in Conservation programs and in most other civilian R&D programs such as Nuclear, Renewables, and Fossil Energy. No one program was singled out for budget cuts. Carryover funds should not be discounted because they are included in our planned program level. The reductions in the Conservation programs have been taken across all technologies and end-use sector programs in a balanced way. We will continue to address a balanced portfolio of technologies, using the monies requested for FY87 and funds for which we have requested deferral, while at the same time contributing to the Administration and congressional goal of reducing the Federal budget deficit.

If we are to achieve our overriding goal of deficit reduction we have no choice but to concentrate scarce resources where they will show promise of bringing the greatest benefits, and we have made a careful attempt to do so. We believe that we have made the right choices and that we will have a conservation R&D program that will prove adequate to the task of providing a solid technology base upon which industry can build.

Question: Does a sufficient technology base exist for the development of new products and processes for the commercial market or is there still significant work to be done in this area?

Answer: As an R&D organization, we believe, of course, that there will always be a need for continued technical progress. Therefore, the FY87 budget request for

Conservation research and development will continue a balanced R&D program directed towards longer term, higher payoff efforts to create a baseline of new knowledge and technology to allow the private sector future options for the development and commercialization of new products.

This research will provide a foundation upon which industry can build long into the future. The technology base upon which industry is currently building is constantly evolving, both as a result of our R&D and that of the private sector, and is providing industry with the knowledge necessary for continued improvements.

Question: What will be the impact on the universities and other institutions that have been conducting this research? Are they at a stage where their programs can be curtailed or shut down in an orderly manner?

Answer: Reductions in Conservation R&D budgets will impact all participants in the program. Since most of the university work and that of the National Laboratories has been directed toward more basic research, efforts to target resources towards more generic research should help to mitigate the impact on universities and other institutions. Where programs must be terminated we are attempting to do so in an orderly manner.