Images de page
PDF
ePub

end of 1985, and—if you accept the argument-that we can save a substantial sum of money.

The second part of the recommendation, however, seems to have a certain inconsistency. In the interests of reducing the deficit the administration recommends that we stop construction of this sitewe are right in the middle of that construction. I can see how we could save money if we were just terminating construction. However, the administration goes on to indicate that construction may

resume.

If it resumes, because of the startup costs, it is going to cost substantially more money than if we just finish the construction of the site.

Therefore, would it not be better to finish the construction of the site while capping the oil for the moment at the end of 1985? Mr. BOGGS. Well, Congressman, with respect to――

Mr. SYNAR. Before you respond to that, I might point out that before the Fossils Fuels Subcommittee, Secretary Herrington, your boss, did commit to finishing Big Hill at some point.

Mr. BOGGS. Well, he has indicated to me that our goal is to be 750 million barrels, depending on conditions; and those conditions, as he indicated, would be reviewed each year.

I think there basically are two aspects. One simply is whether you are counting dollars on an as-spent or discounted basis. I have seen a document that was introduced into the record at that hearing that indicated that one study would show an increased cost of $53 million in dollars of the year spent; but if you discount those dollars at either the OMB 10 percent real or some other reasonable rate, you come up with the fact that the expenditures on a net present value basis are actually less with the delay in time.

Now, we are not doing it for that purpose, but I simply use that to indicate that it is not true that we are necessarily increasing the net present value of those future expenditures. So that even if you assume that we are going to complete in some particular year—as I say, that study was based on 1993-if you do the standard kind of analysis, you find there is really not an increase in discounted cost. Mr. MILLER. I would be interested in seeing that study. I don't think we received it in Beaumont from one of your colleagues. [Information submitted by DOE subsequent to the hearing fol

lows:]

The effect of a SPR construction deferral on the present discounted cost of the future construction program depends on the length of the deferral, as well as the projected nominal cost and the discount rate. The moratorium decision will be reviewed yearly, so its ultimate length is uncertain. For the purpose of illustrating the effect of delay on the present value cost of construction, the figures below were calculated assuming a total deferral of 3 years.

As shown in the table below, a deferral causes the nominal cost of future SPR construction to increase, but actually causes the discounted present value cost to the U.S. to decline. Discounted at 10 percent annually, 1986-1993 SPR construction outlays for capacity expansion from 489 to 750 million barrels without a moratorium come to a present value cost of $399 million. A 3-year deferral of all capacity additions beyond 489 million barrels would reduce construction outlays to a present value cost of $318 million.

Table 1: Annual cost of SPR Expansion to 750 Million Barrels With and Without 3-year Delay (Millions of Dollars)

[blocks in formation]

750 Undelayed

96.0

156.0

91.7

67.6

72.5 64.8

32.7

24.3 25.0

4.0

634.6

Difference in Nominal Cost (Delayed-Undelayed) +40.8

[blocks in formation]

750 Undelayed

84.2

119.1

61.1

39.3

33.1

[blocks in formation]

Difference in Discounted Cost (Delayed-Undelayed) -81.3

a/ 10% real discount rate

Note:

Review since the testimony of March 15, 1985, has permitted reduction of estimated SPR deferral costs to $40.8 million, compared to the $53 million reported earlier.

Mr. MILLER. The assumption was that if indeed construction was resumed, all the costs of shutting down and starting up would add up to a bigger bill. Taken with the commitment to finish this site, that didn't seem to be a good deficit reduction measure.

If you have some information which indicates that we can shut down the site now and resume it at a later point, and without a greatest cost in real terms, I would be very interested in seeing it.

Mr. SYNAR. Mr. Miller, I might point out that the next witness, GAO, will go into this in great detail, on that statement you just made.

Mr. BOGGS. I believe we were partially agreeing in our statements. The statement-the document I saw, which I believe was introduced into the record, showed a $53 million increase in total expenditures, counting them as of the year spent.

The question is, of course, that future dollars, in one sense, may not be worth as much as present dollars. If somebody offers to sell you a house today for $100,000, or 5 years from now for $110,000, you might think the future purchase would be a better deal.

Mr. MILLER. And I understand, based on what you said, Mr. Chairman, and what you said, Mr. Boggs, that the administration is saying that that site eventually will be finished?

Mr. BOGGS. Our intention is to hold it in readiness for recommencement of that fill at such a time as the conditions warrant an extension of fill.

Mr. MILLER. So you may not finish it?

Mr. SYNAR. What does that mean?

Mr. BOGGS. Secretary Herrington said we would reevaluate it each year, and that-

Mr. SYNAR. What Secretary Herrington said, Mr. Boggs, in no mumbo-jumbo terms, is that it is DOE's commitment to finish it at some point down the road; that they will review it on a year-byyear basis. We have had DOE down here before probably three or four subcommittees, and we get a different line. But I am going to go by what the head man down there says, which is they have a commitment to finish that at some point in time. And, therefore, we are not talking about saving money; we are talking about a delay in spending money.

Those numbers that you quote were not available at the Beaumont hearing. They are not available from DOE, but we will be seeking and reviewing those numbers.

Mr. MILLER. I think the issue is that it is obviously important if you are trying to make a judgment whether to support the administration's proposal. I am trying to make that judgment. Obviously, if a decision is made to close it down permanently from a deficit reduction point of view, the argument makes more sense than if you are closing it down with the commitment to start it up again. I recognize you were caught here in a little cross-fire from the chairman and me. But I think you can appreciate that if you are looking at deficit reduction and you are a Member of Congress who wants to vote for that, the exact phrasing of whether you are making a commitment to shut it down or whether you are keeping the option open, or whether you are definitely going to finish construction of this site makes a lot of difference.

Doesn't it?

Mr. BOGGS. Well, I believe that the case can clearly be made for the delay either on a delay basis or on a noncompletion basis. I am sure that we could, if the appropriate submission were made, we could have Secretary Herrington state or restate whatever his testimony was to which the chairman refers.

Mr. SYNAR. The gentleman's time has expired.

Mr. MILLER. Thank you, Mr. Chairman.

Mr. SYNAR. I have a couple brief questions, and then we will move on to the other witnesses.

Mr. Boggs, how much refining capacity would we need to refine SPR oil at a full drawdown distribution rate of 4.5 million barrels per day? Can you tell us that?

Mr. BOGGS. It would obviously depend on what our other consumption was at that time, if you are talking about what the national total would be.

Mr. SYNAR. Explain that. I just need to know how much refining capacity we need to have a drawdown-don't you have estimates on what that would take?

Mr. BOGGS. Well, my initial assumption would be if you drew down 4.5 million barrels of oil, you would need something on the order of 4.5 million barrels of refining capacity. On the one hand, you have the fact of whether you are counting calendar days, stream days, that sort of thing. I could provide you with a specific amount. I had thought you were asking in terms of a national number.

Mr. SYNAR. The point is, we will be refining more oil than just the SPR drawdown at that time, won't we?

Mr. BOGGS. That is correct. That is why I said it depends on what our other level of consumption would be at that time.

Mr. SYNAR. What is today's level of consumption?

Mr. BOGGS. Today's level of consumption for the last 12 monthsthe last 12 months is 15.7 million barrels a day, 15.65.

Mr. SYNAR. What would you need for 4.5 million barrels per day above that?

Mr. BOGGS. Well, you could add it up, but that would assume you were continuing to import all of the crude oil that you were before, which would presumably not be the case; otherwise, you wouldn't be drawing down SPR at its full level.

Mr. SYNAR. So, if-

Mr. BOGGS. The real question would seem to be, do we have enough refining capacity plus the type of imports that we could depend on from areas such as Canada and the Caribbean, depending on your scenario, to provide the American people with approximately the level of consumption that they had before the disruption?

Mr. SYNAR. I think you know what we are trying to get at. We are trying to figure out if we have enough refining capacity, if necessary, to handle the present consumption levels as well as SPR. Can you tell us if we do or we don't?

Mr. BOGGS. I think the basic answer would be yes.

Mr. SYNAR. And what is the number?

Mr. BOGGS. Well, today we have-the first question is, do you wish to assume we can get no product imports from anyplace else in the world?

« PrécédentContinuer »