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ENERGY INDEPENDENCE AUTHORITY ACT OF 1975 HEARINGS BEFORE T H E COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS UNITED STATES SENATE N I N E T Y - F O U R T H CONGRESS SECOND SESSION ON S. 2532 TO E S T A B L I S H T H E ENERGY I N D E P E N D E N C E A U T H O R I T Y , A GOVERNMENT CORPORATION W I T H A U T H O R I T Y TO PROVIDE F I N A N C I N G A N D ECONOMIC A S S I S T A N C E F O R T H O S E SECTORS OF T H E N A T I O N A L ECONOMY W H I C H A R B I M P O R T A N T TO T H E D E V E L O P M E N T O F D O M E S T I C SOURCES A N D T H E CONSERVAT I O N O F ENERGY? A N D T H B A T T A I N M E N T O F E N E R G Y I N D E P E N D E N C E F O R T H E U N I T E D STATES I N A M A N N E R CONSISTE N T W I T H T H E PROTECTION OF T H E ENVIRONMENT; TO I M P R O V E F E D E R A L G O V E R N M E N T O P E R A T I O N S SO A S T O ASSIST I N T H E E X P E D I T I N G OF REGULATORY PROCEDURES W H I C H AFFECT ENERGY DEVELOPMENT; AND FOR OTHER PURPOSES A P R I L 12, 13, A N D 1 4 ; A N D M A Y 10, 1976 P r i n t e d f o r t h e use o f t h e C o m m i t t e e on B a n k i n g , Housing and Urban Affairs U.S. GOVERNMENT PRINTING OFFICE 71-787 WASHINGTON : 1976 C O M M I T T E E ON B A N K I N G , HOUSING A N D U R B A N W I L L I A M PROXMIRE, Wisconsin, Chairman JOHN SPARKMAN, Alabama JOHN TOWER, Texas AFFAIRS HARRISON A. WILLIAMS, JR., New Jersey EDWARD W. BROOKE, Massachusetts THOMAS J. MCINTYRE, New Hampshire BOB PACKWOOD, Oregon 1 ALAN CRANSTON, California JESSE HELMS, North Carolina ADLAI E. STEVENSON, Illinois JAKE GARN, Utah JOSEPH R. BIDEN, Jb., Delaware ROBERT MORGAN, North Carolina K e n n e t h A. McLean, Staff Director Anthony T. C l u f f , Minority Staff .Director Ewnob B. Bachbach, Professional Staff Member , Adrian Gilmobb B r a t , Minority Professional Staff Member (n) CONTENTS Page S. 2532 _ - 35 L I S T OF W I T N E S S E S MONDAY APRIL 12 Nelson A. Rockefeller, Vice President of the U n i t e d States Frank G. Zarb, Administrator, Federal Energy Administration W a l t W . Rostow, professor of economics and history, University of Texas. B a r r y Commoner, director, Center for the Biology of N a t u r a l Systems, Washington University, St. Louis, M o _ TUESDAY, APRIL WEDNESDAY, APRIL 151 157 160 163 285 329 349 353 369 388 413 10 James E. Akins, former U.S. Ambassador to Saudi Arabia M e l v i n A . Conant, international energy consultant, and formerly Assistant Administrator for International Energy Affairs, Federal Energy Administration John H . Lichtblau, executive director, Petroleum I n d u s t r y Research Foundation, Inc Charles T . Maxwell, senior vice president and director, Cyrus J. Lawrence, Inc., New Y o r k M . A. Adelman, professor of economics, Massachusetts Institute of Technology 127 14 Gerald L . Parsky, Assistant Secretary of the Treasury for International Affairs; accompanied b y Peter Borre, and Bruce Pasternack, Federal Energy Administration John D . Harper, chairman, executive committee, A l u m i n u m Co. of America Peter G. Peterson, chairman of the board, Lehman Brothers, New York— R a l p h Nader, Corporate Accountability Research Group, Washington, D.C., accompanied b y Garry DeLoss . TJ M u r r a y L . Weidenbaum, Center for the Study of American Business, Washington University, St. Louis, M o Robert R . Nathan, Robert R . Nathan Associates, Inc. Washington, D . C._ (tn) 91 13 Monte Canfield, Jr. Director, Office of Special Programs, General Accounting Office; accompanied b y John Sprague, Associate Director; R a l p h Carlone: and Charles Adams Andrew J. Biemiller, director, Department of Legislation, A F L - C I O ; accompanied b y Frank Polero and R a y Dennison Russell J. Cameron, chairman of the board, Cameron Engineers, Denver, Colo ... John W . Simpson, chairman, Atomic Industrial Forum, Pittsburgh, P a , Joe B. Browder, Environmental Policy Center, Washington, D . C Joseph H . Cury, Consumer Power, Jacksonville, F l a . MONDAY, M A Y 2 9 88 436 441 445 453 460 IV ADDITIONAL STATEMENTS AND DATA A F L - C I O , speech of Lane K i r k l a n d , secretary-treasurer to the I n d u s t r i a l UnionJDepartment Conference on Energy AmericanlPetroleum Institute, statement received for the record EdisonJElectric Institute, statement for the record Environmental Policy I n s t i t u t e : Paper t i t l e d " T h e Need for Energy Facility Sites i n the U n i t e d States, 1975-85 and 1985-2000": Introduction Part One: Energy projections and the need for new facilities: Projections of energy demand Analysis of electric energy demand forecasts Electric generating facility projections Potential improvements i n electric generating efficiencies Part T w o : The need for electric generating facility sites: Analysis of project independence estimates for 1985 Electric generating facility siting needs beyond 1985 State facility siting projections Appendices: A . T h e need for new oil refineries B . The need for synthetic fuel facilities C. Planned generating facility additions D . F E A estimates of needed new facilities E . Electric generating facility construction and electric energy demand: July 1974-December 1974 F. Reasons for delay i n power plant development R e p r i n t of report b y Bob Alvarez t i t l e d " W a t e r for I n d u s t r y i n the Upper Missouri K i v e r Basin": Introduction W a t e r situation Development i n M o n t a n a Development i n W y o m i n g Development i n South D a k o t a Development i n N o r t h D a k o t a Development i n Nebr ska I n d i a n water rights Legal issues Federal law Recent Federal actions Water diversion schemes U p p e r Missouri Basin map E n d notesi Supplementary references — Capital costs and Alternatives to increased electric generating reservesFreeman, S. David, staff counsel, Senate Commerce Committee, statement i n response t o committee's i n v i t a t i o n ,—.—Friedman, Ralph, letter to Senator P r o x m i r e relative to remarks of Charles M a x w e l l General Accounting Office: Comments on S. 2532 Sampler of legislative initiatives L i b e r t y Lobby, statement of Robert M . Bartnell, public relations consultant. Newspaper and magazine articles: Columbia Journal Review, t i t l e d "Boosters i n the Newsroom: T h e Jacksonville Case" R o l l i n g Stone, t i t l e d "Tales of Jacksonville" _ W a l l Street Journal, t i t l e d " M r . Ford's $100 Billion E l e p h a n t " — Washington Star, t i t l e d " H o w Rockefeller's Midas-Touch T r i c k W e n t Sour.-— . — 3 U.S. News and W o r l d Report, t i t l e d " A C i t y T h a t Reached for Riches and Got Headaches Instead" Offshore Power Systems, A . P. Zechella, president, letter enclosing response t o allegations at hearing 151 430 432 209 213 217 229 233 239 251 255 257 258 259 263 264 265 173 174 175 176 179 180 182 183 185 189 190 192 195 196 200 422 483 138 137 429 298 291 377 7 9 287 322 V U n i o n Oil Co. of California, statement of John M . Hopkins, acting president, U n i o n Synthetic Fuels D i v i s i o n Weidenbaum, M u r r a y L., director, Center for the Study of American Business, Washington U n i v e r s i t y at St. Louis, M o . , reprints of papers titled: Analysis of Proposed Government Credit Subsidies for Energy Development The Case Against an Energy Independence A u t h o r i t y CHARTS AND 397 394 TABLES Capital p r o d u c t i v i t y of alternative energy sources Comparable investment costs per barrel per day (or equivalent) for the development of selected fuel sources Contributions t o Americans for Energy Independence E n v i r o n m e n t a l Policy I n s t i t u t e , illustrations and statistical tables accompanying s u b m i t t e d statement: T o t a l e n e r g y / G N P r a t i o : 1935-75 T h e r m a l efficiency of large steamplants: 1920-75 Survey of projected t o t a l energy g r o w t h rates: 1973-2000 Survey of projected electric energy consumption: 1973-2000 Comparison of F E A energy projections w i t h range of other forecasts surveyed Parameters of F E A ' s economic forecast for 1985 Rates of g r o w t h and factors of increase for F E A energy projections t o 1985 Rates of g r o w t h and factors of increase for A E C / L M F B R energy projections to 2000 Population parameters for energy projections Comparison of electric energy production and thermal energy losses: 1973-2000 F E A projections of needed electric generating facilities Requirements of additional electric generating facilities based on F E A ' s projected needs to 1985 Electrical capacity projections Electric generation p l a n t requirements Estimated number of new facilities required to meet energy demand increases over 1972 A d d i t i o n a l new capacity needed for 1985 A d d i t i o n a l generating units/sites needed Planned electric generating units b y size A d d i t i o n a l generating units/sites needed: Adjusted for u n i t size and units under construction Summary of powerplant siting needs: 1975-85 System reserve m a r g i n as a function of the number of identical units-_ State f a c i l i t y siting laws and anticipated siting problems I m p a c t on credit markets of Federal and federally assisted programs M a j o r Federal credit programs, fiscal year 1974 M a p of U p p e r Missouri Basin Public nuclear acceptance campaign, preliminary organization plan Sampler of legislative initiatives 426 110 459 274 223 224 215 216 216 218 219 220 221 226 230 231 240 240 241 242 243 244 245 249 252 256 408 405 195 273 137 ENERGY INDEPENDENCE AUTHORITY ACT OF 1975 M O N D A Y , A P R I L 12, 1976 U . S . SENATE, C O M M I T T E E ON B A N K I N G , H O U S I N G , A N D U R B A N A F F A I R S , Washington, D.C. The committee met at 9:40 a.m., pursuant to call, i n room 5302, Dirksen Senate Office B u i l d i n g , Senator W i l l i a m Proxmire (chairman of the committee) presiding. Present: Senators Proxmire, Stevenson, Packwood, and Garn. OPENING STATEMENT OP CHAIRMAN PROXMIRE The CHAIRMAN. The committee w i l l come to order. This morning the committee begins 3 days of hearings on S. 2532, the Energy Independence A u t h o r i t y Act. This b i l l would create an independent government corporation authorized to invest $100 billion over the next 7 years i n energy projects to make the U n i t e d States more or less independent of energy imports by the middle of the 1980's. Under the proposed legislation a number of different types of Federal financial assistance would be provided for a wide range of energy projects, including both new and conventional technologies. We have w i t h us today Hon. Nelson A . Rockefeller, Vice President of the U n i t e d States, the chief architect of the Energy Independence A u t h o r i t y proposal. Accompanying h i m is F r a n k Zarb, Administrator of the Federal Energy Administration. A f t e r the Vice President and M r . Zarb are finished we w i l l hear two distinguished academics discuss the issues underlying the legislation f r o m opposing viewpoints, W a l t W . Rostow, University of Texas; and B a r r y Commoner of Washington University i n St. Louis. I n the f o l l o w i n g 2 days we w i l l have before us a number of w i t nesses who w i l l speak to us about the various aspects of the legislation, including the potential impact on the environment and on capital markets. The Energy Independence A u t h o r i t y proposal is the major initiative undertaken by the administration to address the serious problem of meeting our Nation's energy needs i n the coming years and decades. There is no doubt that we need to confront this problem and we need to confront i t now while there's still time to evaluate our options. [Copy of S. 2532 may be found beginning at p. 35.] I want to congratulate you, M r . Vice President, on taki n g this initiative. I t h i n k although I have very serious reservations about this proposal as I w i l l develop as we go along i n the questioning part of our discussion this morning, I do t h i n k that you (1) 2 performed a great national service i n b r i n g i n g this to the attention of the country and t o the attention of the Congress and challenging us to come up, i f not w i t h this, w i t h something t h a t w o u l d be as effective as this w o u l d be. I n a l l frankness, I must say I am skeptical however about this particular proposal. I question the wisdom of c o m m i t t i n g the - Federal Government t o $100 b i l l i o n i n off-budget spending f o r risky'energy projects t h a t cannot get financing i n the p r i v a t e market. I t seems to me that the market is the best indicator of whether a project is a good t h i n g to invest i n or not. I f the Federal Government steps in. and finances h i g h cost projects t h a t the p r i v a t e market won't touch we could end up w i t h a lot of white elephants on our hands, the way I t h i n k we would have done on a much smaller scale i f we h a d funded the S S T and w h i l e b l u n d e r i n g i n t o the Lockheed loan guarantee. The proportions of this is t h i s is the equivalent o f 400 Lockheed loan guarantees, $100 b i l l i o n , and of course one of the p r i n c i p a l instruments of financing t h i s could be by loan guarantee, but this has an effective l i f e about 7 years d u r i n g w h i c h commitments w o u l d be made. T h i s w o u l d mean we w o u l d have a loan guarantee every week f o r 7 years of $250 m i l l i o n . N o w I also have problems w i t h the way the legislation is d r a w n up. I t ' s basically a $100 b i l l i o n blank check. The b i l l w o u l d allow the Energy Independence A u t h o r i t y to f u n d almost any type of energy project, give any k i n d of financial assistance short of direct grants, i n c l u d i n g common stock investments, price support guarantees, w i t h very few conditions, no cost-benefit analysis, and no effective congressional oversight. M r . Vice President, I hope you can explain to us w h y this isn't just another A l b a n y M a l l on a $100 b i l l i o n scale. STATEMENT OF NELSON A. BOCKFELLER, VICE PRESIDENT OF THE UNITED STATES Vice President R O C K E F E L L E R . M r . Chairman, distinguished gentlemen, I am very grateful f o r this o p p o r t u n i t y to appear before your committee. I t h i n k perhaps I would do better going t h r o u g h the prepared text first and then come to some of the very provocative statements or questions to which you wish to get an answer. So perhaps I w i l l just go t h r o u g h this to give i t a backdrop and then make a few comments on the questions before M r . Zarb gives his testimony. I appreciate this o p p o r t u n i t y to j o i n w i t h you to discuss the most challenging problem of a challenging era—the energy crisis. F i r s t , I would like to ask, and then answer, the f o l l o w i n g questions: (1) I s there really an energy crisis? (2) W h a t happens i f we just continue as is—to depend on increasing foreign imports to meet our Nation's g r o w i n g energy needs? (3) D o we, as a nation, have the resources and capacity to achieve energy independence? (4) W h a t does i t take to do it? (5) W h y does government have to get i n t o i t ? — W h y isn't private enterprise doing it? (6) H o w can government play an appropriate role i n achieving energy independence w i t h o u t subsidizing private interests, or w i t h o u t i n t e r f e r i n g w i t h the free enterprise system ? (7) I f the answer to getting us off dead center is an E n e r g y Independence A u t h o r i t y , as provided f o r i n Senate b i l l 2532, how w o u l d i t work? (8) W i t h an all-out national effort, how fast can we expect to achieve the goal of energy independence ? 3 I . I S T H E R E R E A L L Y A N ENERGY CRISIS? U n f o r t u n a t e l y , m a n y A m e r i c a n s do n o t believe t h e energy crisis is r e a l because t h e r e is no t a n g i b l e evidence o f i t . T h e r e is gas i n t h e p u m p s a n d t h e l i g h t s go o n w h e n t h e y flip t h e s w i t c h . T h e y recogn i z e d i t 2 y 2 years ago d u r i n g t h e A r a b o i l embargo w h e n t h e lines f o r m e d a t t h e service stations. B u t there are no lines n o w because we are i m p o r t i n g 40 percent o f t h e o i l consumed i n t h i s N a t i o n . I n 1960, we received 18 percent o f o u r o i l f r o m f o r e i g n sources. D u r i n g 1 week last m o n t h , o u r f o r e i g n o i l i m p o r t s reached m o r e t h a n 50 percent o f o u r t o t a l consumption. E v e n m o r e a l a r m i n g is t h e f a c t t h a t t h e p r o p o r t i o n o f o u r i m p o r t s w h i c h comes f r o m unstable M i d e a s t sources is r i s i n g faster t h a n the g r o w t h rate o f o u r i m p o r t s as a whole. W h i l e i m p o r t s rise, domestic p r o d u c t i o n i n b o t h o i l a n d n a t u r a l gas is d e c l i n i n g . T h e N o r t h e a s t e r n p a r t o f t h i s c o u n t r y i s n o w dependent u p o n f o r e i g n sources f o r 75 percent o f i t s oil. I f t h i s s u p p l y were suddenly cut off, t h e r e w o u l d be social a n d economic chaos. S h o u l d we have another embargo, the economy o f t h i s count r y w o u l d be shattered. T o d a y ' s energy s i t u a t i o n is, i n m y j u d g m e n t , a clear d e f i n i t i o n o f a crisis. I I . W H A T H A P P E N S I F W E J U S T C O N T I N U E AS I S — T O D E P E N D O N I N C R E A S I N G F O R E I G N IMPORTS TO M E E T OUR N A T I O N ' S NEEDS? Between n o w a n d 1985, o u r energy needs w i l l g r o w b y 36 percent. I f we continue o u r c u r r e n t course, a n d continue t o regulate o i l a n d n a t u r a l gas prices at c u r r e n t levels, i f we do n o t develop o u r c u r r e n t reserves, i f we f a i l t o increase the g e n e r a t i n g capacity o f nuclear plants, i f we do n o t adopt a s t r o n g p r o g r a m o f conservation, a n d i f we f a i l to commercialize new sources o f energy, such as gas a n d o i l f r o m coal a n d shale, we w i l l be i m p o r t i n g between 50 a n d 60 percent o f our o i l i n 1985. A n d i t w i l l cost us i n f o r e i g n exchange n o t $30 b i l l i o n , as i t w i l l t h i s year, b u t $50 b i l l i p n b y 1985. I t i s obvious w h a t a t h r e a t o f an embargo w o u l d do t o o u r n a t i o n a l security a n d defense capabilities u n d e r such circumstances as w e l l as t o o u r capacity t o meet o u r responsibilities t o the other nations o f the free w o r l d w h o , w i t h o u t our p r o t e c t i o n , w o u l d be equally vulnerable. I am hesitant even t o speculate on t h e k i n d s o f economic, p o l i t i c a l , and m i l i t a r y pressures t h a t c o u l d be imposed o n t h i s N a t i o n i f w e continued t o be more t h a n 50 percent r e l i a n t on f o r e i g n sourqes. W i t h such a l a r g e a m o u n t o f the o i l c o m i n g f r o m one area o f t h e w o r l d , t h e s u p p l y lines p r o v i d e a t e m p t i n g o p p o r t u n i t y f o r t h e Soviet U n i o n , w i t h its g r o w i n g sea power, t o d i s r u p t the t r a n s p o r t on the h i g h seas. B u t there are other serious consequences t h a t c o u l d result. T h e continued dependence u p o n f o r e i g n sources o f o i l c o u l d cause us t o lose c r e d i b i l i t y w i t h o u r allies. T h e y w o u l d be j u s t i f i e d i n a s k i n g w h e t h e r or n o t we w o u l d s u p p o r t t h e i r interests against those o f o u r o i l suppliers. O u r c o n t i n u i n g dependence o n i m p o r t e d o i l threatens o u r a b i l i t y t o m a i n t a i n our, leadership i n t h e free w o r l d , o u r economic w e l l - b e i n g a n d our n a t i o n a l security. N o w , let's l o o k a t w h a t happens t o o u r economy, i f we continue a l o n g o u r present p a t h o f d e p e n d i n g on increasing f o r e i g n i m p o r t s 4 to meet our Nation's g r o w i n g energy needs. I n 1973, we were spendi n g $4.3 b i l l i o n annually f o r f o r e i g n oil. A n d i n 1976 we w i l l spend $30 billion. W e now export $22 b i l l i o n i n a g r i c u l t u r a l products— w h i c h is u p f r o m $8 b i l l i o n i n 1973. Were i t not f o r the sale of these f a r m products and the sale of $10 b i l l i o n w o r t h of arms, we w o u l d not have maintained our balance of payments. O n the other hand, i f we just continue on the present course, we w i l l be spending up t o $50 b i l l i o n overseas f o r imported o i l to meet the g r o w t h i n our domestic needs. O n the other hand, i f we were to spend the $30 b i l l i o n at home, i t w o u l d provide jobs f o r at least 1,200,000 people. A n d , by 1985, $50 b i l l i o n spent at home to produce our energy requirements domestically w o u l d produce close to 2 m i l l i o n jobs f o r American workers. I f we don't follow this course, at some point, the economics of business w i l l compel i n d u s t r i a l concerns to locate t h e i r facilities i n close p r o x i m i t y to energy sources abroad, rather t h a n to their markets and customers at home. T h i s w o u l d mean an additional loss of jobs i n this country and w o u l d be detrimental to the v i t a l i t y of the entire A m e r i c a n economy. A s energy costs rise due to the a r b i t r a r y action of the O P E C cartel over w h i c h we have no control, inflationary pressures are placed on our economy. W h e n this occurs, there is a tendency f o r government to enact policy w h i c h inhibits economic growth. T o continue along our present p a t h spells economic, social and p o l i t i c a l chaos. I I I . DO W E AS A N A T I O N H A V E T H E RESOURCES A N D C A P A C I T Y TO ACHIEVE ENERGY INDEPENDENCE? The answer is yes. W e are extremely fortunate as a nation to have vast reserves of resources t h a t can be converted i n t o energy. The N o r t h Slope of Alaska w i l l make available significant amounts of o i l and n a t u r a l gas. A n d we have k n o w n reserves of coal t h a t w i l l last us f o r at least 100 years. I t is estimated t h a t our shale o i l reserves are equivalent to f o u r t o five times the t o t a l amount of k n o w n o i l reserves i n the M i d d l e East. The potential resources on the Outer Continental Shelf are expected to be substantial. W e have the technology and a b i l i t y to more than t r i p l e the generation of nuclear power w i t h appropriate safeguards by 1985. W e have, i n this count r y , potential energy f r o m geothermal, solar, and other sources. A l l of these can replace our d w i n d l i n g present domestic supply of natur a l gas and o i l — i n a way that protects our environment. T o achieve energy independence i n this century, we must develop and construct the facilities necessary to exploit these new sources and we have already lost 2 years i n getting started. I V . W H A T DOES I T T A K E TO DO I T ? T o achieve energy self-sufficiency we must, i n the short term, face up to the issues that confront this Congress and the American people. W e must enact and employ conservation measures. W e must deregulate the prices of domestic o i l and gas. W e must assure t h a t 5 we do not unduly impede the development of nuclear power. A n d we must assure t h a t our environment is protected, b u t t h a t the policies we adopt i n doing so do not deter the development of our resources, such as coal, o i l shale, and offshore o i l reserves. There is no problem i n achieving both goals i f we a l l work together. M o d e r n science and technology can assure the achievement of both goals together. According to Federal Energy A d m i n i s t r a t i o n estimates, i f we take a l l the necessary actions i n the next 10 years we can reduce our energy needs by 5 percent through conservation, increase domestic o i l production by 50 percent, increase coal production by 100 percent, increase n a t u r a l gas production by 10 percent, and increase nuclear power generation by 300 percent. This w i l l require, among other things, deregulation of o i l and gas, strong conservation measures, and $600 b i l l i o n to $800 b i l l i o n i n private sector investment i n domestic energy production and conservation. W e must restore existi n g and construct new transportation systems where necessary. I n the longer term, we must commercialize known technology f o r the gasification and liquefaction of coal. A n d , as new technologies become known f o r the development of such energy sources as solar, geothermal, and urban wastes, they can be applied commercially. Energy independence can be achieved f r o m the application of a l l of these approaches before the end of the cent u r y i f we have an all-out national commitment. V. W H Y DOES G O V E R N M E N T H A V E TO GET I N T O IT? W h y isn't private enterprise doing it? Energy independence is a national objective t h a t is essential to the economic and strategic well-being o f this Nation. Private enterprise alone cannot and w i l l not do it. There is ample precedent f o r positive Government action to encourage the American enterprise system i n achieving national objectives that contribute to economic growth, the well-being of our people, and our national security. W e have a transcontinental railroad system because the Government provided the land. W e have a uniquely productive free enterprise agricultural system because of assistance by the Government through the Homestead A c t , land grant colleges, the Extension Service, and the Federal A g r i c u l t u r a l Credit System. O u r civilian aviation industry evolved f r o m the research and development of m i l i t a r y aircraft. Because of the billions of dollars spent on our highway system by a l l levels of Government, we have a prosperous automotive industry w h i c h is basic to our economy. A l l of these are examples of the partnership between Government and industry to achieve an essential national goal which was not attainable by either acting alone. I n the case of energy, we have the raw materials to achieve selfsufficiency. However, the normal functioning of our economy w i l l not, because of the uncertainty of the risks involved, produce the capital investment required t o f u l l y develop these resources w i t h i n a reasonable period of time. P r i v a t e capital sources are—for good reason—reluctant to make capital available f o r domestic energy production projects because of the uncertainty of Government regulation, 6 cost and prices. F o r example, the development of a single coal gasification p l a n t w o u l d require a capital investment o f u p t o $1 b i l l i o n and take approximately 6 to 10 years t o construct. Because of the uncertainties of the technology and price and the long leadtimes, such a project has more t h a n just the o r d i n a r y risk. M a n y projects, such as floating nuclear powerplants, r a i l r o a d reconstruction, or large pipelines, are of such size and scope t h a t financing f r o m the private sector alone may not be adequate. Because the electrical u t i l ities have not been able t o raise the financing necessary to construct them, 92 nuclear powerplants have been cancelled or postponed, i n large part, They now take 10 or more years to b u i l d , cost approximately $1 b i l l i o n , and the State regulatory bodies w i l l not give a rate increase t o finance them u n t i l the power f r o m the new p l a n t comes on l i n e ; thus, their i n a b i l i t y to get private financing. T h i s is not t o suggest t h a t these projects are destined t o lose money. I t only points out the uncertainties t h a t deter private sector investment. W e are not i n a position to w a i t u n t i l these uncertainties become certainties. The longer we w a i t , the f u r t h e r into the f u t u r e we push the day when these projects w i l l add to our domestic energy production. V I . H O W C A N G O V E R N M E N T P L A Y A N APPROPRIATE ROLE W I T H O U T D I Z I N G P R I V A T E I N T E R E S T , OR W I T H O U T I N T E R F E R I N G W I T H T H E ENTERPRISE SUBSIFREE SYSTEM? Government has t r a d i t i o n a l l y played a role of p r o v i d i n g incentives i n one f o r m or another to assure t h a t adequate capital is available to the private sector i n achieving national objectives. I n this case, the Government's role w o u l d be to provide up to a t o t a l o f $100 b i l l i o n of risk capital f o r energy projects essential to energy independence w h i c h cannot get the necessary amount o f private financing. The Gotferhmeni loans w o u l d be on terms comparable t o those offered by the private sector. I n financing the development of energy resources, the Goveriiment p r o g r a m should function l i k e an investment bank or other private sector financing agency—providing assistance to p r d m i s i h g projects, b u t on a self-liquidating basis. T h i s would provide ^ an ^appropriate Government/private sector partnership w h i c h w o u l d ?work together to get this country off dead center i n achieving energy independence w i t h o u t a giveaway or subsidy. The legislation stipulates t h a t the private sector w o u l d own and operate productive facilities and not the Government. The A m e r i c a n enterprise system has shown itself t o be the most efficient and capable producer i n the world. B y p r o v i d i n g financial assistance to take those risks w h i c h aire beyond the capacity of the private sector, the Government would act as a catalyst i n getting the energy independence program into motion. B u t after costs ;were determined and market prices established, then the competitive nature of our system w o u l d provide the incentives necessary f o r the successful achievement of our energy independence goals. 7 V I I . I F T H E A N S W E R TO G E T T I N G U S OFF DEAD CENTER I S A N E N E R G Y I N D E P E N D E N C E A U T H O R I T Y , AS PROVIDED FOR I N S E N A T E B I L L 2 5 3 2 , H O W WOULD I T WORK? The Energy Independence A u t h o r i t y would have a u t h o r i t y to provide up to $100 b i l l i o n of financial assistance f o r energy projects w h i c h could not otherwise secure financing f r o m private sector sources. This sum w o u l d be raised t h r o u g h the sale to the Treasury of up to $25 b i l l i o n i n equity securities and the issuance of u p to $75 b i l l i o n i n Government-guaranteed obligations. T h e A u t h o r i t y could provide financial assistance i n a variety of ways,^ i n c l u d i n g loans, loan or price guarantees, purchase of equity securities, or construct i o n of facilities f o r lease-purchase. The A u t h o r i t y w o u l d not be permitted to own and operate facilities, or to provide financing at interest rates w h i c h are below those w h i c h prevail i n the private sector. The A u t h o r i t y would be authorized to support emerging technologies i n energy supply, transportation or transmission, and conservation, projects which displace o i l or n a t u r a l gas as fuels f o r electric power generation, projects which involve technologies essent i a l to the production or use of nuclear power aiid projects of unusual size or scope or w h i c h involve innovative regulatory or institutional arrangements. I t is also authorized t o finance capital investments necessary f o r environmental protection. The Energy Independence A u t h o r i t y w o u l d be r u n by a board of 5 directors appointed by the President and confirmed by the Senate. V I I I . W I T H A N A L L - O U T N A T I O N A L EFFORT, H O W FAST C A N W E EXPECT TO A C H I E V E T H E GOAL OF ENERGY I N D E P E N D E N C E ? W i t h an all-out effort—based on the establishment of the Energy Independence A u t h o r i t y to assist i n financing the short-term actions required to l i m i t our vulnerability by 1985, as w e l l as the new domestic energy sources we w i l l need after 1985—we can achieve energy independence before the end of this century. B u t t i m e is of the essence. W e cannot w a i t another year i f we are going to protect our national security and rebuild our economic strength to meet the needs of our people at home and our responsibilities abroad. The time to act, i n m y opinion, is now. M r . Chairman, i f I may comment briefly on a few of the comments you made, you pointed out t h a t the private market was a pretty good judge of what was sound, and t h a t i f the t h i n g is sound the private market w o u l d do i t . The problem we face here is t h a t we are i n a situation where the O P E C countries have acted on a political basis, not on a free market basis, to raise t h e i r price of o i l i n the w o r l d market. A t home, the President has declared t h a t our national policy is t h a t we shall be independent as f a r as the production of energy is concerned. B o t h o f these statements—first the action by the O P E C countries and the statement by the President—cut across a free w o r l d market. The energy companies, I t h i n k many of them, are hopeful t h a t the O P E C cartel w i l l break up and t h a t they w i l l go back t o cheap oil. 8 I f t h a t is the case, then w h y bother t o spend money f o r higher cost production here at home, and that's a question, too. T h e risks are very great because we have price control on n a t u r a l gas and price control on oil. Therefore, it's h a r d to judge, i f y o u produce new sources f r o m new sources, whether y o u r costs are g o i n g t o relate favorably to controlled prices. W e don't have a free market on prices. T h i s concern is understandable because we have been t h r o u g h a period of r a p i d l y r i s i n g costs and the Congress has taken action to h o l d down prices. However, this does adversely affect the free market, and does not support our national security or national w e l l being. Therefore the E I A proposal is devised as a means whereby, d u r i n g this i n t e r i m period, an evolutionary period, as we adjust to higher w o r l d prices, the government can take those steps w h i c h are i n the national interest. A s and when these steps are taken, the properties w o u l d be sold and i f there's a p r o f i t the government w o u l d realize this profit. I t w o u l d not only get back its i n i t i a l investment b u t w o u l d get back the additional money w h i c h w o u l d derive f r o m the profit. F o r instance, the production of o i l f r o m shale is s t i l l an u n k n o w n field on a commercial scale. A commercial operation w o u l d cost i n the neighborhood of $200 m i l l i o n . W e have reserves o f 4 or 5 times the k n o w n reserves i n the A r a b w o r l d . T o develop these reserves and find out what those costs w o u l d be is very much i n our national interest. N o private company is w i l l i n g t o do i t because they don't k n o w whether they w o u l d lose the $200 m i l l i o n and therefore they w o u l d rather go somewhere else. T h i s I t h i n k is the k i n d of t h i n g w h i c h the government can contract f o r , just the way we d i d under the R F C w i t h the Rubber Reserve Corp, when Jesse Jones set i t up. They contracted w i t h , I t h i n k , 6 private companies t o develop synthetic rubber. F o u r or five processes were successful, b u t the whole t h i n g was sold and we developed as a result a new i n d u s t r y i n the U n i t e d States. T h i s has been the history of t h i s country and as f a r as the size is concerned, w h i c h is the second p o i n t y o u raised, $100 b i l l i o n i n relat i o n to $6 or $8 hundred b i l l i o n to achieve energy independence, i n m y opinion, is—in relation t o costs today, and it's estimated t h a t i n the next 30 years we're g o i n g to use $4 t r i l l i o n o f new capital investment to meet the demands f o r g r o w t h — t h i s is not a large amount. I t is large i n terms of the past, b u t not large i n terms of where we are today or i n the future. So, f r o m the p o i n t of view of size, the costs are astronomical i n terms of our t r a d i t i o n a l way of t h i n k i n g , but I t h i n k this is the t i m e f o r bold action i n this country i f we w a n t t o preserve our leadership both i n terms of economic g r o w t h at home and i n terms o f our responsibilities i n the world. So to me this is n o t one-quarter of our annual budget and it's not federal spending. A s to whether it's a blank check, of course, the definition o f a blank check I guess w o u l d be a question as to Congress' control over the i n d i v i d u a l expenditures. I n our system o f shared responsibilities, as I understand i t , the Congress sets the policies, creates the framew o r k of laws w i t h i n w h i c h then the executive branch and p r i v a t e 9 enterprise operate, so any w e l l organized banking i n s t i t u t i o n w o u l d be structured w i t h i n this framework—and this w o u l d be equivalent to an investment bank. W e had an example w i t h Jesse Jones f r o m the R F C , w h i c h was designed f o r a s l i g h t l y different purpose, b u t the same concept. I t depends on whether it's w e l l run. Obviously, they're n o t g o i n g to make irresponsible investments i f they are properly run. A board of 5, appointed by the President, approved by the Congress, has got t o be made u p of men and women o f outstanding a b i l i t y and character. They w o u l d be audited, so there's no question on that. I j u s t t h i n k to say t h a t it's a blank check implies t h a t there's no c o n t r o l or t h a t there w o u l d be no judgment or wisdom exercised i n the m a k i n g of the loans. The objectives i n the legislat i o n say the loans shall only be made f o r those projects that contribute to energy independence w h i c h cannot receive private capital. Since there's plenty of competitive interest i n p r o v i d i n g private capi t a l between existing investment houses i f the risks w a r r a n t the investment. U n d e r the law, as you know, y o u cannot make an investment i f the risks are beyond what seems reasonable or you're subject to suit by the investors. So t h a t there are limitations w h i c h are very sharp, b u t national interest dictates i n m y opinion t h a t certain risks be taken w h i c h may contribute i n a m a j o r way to the independence o f this country i n energy. W e have the capacity. I t ' s just a question of f i n d i n g out what the costs are i n various forms of energy production domestically, and I don't t h i n k we can overstress the importance of investi n g the $30 b i l l i o n we now spend to i m p o r t oil—$50 to $60 b i l l i o n l a t e r — i n the U n i t e d States f o r U.S. employment as distinct f r o m sending this money abroad. A n d now we're not only i m p o r t i n g energy but we are now negotiating on a f a r more extensive basis t o l i q u e f y gas i n A l g e r i a and i n the Soviet U n i o n , w h i c h w i l l make us f u r t h e r dependent when by action at home we can produce t h a t energy here. W e can gasify coal here and l i q u e f y the gas so we can do exactly the same t h i n g at home and F r a n k Zarb can t e l l y o u about the relative cost. I t w o u l d be better to do i t at home, but we don't have the laws w h i c h encourage i t . So I appreciate tremendously the o p p o r t u n i t y t o be here and I w o u l d be delighted t o answer any questions. The CHAIRMAN. W e w o u l d l i k e to f o l l o w the procedures w h i c h w o u l d suit you, M r . Vice President, and it's m y understanding t h a t M r . Zarb m i g h t give his statement now and then we w i l l question you. STATEMENT OF FRANK G. ZARB, ADMINISTRATOR, FEDERAL ENERGY ADMINISTRATION M r . ZARB. M r . Chairman, since many of the members of this committee have been listening t o me f o r over a year now, I w o u l d propose t h a t I submit m y comments f o r the record. They are, f o r the most part, redundant to comments I have submitted before. W i t h your permission, I w i l l make a summary statement. I t seems t o me, M r . Chairman, that we have become a nation o f experts i n determining what is not feasible and w h y not. W e have 10 yet to develop an expertise i n determining what is feasible and how and when we w i l l get i t accomplished. The facts are that to attain independence over the next 10 years we are going to have to get our oil production from 8.4 million barrels a day up to 12.3; our natural gas production up from 18 T C F to 22 T C F ; our coal production from 640 million tons to 1.2 billion; and our nuclear electric generation capacity from 9 percent of total to 26 percent of total; and, through conservation, reduce our energy consumption growth from some 3.5 percent annually to something under 3 percent annually. Beyond that, history has shown that we moved from wood to coal in 60 years and from coal to oil in another 60 years, and now we don't have another 60 years for the next generation of fuel sources inasmuch as oil and gas are finite and perhaps have a 30-year longevity. So the proposed need by 1985 to have coal gasification plants scaled up and operating commercially, and liquefaction plants operating, and to have solar equipment in the utility sector up operating so i t can make a major contribution between 1985 and 2000, as well as a determination on commercial shale production is quite clear. We start these things now or we are not self-sufficient by 1985. As we look beyond 1985, we have significant difficulty i n being able to acquire energy at any price on the world market, we could face a shortage of that time even i f we were willing to pay almost any price. W i t h the E I A proposal, we hear words like "boondoggle for big business" or "unwarranted intrusion into the free enterprise system" or "off-budget financing" or "crowding out private financing," all of which I think are due to be debated and should be debated openly and clearly. I do hope, however, that when the debate is over we have succeeded to a greater extent than we have in the last year. The fact is, i f we don't solve the obstacles in the way of accomplishing these goals, then we are simply not going to get the job done and conditions w i l l continue to worsen. We have not turned the position around, Mr. Chairman. Last year's debate has given us some movement in the right direction. We have made progress in conservation but it's going to take more investment in the private sector to improve our conservation rate. I f we don't take these steps and solve these problems, on balance, the situation w i l l worsen and, even though we have retarded the rate of production decline through the Alaskan pipeline and through some advances in the oil sector, unless we solve many extreme problems, in the later 1970's and early 1980's, I believe, we are going to wake up too late in the middle of a national crisis. Under such circumstances, I am fearful that we would move ahead i n a panic response to a national crisis and we would eliminate any orderly consideration for the use of dollars, the environment and all the other criteria that we should include in a constructive solution to an ongoing problem. So I would hope that in the weeks ahead when this particular program is debated we focus on ways to get the job done. I t is critical to both the near-term and long-term welfare of this Nation that we get on with this particular job. 11 That's all I have, M r . Chairman. The C H A I R M A N . Gentlemen, I want to thank both of you for your statements. You certainly both deserve great credit for proposing to do something about the energy crisis and I think that's enormously important. As M r . Zarb just said, the proposal may not be the right option, but i t is an option that does take us i n the right direction. The difficulty is that I have had trouble, M r . Vice President, w i t h many of your assumptions as we go along. For example, when you responded to my earlier points, you said that the $100 billion, while an enormous amount, is readily not as i t might seem i n proportion to the $600 to $800 billion of investment we can expect the energy industry to make in the next 10 years. Vice President R O C K E F E L L E R . It's required to make. The C H A I R M A N . But I think we are not comparing f a i r l y — I don't think it's fair to compare what you're proposing here w i t h the total investment of the energy industry. That would include every gas pump, every gas tank, every utility that's built. I t would include every coal hauler that's constructed, every tanker. I t would include a huge number of investments that i n this colossal energy industry of ours are going to be made whether or not we proceed with this. I t seems to me that the pertinent point is the amount that is being invested now i n development of new technology. Now i f you can establish the fact not only that that investment now is inadequate but that i t is very likely to continue inadequate i f controls are taken off and you both agree that that's necessary, and I would agree w i t h that, i t seems to me you would have a much stronger case. I t seems to me the comparison must be w i t h what is being done now, and I don't see anywhere i n these statements—and I have gone through Mr. Zarb's documentation—I don't see anything there that would indicate now much now is being expended in this area that this proposal would supplement, how much is likely to be expended i f we take off controls, and how much more we need to achieve the goal of having imports reduced to 30 percent by 1985. Vice President R O C K E F E L L E R . I would like to comment first, M r . Chairman. This does not include the expenditures made by the energy industry overseas for their world markets. This is an estimate which is based on the steps that are necessary to become selfsufficient at home. Developments i n Algeria or any other part of the world you want to pick would not be included i n this because they don't contribute to our independence. The C H A I R M A N . I understand that. I tried not to imply that. Vice President R O C K E F E L L E R . S O at the present time, I mentioned that 92 atomic power plants have been postponed or canceled. This is an essential part of this because the one area that can be expanded rapidly is the atomic power. I n our calculations they should go from 9 percent of our present production of energy to 26 percent by 1985, which is over a 300 percent increase, because we w i l l have a growth at the same time of almost 400 percent. Now at the present time there is virtual paralysis i n that field because of the complexity of getting the clearances, the time required, and the fact that you cannot get your construction costs into the rate base until you're onstream, so you have $1 billion plant and you can't get the financing. 71-787—76 2 12 Here's a field where the Government, i f i t has the money on an investment bank basis, could finance the construction of atomic power plants on a lease-purchase basis. This is a traditional system that's used in this country to finance airplanes and other things. Individuals who have nothing to do with the airline finance the purchase of the equipment and then it's leased when completed, on a lease-purchase basis, to the company that uses it. You could do exactly the same with the utility company for a nuclear power plant and they would start to pay when the energy was on-stream and when the rate base was adjusted to take into account the cost, and the Government would get its money back and the company would get the power. Unless something of this kind is done, I don't see how these plants are going to be constructed. These cost $1 billion apiece, an efficient sized operation, and i f you just take that one case it's hard to see how else we're going to accomplish that. Now the industry says that i f you remove all regulations and let the rate increases go up now they could finance it. Well, that could be true, but I don't think there's any chance that that's going to happen. Therefore, what is the Nation going to do? This is my point. How do we protect ourselves as a nation, in our national interests, when local regulatory bodies are under pressure, because I know i n my own State costs are up close to 90 percent because, among other things, we went to nonsulfur fuels. That cost consumers about $800 million for Con E d alone in New York and Westchester. Then came the scarcity of fuel and the price increase. The consumer w i l l just not support any increase in prices at the present time. The C H A I R M A N . Well, let me follow up by asking this: The basic question is why does the domestic energy industry need the Federal assistance? Their asset structure is strong. The demand is strong. Their profits are reasonably good. They were too low for a while and then they were perhaps too high and now they have leveled out at about the average. The private market has financed large commercial energy projects in the past, as the Alaskan pipeline, with private capital. I f we get off price limitations on oil and gas, for which both you gentlemen agree must be done, it's hard for me to understand why the industry itself can't finance this. Now it's my understanding—and we tried hard to get testimony from the people in the industry—they tell us^ they don't like this bill but they won't come in and tell us why. I wish they would. I think they're a little afraid of you. I don't know why they're afraid of you. You're a nice fellow and I don't know anybody you ever hurt. But they don't want to offend you somehow. A t any rate, i t seems to me we should have some kind of record from the industry itself telling us what they could do i f wage and price controls were taken off and i f the industry were free of that kind of limitation on the price they can get. I t seems to me we ought to have some documentation here from the industry in view of the fact that the industry, as I say, has progressed enormously over the past 100 years or so. Vice President R O C K E F E L L E R . Well, as far as the oil industry is concerned, they really don't need much help except price and the 13 ability to get the leases for drilling. Those are complicated because of ecology and off-shore drilling and other restrictions. They also own coal and, of course, there's this whole question of surface mining of coal which is under wraps at the present time. So that probably they would go ahead i f restrictions were taken off. But that is a small percentage. As Frank pointed out, we've got about 8 million barrels a day now—we've got to have at least 12. That 12 million would be mostly new because by 1985 the 8 million barrels we are producing today w i l l have dropped by 75 percent, to 25 percent of present production. So the oil industry has got to find new sources. But oil isn't the only answer to this. That's the problem. Oil is not our long-term answer. We've got to find substitutes. Coal is one. Shale oil is another one. Let's take shale oil. There are two ways to get oil out of shale. One is to mine the shale, cook i t and get the oil out by heat. You end up with the shale which is fractionated and comes out in what I describe as talcum powder. There's very little water in Colorado where this shale oil is found. Therefore, what do you do with the powder ? You can fill a valley with the powder, but i f the wind blows it will blow all over the place and the ecologists and everybody else is going to object. So that seems rather unproductive. The C H A I R M A N . May I just interrupt to ask, in the oil shale we've got some work being done there now as you say. Vice President R O C K E F E L L E R . We've got leases taken. We've got research clone. The C H A I R M A N . We should get from them some kind of documentation as to what they feel they would need. Vice President R O C K E F E L L E R . The risks are too great. They spent $1.8 billion in buying leases from the Department of Interior and nobody has put a shovel in the ground because the cost is too uncertain and the methods too uncertain. To continue with this illustration, my feeling is that the Government should find out what we could do in developing that shale oil, which may be six times as great or five times as great as all the oil reserves of the Arab countries put together. There are those who believe—and Frank disagrees and the oil companies don't believe it—but Livermore Laboratories says that i f you used what is known as the in situ process—which is to d r i l l down into the shale, set off an explosion, fractionate the structure, set it on fire, and draw off the gas while it is burning underground, which is the same process as on the surface, and then condense it on the surface—you can oil. Now the question mark here is what does it cost. Livermore Laboratories thinks it will cost $7 or $8 a barrel. The industry thinks i t will cost $20 or more per barrel. U n t i l somebody does this on a commercial scale—they've done laboratory tests—until they have done i t on a commercial scale, nobody is going to know. I t would cost about $200 million to do a commercial operation. I n my opinion, the Government should contract to find out, sell the process, i f it's successful, for a profit, and then we've got a wholly new industry. But to do it on the surface I just don't think is going to work because I think ecologically speaking i t will never be done. 14 The C H A I R M A N . But the question is how fast, how much, and whether or not this colossal jump in investment by the Federal Government is justified. For example, the Federal Government already has a very extensive energy program. E E D A research, development, and demonstration programs are funded in fiscal year 1976, this fiscal year, at $2.59 billion and it's going up to $3.38 billion in the next fiscal year, a 30-percent increase. The President requested that. I n addition, Congress is now considering an administration proposal for a $2 billion loan program for synthetic fuels demonstration projects, and i f you project that kind of an increase over the next 10 years you might get a $25, $30, $40, $50 billion research, development, and demonstration program. Vice President R O C K E F E L L E R . But not demonstration. The C H A I R M A N . But to move ahead in this particular way that you're suggesting is appealing, but i t seems to me that it's not as responsible as Congress ought to be. We ought to know where we're going with every $1 billion or every $2 or $3 billion rather than provide $100 billion and say take it away and i f there are losses then we w i l l make appropriations, but I don't see how we responsibly under the Constitution with our clear responsibility for appropriations can provide that we w i l l create an authority that can spend 100 billion and not even put i t i n the budget so energy needs can compete on a priority basis. Vice President R O C K E F E L L E R . Senator, i f we had known where we were going as a nation we wouldn't be here. To begin with, they wouldn't have come over on the Mayflower or down to Jamestown, and second, they never would have gone west. We're looking for a risk-free society and I think it's just a pipe dream. We've got to take risks and we've got to take gambles. The C H A I R M A N . Well, I might take the risk but with the eyes open and I want to know where we're going. The Mayflower argument is one we heard on the SST, too, that we said "No" to. Vice President R O C K E F E L L E R . That's good, but I don't think this is the SST. You've portrayed a 10-year picture with $50 billion in research, but we may be no further than we are now. I n the meantime, we've got a situation in the Middle East right now that could blow up tomorrow and we could have another war. We could have another oil boycott. The east coast is now dependent 75 percent on energy from abroad. I n 2 years we w i l l be importing 25 percent of our energy from Arab countries because it's low-sulfur oil. But this 25 percent we w i l l have from the Arab countries in 2 years. That's low-sulfur fuel. I f that's cut off, we're going to have absolute economic and social chaos on the east coast because you can't transport oil to the east coast from other parts of the country. I think we're going to see ourselves, i f that happens, i n a total breakdown. Now i f i t doesn't happen by a cutoff, by a boycott, at some point the Soviet Navy is going to be able to do this and i f they don't do i t they can blackmail us. I just don't think we have any concept of the dangerous position we are getting in. I think i t can be the future of our survival as a society and, therefore, we should risk $200 million to do a test on a commercial basis, because E R D A cannot do i t on a commercial basis and until you do i t on a commer- 15 cial basis you can't tell what the costs are. Unless you know what the costs are you can't get private capital to go into it—they cannot afford it. The Government can. We're spending $100 billion this year on defense. This is a most important defense item. I f our economy is destroyed, we haven't got any defense anyhow. The C H A I R M A N . M y time is up. Senator Packwood ? Senator P A C K W O O D . Mr. Vice President, I agree very strongly with your last statement. It's very fragile indeed for this country to rest its economic, let alone its military security, on things over which we have no control. Congress so far has done nothing i n the field of energy since I have been here. We've rejected all of the administration's plans, by and large, and passed nothing of consequence. The energy bill last year was worse than no bill. There are two things that worry me in your proposal. Everybody agrees that consumers don't want any more price increases and that, by and large, the State regulatory price level for utilities; electric, for example, is not sufficient to allow utilities to charge prices they need to generate capital. What happens i f we pass this bill? The loans are available; the production facilities are built; and industry regulators say, well, here's $100 billion of outside capital; we can continue restricted regulation; we can continue to restrict the return to the companies. How do they ever get ahead i f they just get a trade-off with more restrictive State regulation ? Vice President R O C K E F E L L E R . Because I think in order to enter into a contract with a private utility company to build on a leasepurchase basis, they would also have to have a contract with the local regulatory body that as and when that new facility came on line the rates would be raised to levels necessary to finance the plant. Senator P A C K W O O D . SO, in essence, there's more to this bill than meets the eye because how are we going to bludgeon that out of the local public service commissions ? Vice President R O C K E F E L L E R . Well, the local public service commission understands the importance of having the power. Their problem is now, politically, they can't do it. I f they can do i t 11 years ahead it's a lot easier to do something 11 years ahead. Senator P A C K W O O D . Y O U mean the public service commission in New Jersey or New York commits itself to 10 or 11 years ahead to a plant that's going to come on line at that time with different public service commissioners there by that time probably, but they make an irrevocable commitment that they cannot be relieved from ? Vice President R O C K E F E L L E R . Well, Frank lias the details on that, but the concept has to be that. Senator P A C K W O O D . Let me ask y o u — I was just reading the Bankers Trust 1976 survey. This is their concluding paragraph and they have taken 3 cases. Case one is to pursue present continued imports. Case 2 is no imports by 1985. Case 3 is no imports by 1990. This is their last paragraph. " O f major importance to these conclusions, however, is the question of whether the energy industries can command or require a share of capital. Capital w i l l only be available to the extent that the industries can offer a Satisfactory rate of return in the competitive marketplace. A t the present time, the Federal 16 government and many State and local governments are promoting policies, laws and regulations which impede the ability of energy industries to generate the profits necessary to attract investors. I f this punitive attitude is maintained, the energy industries w i l l strangle under resulting curtailment of capital, and the present stress on our energy supply will turn into an overwhelming crisis." Just prior to that they conclude that i f the regulations are taken off then we don't need a bill like this; then they w i l l be able to generate their capital internally. Vice President ROCKEFELLER. But when they say the regulations, it's not only price, but you've got the whole complexity of ecological statements Senator PACKWOOD. The report is willing to factor in ecology. What they are saying is that i f we are going to impose upon them an air pollution standard or a water pollution standard, we have to allow them to recover the cost of the regulation. Vice President ROCKEFELLER. Again, that's fine. Well, I have to say that i f I thought Congress was going to do that tomorrow, then I ' d say wait on this bill and let's see; but I just don't think Congress is going to. What you did was you passed a bill which lowered gas prices until after election. So everybody gets reelected and people spend more money on gas and now they're going back to big cars. You know, we've got to understand we live in a democracy. Senator PACKWOOD. Well, we're robbing Peter to pay Paul. We won't do the things, for instance, deregulate. The public service commissions won't allow the rates to go up enough, so instead, we're going to borrow the money from the taxpayers and wTe're going to finance i t through loans and it's taking it out of one pocket to put i t in another. Vice President ROCKEFELLER. Well, I don't agree with that, the way you put it. But you can say, as we had to in New York State because the private companies couldn't do it, the State must go ahead. The State is now building and has almost finished one nuclear plant, and is building another nuclear power plant. So the government can come in and do all of this. My only concern is, one, I think the private enterprise system is more efficient and, two, I think by the time you get to $600 or $800 billion for energy alone coming from the government, somebody is going to balk and we just won't get there. So my feeling is that i f you can do i t for a fraction of that, 12 or 14 percent, and once the thing gets going and we get off dead center and we find out what those costs are, I think that private capital is going to flow in because it w i l l know what the risks are. Mr. ZARB. From where I am, I can't believe what I ' m hearing. For a year now we have been talking about decontrolling energy prices and the alternatives to that. This morning we're talking as i f it's automatic that we're going to decontrol prices. The fact is, we're going to have to decontrol our prices in oil over the next 40 months, i f the Congress w i l l allow us to do that. But we have not yet deregulated gas prices or come very close at all to what's required in that particular sector. I see absolutely no evidence that we are ready to have an overwhelming vote in both Houses to deregulate natural 17 gas prices. Even i f we did we have lost so much time because of our sell-out to cheap oil throughout the 1960s and early 1970s and neglected so much of our domestic technology and capability in the coal area and the nuclear area, that we will not have that first scaled up gassification plant required to solve and analyze the energy and the environmental problems and all the uncertainies you have to go through when you march through one generation of a new industry. This includes a large scale liquefaction project or a large scale solar project or a large scale shale project. They will not have i t even with deregulation which is essential to get us some modest results between now and 1985. I cannot buy the concept that there's going to be some magic that will allow some of our utilities who have balance sheets such that they can't afford to invest in next year's supply of firewood. I do know we are not going to have a capacity increase at the utility sector. I do know when we make such a loan guarantee or arrangement of that nature that the public service commission will have to adjust its rates instantaneously to put the construction work in progress. Senator PACKWOOD. Let me ask about that. N o miracle public policy is going to occur to allow deregulation of oil and gas and a rational attitude on the public service commission's part. Therefore, hopefully, this miracle of public policy in the form of this bill will pass and that will allow the capital to flow to the industries that need it. Mr. ZARB. I ' m saying that even i f that first miracle does occur, we need this second one because we are so far behind, Senator. Let's take an example which is probably the easiest way to explain what we are talking about. A gassification plant takes a billion dollars of investment. There is a high degree of uncertainty as to its commercial viability. We have a pilot-plant sized capacity operating, but we don't have the large scale commercial capacity, investors will put a billion dollars into that kind of a project with certain kinds of assurances. Now that assurance could be a price guarantee for some period after the project is completed and a guarantee that it won't be put under some kind of Federal regulation which would place the output under its real cost. To provide that kind of comfort and thereby attract the private capital is what we are talking about. Even i f we had decontrol of oil and decontrol of gas, and I see no evidence of that occurring, we still need a vehicle to ensure that we get that first commercial generation of advanced technology up and going over the next 10 years so that in the period between 1985 and the year 2000 we can make a major contribution to what's going to be required in our energy consumption pattern. I am confident that i f we don't do it this year and next year we are eventually going to have some kind of public program to insure that these programs go forward, because it's becoming clear that oil and gas are running out. I f you take the utility sector, and talk about some vehicle to insure that the economics of putting up a nuclear plant or a new coal-fired plant will be there, assuming some loosening of the regula- 18 tory process at the local level, first, it's not going to happen and, second, i f i t did we would not get the required investment within the time required. I t just won't be there. I can go on and on with some of the other elements of this portfolio that w i l l occur i n the next 10 years, but even i f we fully deregulate the industry, many of them would not. Senator P A C K W O O D . Let me ask you one last question and my time is up. Frank, i f there's any place where your statement seems to me is lacking, and also the Vice President's, it's in the area of conservation. There are only four references, and they are very brief references, in the entire papers. Yours simply talks about, on page 6, electrical load factors. The Vice President talks about on page 2 and 3 that we should have a policy. But in this statement, according to the F E A , i f you take all the necessary actions in the next 10 years we can reduce our energy needs by 5 percent in conservation. Is that the best we can do in this country ? Mr. Z A R B . It's just a recognition that in a growing economy and in a growing country the best we can do is slow down our rate of growth. Senator P A C K W O O D . A l l right. By that 5 percent, you mean at the end of 10 years with all of our growth we would be using 5 percent less than now? Mr. Z A R B . NO. I ' m saying that we're still going to be growing but we're going to be growing at a slower rate. I said earlier that our historic rate of growth in this area has been 3.5 or 3.6 percent. I f we strain, we can get it down to 2.2 percent. What is meant by the 5 percent figure is that through the enactment of vigorous conservation measures, beyond what has already been achieved through price effects and through the conservation measures to be implemented through the EPCA, there is not much latitude for further savings from conservation. The 3.6 percent historical growth rate I alluded to will fall to approximately 2.8 percent as a result of current prices and conservation policies; more conservation, beyond these levels, would drive the growth rate down to 2.2 percent, which would effect approximately a 5-percent reduction in 1985 energy consumption, from what it would otherwise be under a 2.8 percent growth rate. I t should be noted that major changes in energy prices would affect these estimates. But, Senator, I just think we have to begin telling the truth as it is. We are having trouble, as the chairman knows, ih getting a very fundamental energy conservation bill through this Congress. It's been on the books for a year and a half and it still isn't completed and I ' m fearful that, when i t finally is, it's going to be the weakest part of our total energy package. So while we can talk about what heeds to be done, even in this area, we see grave problems. Now this E I A bill does provide for investment in conservation and environmental activity. I f we're going to burn more coal we're going to have to burn coal efficiently and cleanly and this bill provides some assistance in that particular category. Senator P A C K W O O D . Thank you. The C H A I R M A N . Senator Stevenson. 19 Senator S T E V E N S O N . Mr. Vice President, as one who has spent several years attempting to quantify the effects of raising energy prices on the GNP and on inflation, I ' m tempted to joiii the issue on that subject. I t was no coincidence that the United States for the first time in its history experienced a combination of severe inflation and recession just after energy prices quadrupled. But you are not here this morning to talk about that major component of the energy crisis but instead to talk about the crisis of supply, go I w i l l resist that temptation to join issue with you and Mr. Zarb, as well as my colleague, Senator Packwood. I have to quarrel with some of the particulars in your .statement, but I want first of all to commend you for the overall thrust of that statement and the urgency you place on the need to assure ourselves adequate supplies of energy in the future. I don't think that the dimensions of the threat to our economic welfare and to our .national security are understood yet in the country. I n fact, some poll reported recently that only 28 percent of the American people thought that the energy problem was serious. That's appalling. The dimensions of this crisis exceed our powers of comprehension. First of all, to continue with the chairman's question about the dimensions of the capital requirements, that is one point at which I might quarrel with you. I don't think it's really possible for us with confidence, to be, precise about capital requirements in the future. Would it be fair to restate your position as saying that whatever the costs are, we'd better darn well be prepared to pay them and put the institutions and the mechanisms in place by which to meet those capital requirements as they come along, and, i f our proejctipns are excessive or exaggerated, the mechanisms don't have to be used to the f u l l extent that's authorized by law ? I might add in that context, I ' m always reminded of that old cartoon that you may recall, of the delegate at the Continental Congress rising to inquire, "May I ask how much this revolution is going to cost?" You mentioned eloquently this morning an aspect of the crisis which I think you would do well to enlarge upon, and it brings me to the main point that I ' d like to take up with you, the dependence on foreign sources. The embargo made us all well aware of the possibilities for the interdiction of supply at its point of production, but supply can also be interdicted in transit. How much of the world's oil supply passes through the straits of Hormuz ? Vice President R O C K E F E L L E R . 3 6 percent. Senator S T E V E N S O N . And how much of Europe's oil supply? Do you have that figure? I think it's about 60 percent. What would it take to block the straits of Hormuz ? Vice President R O C K E F E L L E R . One big tanker sunk. Senator S T E V E N S O N . Oil in transit can be blocked in the North Sea and the Eastern Mediterranean and around the periphery of Africa and the Red Sea, as well as at the mouth of the Persian Gulf. I think you mentioned that concern not to rattle the sabre or to sound the alarms of the cold war, but to indicate that the power to interdict oil supplies is power, power that can be used for a mul- 20 titude of purposes. It's leverage. It's influence, no matter what the issue is. Now, let the record show that the Vice President is nodding his head. Vice President ROCKEFELLER. Yes; I totally agree with what you're saying, so much so that I didn't feel i t necessary to say anything because I just think that this is not realized i n this country by the people, by the Congress or by the companies. Senator STEVENSON. Now, Mr. Vice President, I think you indicated that even with an all-out domestic effort, the United States, according to the estimates of the F E A which are based on very optimistic assumptions, will still be dependent on foreign sources for between 30 and 40 percent of its oil requirements by 1985. Is that right? Mr. Z A R B . It's less than that. It's still 6 million barrels a day which represents about 25 percent of our total equivalent requirements. Senator STEVENSON. On a most optimistic assumption Vice President ROCKEFELLER. By that time they w i l l have built up a billion-barrel storage which w i l l help capacity. Congress has approved that, not the money but the concept. Senator STEVENSON. The point I want to make is that even w i t h all that effort, with optimistic assumptions, the United States is going to remain dependent upon foreign sources of oil for a long time and as Canadian exports and perhaps exports from Venezuela and elsewhere dwindle, the dependence on Middle Eastern sources of oil could remain or become larger. Vice President ROCKEFELLER. Particularly because it's low sulfur. Venezuela is high in production but that's high-sulfur oil. Senator STEVENSON. A recent study by the U.S. Geological Survey concluded that about 50 percent of the oil i n the world remaining to be discovered existed in the non-OPEC, presently noncommunist countries, principally in Latin America and in Africa. Project Independence, your proposal, seems to place exclusive reliance for independence on the development of domestic sources of energy. M y question to you is whether that is right. Shouldn't we also recognize that we can reduce our dependence on the most undependable foreign sources of oil by diversifying foreign sources of oil, and not only reduce dependence on the foreign sources that we are most concerned about now, but also produce energy at a relatively attractive economic cost? A barrel of new oil produced today in the United States costs about $8. New oil in the Third World costs between $2 and $3 a barrel. So for the sake of true independence, shouldn't we seek to develop additional foreign sources of oil, particularly in Latin America and in Africa and shouldn't this agency which you propose be authorized to help finance joint ventures and development abroad as well as at home ? Vice President ROCKEFELLER. Senator, I understand what you're saying. That's two questions. One, do you consider Angola, for instance, a dependable source? One wonders what some of these trends are. Venezuela now has its oil shut in because ConEd, taking New York as an example, would rather buy Algerian oil 21 which is low sulfur because of the restrictions on the use of highsulfur oil. They can't burn sulfur oil because of those restrictions. So this is a more complicated situation than purely where the oil comes from and whether you count on it. A n d lastly, while the Straits of Hormuz could be blocked off by the sinking of one tanker, there could be explosions of tankers at sea because they are sitting ducks, and after enough explosions one would have to wonder then whether the sea lanes are the most secure source of supply. So this is a complicated situation and my personal summary would be that we ought to have the capacity and proven capacity to become self-sufficient, whether we continue to import or not because of cost, so that you have that flexibility. Mr. ZARB. Senator, your query is whether or not we can add to our own domestic production with what we might consider secure sources abroad, and from my own perspective the answer to that question has to be "No." I don't know of any totally secure sources anywhere else in the world. We have seen our good friends, the Canadians and the Venezuelans, price their product at OPEC levels. When it became clear to the Canadians that they needed their own product to serve their own needs, they began the process of withdrawal from our marketplace taking themselves out completely by 1980. I can't find any evidence that would indicate that, given the world increase in demand on energy, that demand won't affect energy trade over the entire world. Getting back to what we define as self-sufficiency or invulnerability, using a modest case, we can get down to 6 million barrls of imported oil a day by 1985 with 1 year's worth of oil consumption in storage. We consider that self-sufficiency. But to begin calculating that there w i l l be other supplies that are secure I think would be a mistake. We are not attending to our natural gas question here domestically and, in the meantime there are people talking about contracts from abroad for liquefied natural gas which will probably cost close to $3 per thousand cubic feet. I think it's quite clear, Senator, in this particular sphere we're not going to be able to depend upon anybody else's energy source except our own, save very small amounts which we could make up for with domestic capabilities in the case of a shutoff. Senator STEVENSON. I am disappointed in that response because by your own most optimistic assumptions you are projecting reliance on foreign sources. I ' m not suggesting a cutback of domestic effort. I ' m saying we ought to make dependence on foreign sources manageable. You mentioned Canada. One pipeline across Canada would cost about $10 billion; that's another opportunity for foreign participation by this agency that you're suggesting. That transportation system across Canada could not only help the Canadians bring down natural gas from the Mackenzie Delta and oil from the Beaufort Sea and meet their own requirements, but by doing so it would also help them continue, i f not increase, exports of gas and oil to the United States. Vice President ROCKEFELLER. That's a good test case. I f Canada would agree to do that, this would be a very exciting and important problem because the sources of gas there are fantastic. 22 Senator STEVENSON* Their agreement w i l l depend upon the extent of their resources, particularly i n the Beaufort Sea, and we don't know that yet, This is one example of the need for financing outside the territorial limits of the United States. You picked Angola. I could pick many other examples a little less inflammatory at the moment, ; Vice President R O C K E F L L E R . Algeria wanted to sell us some more oil and since then they have had 2 changes in government. Now our relations with them are pretty uncertain. Senator STEVENSON. Well, the point is that it seems to me we ought to be focusing some attention on exchanging American resources, including technology and capital, for assurances of supply at reasonable prices from abroad as well as at home, and to place exclusive reliance on the development of domestic resources continues what I would call a drain American first syndrome without giving us independence—it continues, by your own projections, dependence on foreign sources. Vice President R O C K E F E L L E R . Senator, I understand what you're saying and were i t possible to achieve secure supplies abroad, then I am totally with you. I think you pose a very difficult problem for any oil producing nation that's a member of OPEC. I f they are a member of OPEC they cannot break the price and Venezuela and Ecuador a<re both members of OPEC. Although it's interesting to note that neither Venezuela nor [Ecuador boycotted the United States, and yet when Congress passed a bill which removed the OPEC countries from the most favored nation laws, we removed Venzuela and Ecuador. They were furious and all of Latin America is furious because they didn't boycott us and we placed them on the same list. That was a year and a half ago. They have had delegation after delegation at congressional hearings and Congress has as yet refused to restore them to most favored nation status. Plow do you make friends and influence people when we do this kind of thing to our friends? So we have got some very real problems in dealing consistently. I just came back from a trip to 9 countries around the world and I want to tell you everywhere I went the one question is: Can we count on the United States ? It's a very serious problem that people are beginning to wonder whether we are going to be consistent i n what we do. So when we talk about developing reliable sources, that involves our being reliable ourselves in our relationship with those countries. The C H A I R M A N . Gentlemen, we have 2 other witnesses. I w i l l be as brief as I can. I just have 1 or 2 other areas I want to explore on this. I wTill explore it as quickly as possible. I don't mean to just harp on one note, but I just can't get over the size of this, $100 billion. I was just trying to see how we could put that in perspective. This is a 7-year program. You make your commitments over 7 years and they can run for another 3 years. So i t would be 10 years in that sense. Take those 7 years, $100 billion means that you would have more than $1 billion a month, more than $250 million a week. On a 5-day week, you would have $50 million a day. A n 8-hour day, you wTould have $6 million an hour, $100,000 a minute, about $1,500 a second. 23 Vice President R O C K E F E L L E R . That's a quarter of what the governments spends for that second. The C H A I R M A N . Well, i t may be, but the reason I raise that point is we are taking this colossal amount out of the budget. I have here a list of the loan programs and this isn't entirely a loan program— the loan programs that are in the budget. They include the Farmers Home Administration, most of the housing programs, all of the Export-Import Bank which used to be out of the budget but is now back in the budget, and the determination of the Congress and the Budget Committee to put everything i t possibly can in the budget so different demands can compete on a priority basis. Here we have a program that is bound to have an effect on the availability of capital and the availability of resources. It's a program that does not simply involve loans but risky loans, loans that wouldn't be made i n the private sector. I n the second place, it's a program that also involves common stock investments and, of course, that's even riskier. It's a program that also permits price supports. I don't know how it's possible to have a price guarantee program on this kind of scale without losing some money and you might lose several billion dollars. Now it would seem to me that the Congress should therefore insist that this should be placed i n the budget to compete with the other demands on our resources and require regular appropriations by the Congress. Why do you insist on having this outside the budget? How important is that particular part of your bill? Vice President R O C K E F E L L E R . Let me make 2 comments and then turn it over to Frank. One, you mentioned the Export-Import Bank and it's very interesting that the E x - I m Bank does very much what we are talking about doing, but only for any investment by an American company abroad, which is an interesting thing. We are willing to support the sale of equipment to build a gassification or liquefaction plant in Algeria through the E x - I m Bank, but we won't do i t at home. The C H A I R M A N . That's in the budget now. Vice President R O C K E F E L L E R . E I A is also i n the budget. The theory for putting it in was that the losses E I A would suffer would go in the budget, and only a small percentage of its investments would result i n losses and actually be a government expense. The rest would be returned when the loans are paid off. Therefore, i t did not seem to be equivalent to an expenditure by government. OMB's projection for 5 years indicates that they are anticipating a loss totalling only $1 billion in 5 years. The C H A I R M A N . But isn't i t true, Mr. Vice President, that some of these commitments, particularly the price support and very likely the common stock investment or preferred stock or whatever i t is, the equity investments, are likely to be i n effect expenditures ? Vice President R O C K E F E L L E R . Well, they could be, and that's why i t is suggested that $25 billion be i n equity and $75 billion be i n loans. Now as far as the other point you made, which is bound to affect the availability of capital, there's no question that today it's better 24 to finance a McDonald's hamburger stand because you can get a better return on your capital, but that may not be i n the best interests of the United States. Somebody has got to decide where capital goes when it affects our national interest. Now I have to admit that it's strange for me to be here testifying on this side of the issue. I ' d expect to be here suggesting that government stay out of this and leave i t in private hands. But my concern is, first, our national security and our national well-being. I am deeply concerned that this country is running risks well beyond what we can afford to run, and that we are vulnerable to a point that very few people i n America realize. The C H A I R M A N . Why not trust Congress to make these appropriations in the budget i f they can be justified? I t seems to me you have made a very strong case and a very appealing case. Why shouldn't that case have to be made whenever we decide whether to loan money here, whereas I say the overwhelming majority of our loan programs are in the budget and every kind of expenditure program is in the budget? Vice President ROCKEFELLER. Senator Proxmire, i f you told me right now Congress was ready to make $100 billion available and you wanted to put it in the budget, frankly, I ' d say, fine, as long as you're going to do it. But I worry that i f you put i t i n the budget someone is going to say, well, this is going to increase the budget from $400 billion to $410 billion and that that's too big a jump, and therefore it w i l l not be done. The C H A I R M A N . Otherwise, we are kidding ourselves i f we don't put i t in. You're making that $10 billion commitment of resources anyway, but you're not admitting it. Vice President ROCKEFELLER. I don't agree. This is an investment, not an expenditure. The C H A I R M A N . Mr. Vice President, every one of the loan programs is an investment and most of them are excellent investments returned with interest in f u l l and frankly better investments probably than these would be. This may be more urgent i n many respects than many of these projects. Vice President ROCKEFELLER. Maybe the Government ought to have a budget that shows expenditures and a budget that shows capital investments and separate the two, because I think it's misleading to the public. The C H A I R M A N . I agree, we ought to have a capital budget. We don't have a capital budget, however, and therefore, since we put capital investments into the budget now, i t seems to me we should be consistent. Vice President ROCKEFELLER. We can put some in. We're on the way. Mr. ZARB. Mr. Ghairman, i f I may add a comment on this—$100 billion sounds like an awful lot of money. One way to put i t in perspective is to look at the fact that we are going to pay out this $100 billion between now and December 1978 for imported oil. The total requirement of $580 billion, between now and 1985, represents about 30 percent of total investment i n the energy sector which is historically the percentage taken. 25 Finally, in or out of the budget, I think i t ought to be clear in terms of the maximum outlays to the budget. I f everything went wrong and every project were wiped out, as you described earlier, that is going to expose us to some $25 billion over the 10-year program. I t sounds big. But i t isn't big in terms of the size of the job we need to accomplish. I n view of the historical investment in this particular sector, with the proper controls and oversight capabilities of the Congress, I think a great deal of comfort can be given to the Congress that these investments w i l l not be made in wild-eyed schemes but rather proven technology that's being brought into commercial stages. The C H A I R M A N . Well, on that very point, you say not in wild-eyed schemes and proven technology; nevertheless, you have a no-creditelsewhere requirement. What that means is you're not going to lend i f they can borrow from a bank or borrow from some other group. That means, of course, that you have to make a judgment that this would be reasonably good even though they can't borrow the money. Let me ask you this. The bill requires, and I quote,^ "that a project would not receive sufficient financing upon commercially reasonable terms." Does that mean that the E I A could authorize a project and fund a project that could borrow money at 12 percent? That might seem unreasonable. Could you then move in and provide the funds at 8 or 9 percent ? Vice President R O C K E F E L L E R . I don't think a utility could afford to pay the 12 percent because they couldn't get the rate increase that would support it. I n other words, I apologize to you for using New York but that's what I ' m more familiar with. None of the seven utility companies there can afford to build powerplants because they can't get the rate increase. They tried to get together and form a finance construction company. There were 18 regulatory bodies, State and Federal, and the lawyers worked for 2 years and could not satisfy all the provisions of all the regulatory bodies which would permit them to do it. This w i l l slowly force Government reform and maybe that's something that this country wants to do. The C H A I R M A N . Then the Federal Government would offer better terms than the private market in this situation. Vice President R O C K E F E L L E R . N O ; it would offer prime rate. I t wouldn't go below prime rate. The C H A I R M A N . That's right, but it would still be better terms in this case—it might be 12 or 15 percent they could get in the market but that's considered unreasonable and they wouldn't proceed on that basis—but with 9 or 10 they might, and as you say, it would be at the prime rate or above, but still i t would offer better terms than the private market would, given the risk. I n that case, how could you possibly comply with the provisions in the bill requiring competition that the Federal position "not unduly enhance the recipient's competitive position?" Wouldn't that put the recipient in a strong position since he's able to borrow money for this kind of a project below the market and strengthen his competitive position since the risk is assumed by the Federal Government? Vice President R O C K E F E L L E R . It's not his competitive position in the market. I n other words, i t wouldn't compete with the other pri- 26 vate investment houses. It's not competitive position producing electricity or gas which is needed by the consumers. The C H A I R M A N . Well, you're right. I wouldn't argue with you on the competition with the financial sector, but I would with respect to the effect on the competitor i n that particular energy industry. Vice President R O C K E F E L L E R . No, because what i t states in the bill is that this project should not be financed unless i t is a significant contribution to energy independence and i f i t could be financed by somebody else. This is to fill a vacuum, not to compete. You talked about the amount of the money. I f there are 18 different gas industries there w i l l be 18 different gassification plants, coal gassification. You've got 92 atomic powerplants canceled. Let's say you went for 50. That's $50 billion. So that's $68 billion. Senator Stevenson talked about the $10 billion for a pipeline across Canada. I doubt very much whether private enterprise would be able to finance that. These things go very rapidly in terms of the amount of money that's involved and $600 or $800 billion is an awful lot of money. The C H A I R M A N . Of course, that isn't new technology. That's not proving new technology. What that is is providing facilities that otherwise might not oe provided to increase our production of energy. Vice President R O C K E F E L L E R . That's right, but both are permitted under the terms of the bill. The C H A I R M A N . One more point. For the record, would you provide in the fullest possible detail the assumptions for the statement that you make on page 3 in which you argue that appropriate policies would permit savings in conservation at a maximum of 5 percent over a 10-year period, increase domestic oil production by 50 percent, increase coal production by 100 percent, increase natural gas production by 10 percent and increase nuclear power generation by 300 percent. It's an assertion that may be true, but I think we need the most detailed documentation you can give us because i t seems to me that can be challenged right along the line. Vice President R O C K E F E L L E R . I took them all from Frank's book and we w i l l give you the details. Mr. Z A R B . We provided that book to you. The C H A I R M A N . Y O U gave us some of that, but we wanted i t a lot firmer than i t is. Mr. Z A R B . I t was published in the NEO which we released last month, Senator, but we certainly w i l l be more precise for the record. I ' d just like to get back to the competitive questions with respect to available funds. Let's use two examples, two gassification plants. One gassification plant w i l l be constructed by a group who can go into the private sector and get 15 percent money. They have made their calculations that that 15 percent money w i l l lead to economic viability when the project is completed. Then there's another that says to the Federal Government, we w i l l go ahead when we have 10 percent money. Clearly, the government isn't going to be in a position of providing that second group with 10 percent simply because they want a lower rate of return. The investment i n reality w i l l not 27 be made at 15 percent because the economic viability between now and 1985 w i l l not be attractive and the private funds w i l l not be there at that rate. So the notion of crowding out private money with government interference simply does not apply i f we follow the principles set forth in the bill. The C H A I R M A N . Y O U see what kind of problems this leads to, but I appreciate that. Senator Packwood ? Senator P A C K W O O D . N O other questions. The C H A I R M A N . Senator Stevenson? Senator S T E V E N S O N . Mr. Chairman, just to get one point clear for the record, the Vice President mentioned again the possible pipeline across Canada for the transmission of gas. My question earlier was intended to be whether this financing entity could aid in the financing of American activities abroad, including Canada, including reprocessing of waste nuclear fuels abroad, or oil and gas production in Brazil; and from the reference to a pipeline for Canada, I assume that it would be available, but from the earlier response I thought it would not be available. Vice President R O C K E F E L L E R . I t would i f it can be proven that it adds to our independence. Senator S T E V E N S O N . I see. Vice President R O C K E F E L L E R . I n other words, that gets back to your question of assured source of supply. Senator S T E V E N S O N . Then there's no disagreement between us. Vice President R O C K E F E L L E R . I ' d like to say one other thing on your earlier question about price and inflation which to me is very interesting and very important. To me, the man who has been clearest on his position on why OPEC has done what it's done is the Shah of Iran. The Shah of Iran stated that oil is a finite product and that it should be used with great care for those things for which it's essential, petrochemicals and so forth, and should not be wasted. Therefore, his concept is to set oil prices at a figure which encourages the development of substitutes for the things for which gas is now being used that it shouldn't be used for. You may not agree with this, but it's an interesting philosophy that really affects this question of inflation. Senator S T E V E N S O N . Mr. Vice President, I recently discussed not only oil pricing but also the Straits of Hormuz with his Imperial Majesty, and the pricing subject with, among others, Dr. Isagore, with whom you're also undoubtedly familiar, and he much to my pleasure, conceded—I trust it was not intended to be a private concession—that the Iranian Government, like other OPEC members governments, did not understand the effects of the energy crisis as they ripple out to inflate the cost of every commodity and every service. He indicated, and this is what I was trying to do earlier, that we need to quantify those effects, and that this ought to be a high priority to the producers and consumers conference in Europe. So getting back to that earlier point of whether we should precipitously increase oil prices, which the OPEC countries do not intend 71-787 O - 76 28 to do now, I think, we ought to be very cautious and I would hope begin the analysis that can tell us all the economic impacts—inflationary and recessionary—from given changes in energy prices. Vice President ROCKEFELLER. Mr. Chairman, may I just say in conclusion, I appreciate so much your having these hearings and what worries me is we are on dead center as a nation both in terms of the public's understanding of the problem, the congressional action, and the corporation action, and everybody is just sort of standing still. I think we cannot afford this as a nation. We have got to get off dead center and get going. I see no other way than the government which is responsible for the security and the well-being of the American people to take an initiative which gets us off that dead center. To me that is a viable initiative in the pattern which has been used before, including RFC, rubber, aluminum, et cetera, during World War I I . I f properly managed, E I A can do what is necessary and not do more, and the minute it gets energy production going it can pull in its horns. I think it's a sound, constructive role for government to play. As I mentioned, we have done as a government those things which were necessary to achieve national objectives in these other areas by other means and I think this one is one that, thanks to you, is going to get the kind of attention and exposure which is so important in a democracy and I thank you, sir. The C H A I R M A N . Well, thank you very much, Mr. Vice President, for an excellent presentation and for calling the attention of this committee and of the Congress to the urgency of this issue, challenging us to do something about it and as Senator Packwood said so well, i f we turn this down, come up with something that will be better i f we can. I think you have made a very fine presentation. I am still concerned. I have that Post Office syndrome. I don't want to make our oil industry like the Post Office. Somehow when the government gets in this deeply there are all kinds of problems. You have made a very fine presentation and we are off to a very good start on this. [Complete statements of Mr. Rockefeller and Mr. Zarb and copy of the bill follow:] STATEMENT OF N E L S O N A . ROCKEFELLER, V I C E P R E S I D E N T OF T H E UNITED STATES M r . C h a i r m a n , Members of the C o m m i t t e e : I appreciate t h i s o p p o r t u n i t y t o j o i n w i t h y o u t o discuss t h e most c h a l l e n g i n g p r o b l e m of a c h a l l e n g i n g e r a — the energy crisis. F i r s t , I w o u l d l i k e t o ask, a n d t h e n answer, t h e f o l l o w i n g q u e s t i o n s : ( 1 ) , I s t h e r e r e a l l y a n energy crisis? ( 2 ) W h a t happens i f w e j u s t continue as i s — t o depend on increasing f o r e i g n i m p o r t s to meet o u r N a t i o n ' s g r o w i n g energy needs? ( 3 ) D o we, as a N a t i o n , have the resources a n d capacity to achieve energy independence? ( 4 ) W h a t does i t t a k e t o do i t ? (5) W h y does g o v e r n m e n t have t o get i n t o i t ? — W h y i s n ' t p r i v a t e enterprise d o i n g i t ? ( 6 ) H o w can gove r n m e n t p l a y a n a p p r o p r i a t e role i n a c h i e v i n g energy ndependence w i t h o u t s u b s i d i z i n g p r i v a t e interests, or w i t h o u t i n t e r f e r i n g w i t h t h e free e n t e r p r i s e system? ( 7 ) I f the answer t o g e t t i n g us off dead center is a n E n e r g y I n d e pendence A u t h o r i t y , as p r o v i d e d f o r i n Senate B i l l 2532, h o w w o u l d i t w o r k ? ( 8 ) W i t h a n a l l - o u t n a t i o n a l e f f o r t , h o w f a s t can w e expect to achieve t h e goal of energy independence? 29 I . Is There Really an Energy Crisisf—Unfortunately, many Americans do not believe the energy crisis is real because there is no tangible evidence of i t . There is gas i n the pumps, and the l i g h t s go on when they flip the switch. They recognized i t t w o and a h a l f years ago d u r i n g the A r a b o i l embargo when the lines f o r m e d at the service stations. B u t there are no lines now because we are i m p o r t i n g 40 per cent of the o i l consumed i n this Nation. I n 1960, we received 18 per cent of our o i l f r o m foreign sources. D u r i n g one week last month, our foreign o i l imports reached more t h a n 50 per cent of our t o t a l consumption. Even more a l a r m i n g is the f a c t t h a t the proportion of our imports w h i c h comes f r o m unstable Mideast sources is r i s i n g faster t h a n the g r o w t h rate of our imports as a whole. W h i l e imports rise, domestic production of both o i l and n a t u r a l gas is declining. The Northeastern p a r t of this country is now dependent upon foreign sources f o r 75 per cent of its oil. I f this supply were suddenly cut off, there w o u l d be social and economic chaos. Should we have another embargo, the economy of this country w o u l d be shattered. Today's energy situation is, i n my judgment, a clear definition of a crisis. II. What happens if we just continue as is—to depend on increasing foreign imports to meet our Nation's needs f—Between now and 1985, our energy needs w i l l grow by 36 per cent. I f we continue our current course, and continue to regulate o i l and n a t u r a l gas prices at current levels, i f we do not develop our plants, i f we do not adopt a strong program of conservation, and i f we f a i l to commercialize new sources of energy, such as gas and o i l f r o m coal and shale, we w i l l be i m p o r t i n g between 50 and 60 per cent of our o i l i n 1985. A n d i t w i l l cost us i n foreign exchange not $30 b i l l i o n as i t w i l l this year, but $50 b i l l i o n by 1985. I t is obvious w h a t a threat of an embargo w o u l d do to our national security and defense capabilities under such circumstances as w e l l as to our capacity to meet our responsibilities to the other nations of the free w o r l d who, w i t h o u t our protection, w o u l d be equally vulnerable. I am hesitant even to speculate on the kinds of economic, p o l i t i c a l and m i l i t a r y pressures t h a t could be imposed on this N a t i o n i f we continued to be more t h a n 50 per cent r e l i a n t on foreign sources. W i t h such a large amount of the o i l coming f r o m one area of the world, the supply lines provide a tempting opportunity f o r the Soviet Union, w i t h i t s growing sea power, to disrupt the transport on the high seas. B u t there are other serious consequences t h a t could result. The continued dependence upon foreign sources of o i l could cause us to lose credibility w i t h our allies. They would be justified i n asking whether or not we w o u l d support their interests against those of our o i l suppliers. Our continuing dependence on imported o i l threatens our a b i l i t y to m a i n t a i n our leadership i n the free world, our economic well-being and our national security. Now, let's look at w h a t happens to our economy, i f we continue along our present p a t h of depending on increasing foreign imports to meet our Nation's g r o w i n g energy needs. I n 1973, we were spending $4.3 b i l l i o n annually f o r foreign oil. A n d i n 1976 we w i l l spend $30 billion. W e now export $22 b i l l i o n i n a g r i c u l t u r a l products—which is up f r o m $8 b i l l i o n i n 1973. Were i t not f o r the sale of these f a r m products and the sale of $10 b i l l i o n w o r t h of arms, we would not have maintained our balance of payments. On the other hand, i f we j u s t continue on the present course, we w i l l be spending up to $50 b i l l i o n overseas f o r imported o i l to meet the g r o w t h i n our domestic needs. On the other hand, i f we were to spend the $30 b i l l i o n at home, i t w o u l d provide jobs f o r at least 1,200,000 people. And, by 1985, $50 bill i o n spent at home to produce our energy requirements domestically would produce close to 2,000,000 jobs f o r American workers. I f we don't f o l l o w this course, at some point, the economics of business w i l l compel i n d u s t r i a l concerns to locate their facilities i n close p r o x i m i t y to energy sources abroad, r a t h e r t h a n to their markets and customers at home. T h i s w o u l d mean a n a d d i t i o n a l loss of jobs i n this country and w o u l d be detrimental to the v i t a l i t y of the entire American economy. As energy costs rise due to the a r b i t r a r y action of the OPEC cartel over w h i c h we have no control, inflationary pressures are placed on our economy. W h e n this occurs, there is a tendency f o r government to enact policy which 30 i n h i b i t s economic g r o w t h . T o continue along our present p a t h spells economic, social and p o l i t i c a l chaos. I I I . Do we as a Nation have the resources and capacity to achieve energy independence?—The answer is yes! W e are extremely f o r t u n a t e as a N a t i o n to have vast reserves of resources t h a t can be converted i n t o energy. The N o r t h Slope of Alaska w i l l make available significant amounts of o i l and n a t u r a l gas. A n d we have k n o w n reserves of coal t h a t w i l l last us f o r at least one h u n d r e d years. I t is estimated t h a t our shale o i l reserves are equivalent to f o u r to five times the t o t a l amount of k n o w n o i l reserves i n the M i d d l e East. The p o t e n t i a l resources on the outer continental shelf are expected to be substantial. W e have the technology and a b i l i t y to more t h a n t r i p l e the generation of nuclear power w i t h appropriate safeguards by 1985. W e have, i n t h i s country, p o t e n t i a l energy f r o m geothermal, solar and other sources. A l l of these can replace our d w i n d l i n g present domestic supply of n a t u r a l gas and o i l — i n a w a y t h a t protects our environment. To achieve energy independence i n this century, we must develop and cons t r u c t the f a c i l i t i e s necessary t o exploit these new sources, and we have already lost t w o years i n getting started. I V . What does it take to do it?—To achieve energy self-sufficiency w e must, i n the short-term, face u p to the issues t h a t confront this Congress and the A m e r i c a n people. W e must enact and employ conservation measures. W e must deregulate the prices of domestic o i l and gas. W e must assure t h a t we do not u n d u l y impede the development of nuclear power. A n d we must assure t h a t our environment is protected, but t h a t the policies we adopt i n doing so do not deter the development of our resources, such as coal, o i l shale, and off shore o i l reserves. There is no problem i n achieving both goals i f we a l l w o r k together. Modern science and technology can assure the achievement of both goals together. According to Federal Energy A d m i n i s t r a t i o n estimates, i f we take a l l the necessary actions i n the n e x t 10 years, we can reduce our energy needs by 5 percent t h r o u g h conservation, increase domestic o i l production by 50 per cent, increase coal production by 100 per cent, increase n a t u r a l gas production by 10 per cent and increase nuclear power generation by 300 per cent. T h i s w i l l require, among other things, deregulation of o i l and gas—strong conservation measures—and $600 b i l l i o n to $800 b i l l i o n i n p r i v a t e sector investment i n domestic energy production. W e must restore existing and construct new transp o r t a t i o n systems where necessary. I n the longer-term, we must commercialize k n o w n technology f o r the gasification and liquefaction of coal. And, as new technologies become k n o w n f o r the development of such energy sources as solar, geothermal and u r b a n wastes, they can be applied commercially. Energy independence can be achieved f r o m the application of a l l of these approaches before the end of the century i f we have an a l l out n a t i o n a l commitment. Y. Why does government have to get into it?—Why isn't private enterprise doing it?—Energy independence is a n a t i o n a l objective t h a t is essential to the economic and strategic well-being of t h i s Nation. P r i v a t e enterprise alone cannot and w i l l not do i t . There is ample precedent f o r positive government action to encourage the American enterprise system i n achieving n a t i o n a l objectives t h a t contribute to economic growth, the well-being of our people, and our n a t i o n a l security. W e have a transcontinental r a i l r o a d system because the government provided the land. W e have a uniquely productive free enterprise a g r i c u l t u r a l system because of assistance by the government t h r o u g h the Homestead Act, L a n d G r a n t Colleges, the Extension Service, and the Federal A g r i c u l t u r a l Credit System. Our c i v i l i a n a v i a t i o n i n d u s t r y evolved f r o m the research a n d development of m i l i t a r y a i r c r a f t . Because of the billions of dollars spent on our h i g h w a y system by a l l levels of government, we have a prosperous automot i v e i n d u s t r y w h i c h is basic to our economy. A l l of these are examples of the p a r t n e r s h i p between government and i n d u s t r y to achieve an essential n a t i o n a l goal w h i c h was not attainable by either acting alone. I n the case of energy, we have the r a w m a t e r i a l s to achieve self-sufficiency, u n c e r t a i n t y of the risks involved, produce the c a p i t a l investment required to f u l l y develop these resources w i t h i n a reasonable period of time. P r i v a t e capi- 31 t a l sources are—for good reason—reluctant to make c a p i t a l available f o r domestic energy production projects because of the uncertainty of government regulation, costs and prices. For example, the development of a single coal gasification plant w o u l d require a capital investment of up to $1 b i l l i o n and take approximately 6 to 10 years to construct. Because of the uncertainties of the technology, and price, and the long lead times, such a project has more t h a n j u s t the o r d i n a r y risk. Many projects, such as floating nuclear power plants, financing f r o m the private secor alone may not be adequate. Ninety-two nuclear power plants have been cancelled or postponed, i n large p a r t because the electrical u t i l i t i e s have not been able to raise the financing necessary to construct them. They now take 10 or more years to build, cost approximately $1 billion, and the state regulatory bodies w i l l not give a rate increase to finance them u n t i l the power f r o m the new p l a n t comes on line. Thus, their i n a b i l i t y to get p r i v a t e financing. This is not to suggest t h a t these projects are destined to lose money. I t only points out the uncerainties t h a t deter p r i v a t e sector investment. W e are not i n a position to w a i t u n t i l these uncertainties become certainties. The longer we w a i t , the f u r t h e r i n t o the f u t u r e we push the day when these projects w i l l add to our domestic energy production. V I . How can government play an appropriate role without subsidizing private interest, or urithout interfering with the free enterprise system?—Government has t r a d i t i o n a l l y played a role of providing incenives i n one f o r m or another to assure t h a t adequate capital is available to the p r i v a t e sector i n achieving n a t i o n a l objectives. I n this case, the government's role w o u l d be to provide up to a t o t a l of $100 b i l l i o n of risk captal f o r energy projects essent i a l to energy independence w h i c h cannot get the necessary amount of p r i v a t e financing. The government loans w o u l d be on terms comparable to those offered by the p r i v a t e sector. I n financing the development of energy resources, the government p r o g r a m should f u n c t i o n l i k e an investment bank or other private sector financing agency—providing assistance to promising projects, but on a self-liquidating basis. T h i s would provide an appropriate government/ private sector partnership w h i c h w o u l d w o r k together to get this country off dead center i n achieving energy independence w i t h o u t a giveaway or subsidy. The legislation stipulates t h a t the private sector w o u l d own and operate productive facilities, and not the government. The A m e r i c a n enterprise system has shown itself to be the most efficient and capable producer i n the world. B y providing financial assistance to take those risks w h i c h are beyond the capaci t y of the p r i v a t e sector, the government w o u l d act as a catalyst i n getting the energy independence program i n t o motion. B u t a f t e r costs were determined and market prices established, then the competitive n a t u r e of our system w o u l d provide the incentives necessary f o r the successful achievement of our energy independence goals. V I I . If the answer to getting us off dead center is an Energy Independence Authority, as provided for in Senate Bill 2532, how would it wforkt—The Energy Independence A u t h o r i t y w o u l d have a u t h o r i t y to provide up to $100 b i l l i o n of financial assistance f o r energy projects w h i c h could not otherwise secure financing f r o m private sector sources. T h i s sum w o u l d be raised through the sale to the Treasury of up to $25 b i l l i o n i n equity securities and the issuance of up to $75 b i l l i o n i n government-guaranteed obligations. The A u t h o r i t y could provide financial assistance i n a v a r i e t y of ways, including loans, loan or price guarantees, purchase of equity securities, or construction of facilities f o r lease-purchase. The A u t h o r i t y w o u l d not be permitted to o w n and operate facilities, or to provide financing at interest rates w h i c h are below those w h i c h p r e v a i l i n the p r i v a t e sector. The A u t h o r i t y w o u l d be authorized to support emerging technologies i n energy supply, transportation or transmission, and conservation, projects which displace oil or n a t u r a l gas as fuels f o r electric power generation, projects w h i c h involve technologies essential to the production or use of nuclear power and projects of unusual size or scope, or w h i c h involve innovative regulatory or i n s t i t u t i o n a l arrangements. I t is also authorized to finance capital investments necessary f o r environmental protection. The Energy Independence A u t h o r i t y w o u l d be r u n by a board of five directors appointed by the President and confirmed by the Senate. V I I I . With an alVout national effort, how fast can we expect to achieve the goal of energy independence?—With an all-out effort—based on the establish- 32 ment of the Energy Independence A u t h o r i t y to assist i n financing the shortt e r m actions required t o l i m i t our v u l n e r a b i l i t y by 1985, as w e l l as the new domestic energy sources we w i l l need a f t e r 1985—we can achieve energy independence before the end of this century. B u t t i m e is of the essence. W e cannot w a i t another year i f we are going to protect our n a t i o n a l security and r e b u i l d our economic strength to meet the needs of our people a t home a n d our responsibilities abroad. S T A T E M E N T OF F R A N K G . Z A R B , A D M I N I S T R A T O R , F E D E R A L E N E R G Y ADMINISTRATION M r . Chairman, Members of the Committee: T h e Vice President provided y o u w i t h an excellent overview of the need to act boldly and expeditiously to revitalize our domestic energy production activities and, i n the process, a t t a i n an assured degree of self-sufficiency. I w o u l d l i k e to t u r n now to a more detailed assessment of this Nation's energy needs and the A d m i n i s t r a t i o n ' s proposals to achieve the goals w h i c h the Vice President j u s t described. The N a t i o n a l Energy Outlook ( N E O ) recently published by the Federal Energy A d m i n i s t r a t i o n clearly indicates t h a t the U n i t e d States must make a substantial commitment of policy and programs to achieve energy independence. As the Vice President described i t , j u s t to m a i n t a i n c u r r e n t i m p o r t levels of about six m i l l i o n barrels a day, the N a t i o n must accelerate i t s energy production i n a l l f u e l sectors. Domestic crude o i l production must increase f r o m 8.4 m i l l i o n barrels a day to about 12.3 m i l l i o n barrels by 1985. T h i s is an increase of almost 50 percent, even though c u r r e n t l y producing onshore reserves w i l l decline to 2.4 m i l l i o n barrels a day by 1985, as the older fields are depleted. New supplies w i l l have t o come f r o m the Outer Continental Shelf and Alaska, w i t h synthetics contributi n g very l i t t l e i n the absence of financial assistance f r o m the federal government. N a t u r a l gas production must go over 22 t r i l l i o n cubic feet by 1985, as compared to the 20 t r i l l i o n cubic feet t o t a l we were able to produce i n 1975, and the projected 17.9 t r i l l i o n cubic feet i n 1985 under continued regulation. Most of this new gas production w i l l come f r o m the G u l f of Mexico a n d intensive onshore activities. Alaskan gas, liquified n a t u r a l gas, and synthetic gas could also supplement the 1985 supply. Coal production, 640 m i l l i o n tons i n 1975, must go over one b i l l i o n tons by 1985, w i t h most of the expansion coming i n the Western U n i t e d States. Nuclear power's share of electric power generation w i l l have to increase to about 26 percent, as compared to 1975's 8.6 percent. T h i s expansion w i l l have to occur despite reduced demand g r o w t h forecasts, delays i n siting, and financ i a l difficulties of many electric u t i l i t i e s . A n expanded commercial demonstration effort f o r synthetic fuels technologies must be i n place by 1985. Unless construction of synthetic fuels plants is started n o w and proven commercially viable by 1985, i t w i l l not be possible f o r these new energy sources to replace d w i n d l i n g supplies of o i l and gas i n the post-1985 period. L a s t l y , but equally i m p o r t a n t , we must continue and expand our c u r r e n t effrts to conserve energy use i n automobiles, households, commercial buildings, and i n d u s t r y . Each of these elements, as you can see, is a massive p r o g r a m i n itself, and a l l of them must w o r k i n concert w i t h each other i f we are to reach t h a t s i x m i l l i o n b a r r e l per day i m p o r t figure by 1985. Quite candidly, a l l of these things w i l l not happen by themselves. A l l must occur w i t h i n the bounds of cert a i n c r u c i a l assumptions: There must be a phased price deregulation of o i l and n a t u r a l gas. There must be a resolution of the uncertainties to p e r m i t he orderly development of coal. There must be no m a j o r restrictions i n the g r o w t h of nuclear power. There must be adequate financing available. There must be a s t r e a m l i n i n g of the regulatory process t o eliminate unnecessary delays i n b r i n g i n g new energy development on line. I t is on t h i s last point t h a t a discussion of the proposed Energy Independence A u t h o r i t y is p a r t i c u l a r l y relevant. F o r the forecasts we have produced assume t h a t financing w o u l d be available f o r the energy projects w h i c h we s h a l l need i n the next decade a n d beyond. 33 F u l l y $580 billion, ( i n 1975 dollars) i n energy supply investments are expected to be needed i n the next ten years. T h i s represents about 30 percent of fixed business investment, w h i c h is close to energy's h i s t o r i c a l share. Investments to increase energy efficiency and promote conservation could also add the significant amount of more t h a n $200 b i l l i o n to the t o t a l needed t h r o u g h 1985. N o w most energy projects should and w i l l be financed f r o m conventional p r i vate sources, but there w i l l be others i n selected energy sectors t h a t w i l l encounter financial difficulty. F o r example, electric utilities, whose spending w i l l have to almost double i n the next ten years, can be expected to continue to have serious difficulties i n raising capital unless f u r t h e r changes are fortcoming on a timely basis to provide adequate rates and stronger earnings. T h i s i n d u s t r y is now and w i l l continue to be the most intensive user of the Jcapital markets to finance expenditures—and on a revenue base w h i c h is less t h a n h a l f of t h a t of the o i l companies. I n addition to new outlays, the electric u t i l i t y i n d u s t r y w i l l need additional capital to b r i n g about the replacement of oil- or gas-fired plants, or to promote a newer technology at a faster pace, such as dual-purpose steam and electric plants. I t is also clear t h a t i f there is to be development of a commercially viable synthetic fuels industry, some direct federal financial stimulus w i l l be required. Most of these technologies are capital intensive—generally expected to r u n one b i l l i o n dollars per plant to produce high cost energy. W i t h continued uncertainty over w o r l d o i l prices, investors are reluctant to commit one b i l l i o n dollars to b u i l d a p l a n t whose output price w i l l not be immediately competitive w i t h the w o r l d price of crude oil. Furthermore, the risk of commercializing these technologies is compounded by the uncertainty over how w e l l the technology w i l l w o r k ; this makes the investment i n energy technologies and supply development processes a l l the more difficult. The coal industry, w h i c h w i l l have to t r i p l e its investments i n the next ten years, may need special projects to support regional m i n i n g development or better environmental technologies. Investment requirements i n coal transportation, including such systems as s l u r r y pipelines, could make i t difficult to achieve production objectives. Conservation investment activities include, f o r example, a strategy of encouraging electric u t i l i t y load management. Such projects as positive load control systems and time-of-day metering equipment, could result i n substantial benefits i n both energy and f u t u r e capital savings. Investments i n u r a n i u m mining, m i l l i n g , fabrication, and waste management— combined k n o w n as the nuclear f u e l cycle—must support the expansion of nuclear capacity. These activies are expected to require on the order of $2 bill i o n over the next ten years. I t is i n the context of these circumstances t h a t the Energy Independence A u t h o r i t y has been proposed. Energy independence w o u l d be aided through loans, loan guarantees, and other financial assistance to p r i v a t e sector energy projects. The E I A legislation is designed to assure t h a t outlays w o u l d be recouped by the government. Cooperation w i t h p r i v a t e sector financing w o u l d be utilized to a great extent. The a u t h o r i t y w o u l d have a l i m i t e d l i f e of ten years. F i n a n c i a l resources w o u l d t o t a l $25 b i l l i o n of equity and $75 b i l l i o n of debt. I t w o u l d only support those projects w h i c h w o u l d contribute directly and significantly to energy independence and w h i c h w o u l d not be financed w i t h o u t government assistance. The Vice President has already described f o r you the scope of E I A ' s investment a c t i v i t y . M r . Chairman, t h i s i n i t i a t i v e has received much p u b l i c i t y since i t s inception, and there is no doubt t h a t i t w i l l be vigorously debated by both chambers of Congress. A n d w e l l i t should, since i t constitutes one of the most significant undertakings t h a t t h i s N a t i o n has considered i n the past t w o decades. I w o u l d l i k e to address briefly a f e w of the m a j o r criticisms of the proposal and, by doing so, f u r t h e r expand on the E I A concept and, perhaps, anticipate some of the concerns w h i c h you may have. One of the m a j o r objections to E I A is t h a t i t w o u l d d i v e r t too large a share of c a p i t a l f r o m the m a r k e t and, thereby, crowd out other necessary investments i n the economy. T h i s argument is unfounded when we look at the patt e r n of post-World W a r T w o capital f o r m a t i o n and the energy sector's share 34 of the total. F o r the period 1947-1974, t h i s sector's share of outlays averaged out to 29 percent. A t the estimated $580 b i l l i o n needed between n o w a n d 1985, the energy sector w o u l d absorb about the same historical f r a c t i o n , b u t c e r t a i n areas w i l l find i t difficult t o a t t r a c t needed capital. B y the s t i p u l a t i o n i n the legislation t h a t the Secretary of the Treasury concur i n the t i m i n g , method, source, interest rate, and other terms and conditions of E I A transactions, we can be assured t h a t the condition of the capital markets w i l l be carefully considered. Some question the advisability of p r o v i d i n g sums of money t o the energy i n d u s t r y , w h i c h has been accused of reaping h i g h profits i n recent times. F i r s t of all, the h i g h l y publicized gains made by the o i l companies f o l l o w i n g the embargo are receding, m a k i n g t h e i r profit position comparable to other m a j o r industries i n t h i s Nation. Secondly, we are i n an area where the costs o f essential energy projects are unknown. W i t h the p r i c i n g s t r u c t u r e i n t h i s count r y , w i t h the u n c e r t a i n t y of government decisions regarding energy, p r i v a t e enterprise—no m a t t e r how s o l v e n t — w i l l not make an investment u n t i l they k n o w whether they have an expectation of e a r n i n g a r e t u r n commensurate w i t h the risks. W e are speaking here, of course, of the so-called energy r i s k ventures t h a t were described previously. I n the area of conventional energy development, the petroleum i n d u s t r y can be expected t o raise the money needed to f u n d substantial increases i n the cost of exploration and development of domestic o i l and gas, w i t h i n the c u r r e n t regulatory and economic framework. On the subject of r i s k ventures, there are those t h a t counted t h a t the E I A w o u l d c e r t a i n l y lose money, since i t appears t h a t the ventures are so r i s k y t h a t p r i v a t e enterprise w i l l not touch them. T h e mere f a c t t h a t the p r i v a t e sector does not support a c e r t a i n project does not necessarily mean t h a t the project w i l l lose money. E I A is intended to provide r i s k c a p i t a l to projects w h i c h offers the promise of c o n t r i b u t i n g i n t h e f u t u r e to energy independence by operating profitably on a commercial scale, projects w h i c h could not otherwise secure the necessary c a p i t a l to begin the five- to ten-year process of seeki n g approvals f o r , and constructing, production facilities. Even here, the f o r m u l a t i o n of this proposal was designed to l i m i t E I A ' s exposure t o these kinds of ventures. L i m i t a t i o n s i n c l u d i n g requirements f o r necessary reserves, have been incorporated i n the proposal to prevent any over-extension of investment commitments. I t should also be emphasized t h a t no permanent ownership, c o n t r o l or operat i o n of energy f a c i l i t i e s by the federal government t h r o u g h E I A w i l l be allowed. W e are not establishing another layer to the government bureaucracy. The a u t h o r i t y w i l l have a specified l i f e of ten years, w i t h new financing commitments p e r m i t t e d only i n the first seven years of i t s existence. I n l i n e w i t h t h i s is the concern expressed by many over the c o n t r o l to be exercised by the Congress over the operations of the E I A . Congress w i l l have a c o n t i n u i n g role i n the review of E I A activities. F i r s t , i n the organization phase of the A u t h o r i t y , the five-person B o a r d of Directors w i l l be appointed by the President, subject to the advice and consent of the Senate. I n i t s operations, since any E I A request f o r equity capital w o u l d be subject to the n o r m a l budget a u t h o r i z a t i o n and a p p r o p r i a t i o n process, Congress w i l l have the opportunity to r e v i e w the policies of E I A . E I A w i l l also be required to submit an a n n u a l report to Congress, and the General Accounting Office is specifically authorized to a u d i t the activities of the corporation. F i n a l l y , there are some who w o u l d criticize us f o r even a t t e m p t i n g to reach the goal of energy independence, since, i n t h e i r minds, i t appears to be a "piein-the-sky" hope. L e t me reiterate t h a t "energy independence" does not mean "zero imports." T h i s A d m i n i s t r a t i o n has been w o r k i n g t o w a r d a realistic a n d vialbe plan whereby our domestic production of energy could be increased t o the point at which, i n conjunction w i t h vigorous conservation programs, our level of i m p o r t e d energy w o u l d be acceptable. B y t h a t I mean a level w h i c h i f i n t e r r u p t e d by any cause, be i t a r b i t r a r y price hikes or embargo, w o u l d not adversely affect t h i s Nation's economy or foreign policy flexibility. T h e Energy Independence A u t h o r i t y now before you is a c r u c i a l p a r t of t h i s o v e r a l l program. I w o u l d hope t h a t we could now n a r r o w our differences, resolve them, and f o r m u l a t e a p r o g r a m to cope w i t h our energy problems t h a t mobilizes our domestic resources and demonstrates to our f r i e n d s and partners around the w o r l d t h a t we are determined to master our economic destiny. 35 94TII C O N G R E S S 1ST SESSION O ^ F * O O J O Z I N T H E S E N A T E OF T H E U N I T E D STATES. OCTOBER 20,1975 M r . F A N N I N ( f o r h i m s e l f , M r . H U G H SCOTT, a n d M r . TOWER) ( b y request) i n t r o d u c e d t h e f o l l o w i n g b i l l ; w h i c h was r e a d t w i c e a n d r e f e r r e d t o t h e Committee on Banking, Housing and U r b a n Affairs A BILL To establish the E n e r g y Independence A u t h o r i t y , m e n t corporation w i t h authority to provide a Govern- financing and economic assistance for those sectors of the national economy w h i c h are i m p o r t a n t to the development of domestic sources and the conservation of energy and the attainment of energy independence for the U n i t e d States i n a manner consistent w i t h the protection of the environment; to improve Federal Government operations so as to assist i n the expediting of regulatory procedures and for other 1 which affect energy development; purposes. Be it enacted by the Senate and House of 2 tives of the United 3 T h a t this A c t m a y be cited as the " E n e r g y 4 A u t h o r i t y A c t of 1 9 7 5 " . States of America in Congress Representaassembled, Independence 36 1 TITLE 2 I—FINDINGS AND PURPOSES FINDINGS 3 SEC. 101. The Congress finds and declares t h a t : 4 (a) The achievement of energy independence for the 5 U n i t e d States b y 1985 and the l o n g - t e r m security of energy 6 sources and supplies are essential to the health of the na- 7 tional economy, the w e l l being of our citizens and the mainte- 8 nance of national security. 9 ( b ) A t t a i n m e n t of energy independence b y the U n i t e d 10 States i n a t i m e l y manner and i n a manner consistent w i t h 11 the protection of the environment is not l i k e l y w i t h o u t finan- 12 cial commitments beyond those l i k e l y 13 f r o m traditional capital sources i n the traditional manner. to be forthcoming 14 (c) E n e r g y independence for the U n i t e d States can be 15 accomplished by reducing imports of energy resources arid 16 increasing domestic supply of energy resources so that the 17 political and economic vulnerability of the U n i t e d States to 18 disruptions i n oil imports is reduced. 19 (d) A c h i e v i n g the goal of energy independence i n an 20 expeditious manner w h i c h gives due regard to the need to 21 protect the environment can be facilitated b y establishing an 22 independent entity of l i m i t e d duration w h i c h w i l l provide 23 additional capital, where possible i n conjunction w i t h private 24 sources of capital, to assist the development and conservation 25 of domestic energy resources and b y encouraging the p r o m p t 37 1 resolution of questions coming before Federal regulatory or 2 licensing entities. 3 4 PURPOSES SEC. 102. I t is the purpose of this A c t : 5 (a) T o encourage and assure the flow of capital funds 6 to those sectors of the national economy w h i c h are i m p o r t a n t 7 to the development of domestic sources of energy or w h i c h 8 are otherwise important 9 dependence for the U n i t e d States b y 1985 or the long-term 10 security of energy sources and supplies, and to expedite and 11 facilitate Federal regulatory and licensing decisionmaking; 12 (b) to the attainment of energy in- To provide financial assistance, where possible b y 13 the m a k i n g or guaranteeing of loans i n conjunction w i t h p r i - 14 vate sector financing, for those activities w h i c h show 15 greatest potential of contributing to the development of do- 16 mestic sources or the conservation of energy i n a manner 17 w h i c h preserves economically sound and competitive industry 18 sectors, w h i l e m i n i m i z i n g any economic distortion or disrup- 19 tion of competitive forces; 20 the (c) To hasten the commercial operation of new energy 21 technologies subsequent to the research and 22 phase; development 23 (d) To develop domestic sources of energy i n a manner 24 w h i c h gives due regard to the need to protect the environ- 25 ment; 38 1 (e) T o supplement and encourage, and not compete 2 w i t h , private capital investment and activities i n the devel- 3 opment of domestic sources of energy, recognizing that the 4 private sector must p l a y the p r i m a r y role i n such develop- 5 m e n t ; and 6 ( f ) T o assist i n c a r r y i n g out the foregoing purposes 7 t h r o u g h the creation of the E n e r g y Independence A u t h o r i t y , 8 a self-liquidating corporate entity of l i m i t e d duration formed 9 to provide financial assistance for projects that w i l l contrib- 10 ute significantly to the attainment of energy independence b y 11 the U n i t e d States, and b y p r o v i d i n g f o r the t i m e l y 12 orderly liquidation of the A u t h o r i t y ' s investments and under- 13 takings. 14 TITLE II—CORPORATE 15 POWERS, S U B S I D I A R I E S A N D T A X 16 17 18 19 STATUS, and GENERAL STATUS ESTABLISHMENT SEC. 201. ( a ) There is hereby created a body corpo- rate, to be k n o w n as the E n e r g y Independence (hereafter referred to as the Authority "Authority"). 20 ( b ) The p r i n c i p a l office of the A u t h o r i t y shall be l o - 21 cated i n the D i s t r i c t of Columbia, b u t there m a y be estab- 22 lished agencies or branch offices i n such other places as m a y 23 be determined b y the B o a r d of Directors of the A u t h o r i t y . 39 1 2 3 GENERAL POWERS SEC. 202. I n carrying out the purposes of this A c t , the A u t h o r i t y shall have the p o w e r : 4 ( a ) To adopt, alter, and rescind bylaws and to adopt 5 and alter a corporate seal, w h i c h shall be judicially noticed; 6 ( b ) To make contracts w i t h individuals and private or 7 8 9 10 11 12 13 governmental entities; ( c ) T o lease or purchase and to dispose of such real p r o p e r t y as m a y be necessary f o r the transaction of its business; ( d ) To acquire and dispose of personal and intangible p r o p e r t y (including money) ; ( e ) T o sue and be sued, subject to the provisions of section 707 of this A c t , i n its corporate name and to coinplain and defend i n any court of competent jurisdiction, State 16 or F e d e r a l ; (f) To represent itself or to contract for representation -18 i n all judicial and other legal proceedings 19 the provisions of title 28 of the U n i t e d States Code or any 2 other provision of l a w ; ® (g) notwithstanding Subject to the provisions of section 502 of this 22 A c t , t o select, employ, and f i x the compensation of such 2 officers, employees, attorneys, and agents as shall be neces- ^ 40 1 sary for the transaction of the business of the A u t h o r i t y and 2 to define 3 them and f i x the penalties thereof; their authorities and duties, require bonds of 4 ( h ) T o make provision for and designate such c o m m i t - 5 tees, and the functions thereof, as the B o a r d of Directors m a y 6 deem necessary or desirable ; 7 ( i ) To determine and prescribe the manner i n w h i c h 8 obligations of the A u t h o r i t y shall be incurred and its ex- 9 penses allowed and p a i d ; 10 ( j ) To exercise all other l a w f u l powers necessarily or 11 reasonably related to the establishment and conduct of a 12 corporate entity, to the achievement of its purposes and the exercise of its powers, purposes, functions, duties, and authorized activities; (k) To use the U n i t e d States mails on the same terms and conditions as the executive departments of the U n i t e d 17 States G overnment; and ( 1 ) W i t h the consent of any board, commission, independent establishment, or executive department of the ex- 90 ecutive branch to make use of services and facilities thereof, 21 w i t h or w i t h o u t reimbursement, i n c a r r y i n g out the p r o v i ^ sions of this A c t . SUBSIDIARIES 94 SEC. 203. 26 ( a ) I n accordance w i t h the procedure set forth i n subsection ( e ) of this section, the A u t h o r i t y m a y create or cause to be created one or more w h o l l y owned sub- 41 1 sidiary corporations to carry out one or more of the func- 2 tions i n w h i c h the A u t h o r i t y is authorized to engage pursuant 3 to this A c t . Each such corporation so created is hereafter re- 4 ferred to as a " s u b s i d i a r y " . ^ (b) Each subsidiary shall have and enjoy the same Q privileges and immunities under the laws of the 7 States and the several States and their political subdivisions g as the A u t h o r i t y , and shall have such functions and powers 2 as shall be provided i n its charter, provided that no charter 10 shall grant authority for a .subsidiary to engage i n a function H or to exercise a power w h i c h w o u l d be beyond the functions 12 or powers of the A u t h o r i t y under this A c t . 13 United (c) A n y provision of this A c t w h i c h limits or restricts 14 the 15 A u t h o r i t y shall be deemed to apply to each subsidiary. 16 functions, (d) For powers or financial commitments of the purposes of any provision of this the Act 17 w h i c h relates to the financial condition of the lg the A u t h o r i t y and the subsidiaries shall be treated on a 19 consolidated basis in accordance w i t h 20 accounting principles. A l l reports, including audits, 21 i n g to the A u t h o r i t y w h i c h are required under this 22 shall include all subsidiaries. 23 generally Authority, accepted relatAct (e) The functions and powers of every subsidiary shall 24 be set out in a charter. w h i c h shall be valid only 25 certified copies thereof are filed w i t h the Secretary of the when 42 1 Senate a n d the C l e r k of the H o u s e of Representatives 2 p u b l i s h e d i n the F e d e r a l E e g i s t e r , a n d a l l a m e n d m e n t s to 3 such charters shall be v a l i d o n l y w h e n s i m i l a r l y f i l e d a n d 4 published. 5 b e y o n d the authorized life of the 6 (f) No subsidiary shall h a v e a t e r m of and existence Authority. T h e D i r e c t o r s of the A u t h o r i t y shall serve as the 7 D i r e c t o r s of each subsidiary a n d the C h a i r m a n of the B o a r d 8 of the A u t h o r i t y shall serve as the C h a i r m a n of the B o a r d 9 of each subsidiary, and neither the C h a i r m a n n o r the D i r e c - 10 tors shall be e n t i t l e d to compensation for t h e i r services to a 11 subsidiary except as p r o v i d e d i n section 5 0 1 of this 12 T h e provisions of subsections 13 5 0 2 of this A c t shall be deemed to a p p l y to each subsidiary, 14 p r o v i d e d t h a t a n y p r o v i s i o n of such subsections w h i c h l i m i t s 15 the n u m b e r of a n y category of officers or employees shall be 16 deemed to a p p l y to the A u t h o r i t y a n d a l l subsidiaries t a k e n 17 collectively. 18 have the same r i g h t s a n d liabilities as officers and employees 19 of the A u t h o r i t y under this A c t . (b) through Officers a n d employees (f) Act. of section of a subsidiary shall 20 ( g ) N o t h i n g i n this section shall be deemed to p r e v e n t 21 the A u t h o r i t y f r o m i n v e s t i n g funds of the A u t h o r i t y i n cor- 22 porations other t h a n subsidiaries. 23 T A X STATUS 24 SEC. 2 0 4 . T h e A u t h o r i t y , its franchise, capital, reserves, 25 surplus, a n d income shall be e x e m p t f r o m a l l t a x a t i o n n o w or 43 1 hereafter imposed b y the U n i t e d States, b y a n y 2 dependency, or possession thereof, or b y a n y State, c o u n t y , 3 municipality, 4 a n y real p r o p e r t y o w n e d i n fee b y the A u t h o r i t y shall be 5 subject to State, t e r r i t o r i a l , county, m u n i c i p a l , or other local 6 t a x a t i o n t o t h e same extent, according to its value, as other 7 s i m i l a r l y situated and used real p r o p e r t y , w i t h o u t discrimina- 8 t i o n i n the valuation, classification, or assessment thereof, and 9 (ii) or local t a x i n g a u t h o r i t y ; except territory, that: a n y e n t i t y acquired or established, or a c t i v i t y (i) under- 10 taken, b y the A u t h o r i t y 11 t e r m is defined i n section 3 0 1 of this A c t ) 12 d i r e c t l y i n the p r o d u c t i o n , conservation, transportation, trans- 13 mission, distribution, 14 related commodities, facilities, or products, shall be subject to 15 taxes imposed b y the U n i t e d States or a n y State or subdivi- 16 sion thereof i n the same, manner as if such e n t i t y or a c t i v i t y 17 were 18 Authority. 19 not w h i c h engages or sale of energy, fuels or established, TITLE III—FINANCIAL 20 21 acquired, (except financial assistance a,s that or undertaken energy- by the ASSISTANCE GENERAL DEFINITIONS SEC. 3 0 1 . A s used i n this A c t : (i) the t e r m "business 22 c o n c e r n " shall m e a n a n y i n d i v i d u a l , corporation, 23 association, firm, partnership, j o i n t venture, society, or other 24 p r i v a t e e n t i t y w h i c h is engaged, or proposes to engage, i n 71-787 O - 76 company, 44 1 projects i n v o l v i n g energy development, production, 2 portation, transmission, distribution or conservation, and ( i i ) 3 the t e r m " f i n a n c i a l assistance" shall mean any f o r m of ad- 4 vance, 5 guarantee, including, w i t h o u t l i m i t a t i o n , loans, guarantees of 6 obligations, guarantees of price, purchase and leaseback of 7 facilities, and the purchase of convertible or equity securities, 8 but excluding grants-in-aid. 9 extension of credit, investment, trans- participation or AUTHORIZATION OF FINANCIAL ASSISTANCE 10 SEC. 302. Subject to the limitations set f o r t h i n this title, 11 the A u t h o r i t y is authorized and empowered, i n its sole dis- 12 cretion and upon such terms and conditions as i t m a y deter- 13 mine, to provide financial assistance to any business concern 14 w h i c h is engaged, or proposes to engage, i n a project described i n subsection 303 (b) i n order to enable such busi16 ness concern to finance the ownership, construction, conver- 17 sion, or expansion of productive facilities; or the acquisition of equipment, plant, machinery, supplies, or materials or the 19 acquisition or development of land, m i n e r a l rights and serv- 20 ices; or t o provide 21 capital needed to carry out the project i n an efficient manner. 22 F i n a n c i a l assistance, and the terms and conditions thereof, 23 m a y be renewed, modified, or extended b y the B t i a r d of 24 Directors as i t m a y determine. N o provision of this A c t shall such business concern w i t h working 45 1 be deemed or construed so as to require or obligate 2 A u t h o r i t y to p r o v i d e 3 p r o j e c t or p a r t i c u l a r t y p e of p r o j e c t . T o the e x t e n t practica- 4 ble, i n the j u d g m e n t of the B o a r d of D i r e c t o r s , f i n a n c i a l as- 5 sistance p r o v i d e d under this t i t l e shall be i n the f o r m of loans 6 a n d l o a n guarantees, r a t h e r t h a n e q u i t y i n v e s t m e n t or g u a r - 7 antees of p r i c e . A l l contractual c o m m i t m e n t s of the A u t h o r i t y 8 to p r o v i d e 9 the U n i t e d States backed b y its f u l l f a i t h a n d credit. financial financial assistance to a n y PROJECTS TO W H I C H F I N A N C I A L 11 PROVIDED 13 14 15 SEC. 3 0 3 . individual assistance shall be general obligations of 10 12 the , ASSISTANCE MAY BE (a) T h e A u t h o r i t y is e m p o w e r e d to p r o v i d e f i n a n c i a l assistance for a n y p r o j e c t , described i n subsection (b) b e l o w , if, i n the j u d g m e n t of the B o a r d of D i r e c t o r s , such p r o j e c t w i l l m a k e a significant contribution to the a c h i e v e m e n t of energy independence b y t h e U n i t e d States o r 17 the l o n g t e r m security of e n e r g y supplies f o r the 18 States a n d w o u l d n o t receive sufficient 19 m e r c i a l l y reasonable terms f r o m other sources to m a k e the 20 p r o j e c t c o m m e r c i a l l y feasible: Provided, 21 m a x i m u m a m o u n t of f i n a n c i n g f r o m sources other t h a n the 22 Authority, 23 connection w i t h a n y p r o j e c t for w h i c h f i n a n c i a l assistance 24 is p r o v i d e d . preferably private financing however, United upon com- T h a t the sources, shall be sought in 46 1 ( b ) The A u t h o r i t y shall provide financial assistance for 2 only those projects w h i c h i n the j u d g m e n t of the B o a r d of 3 Directors: 4 ( 1 ) employ, or w o u l d stimulate the application of, 5 technologies, processes or techniques w h i c h are essential 6 to the development, production, transportation, 7 mission, or conservation of energy and w h i c h are n o t i n g widespread domestic commercial use at the t i m e of the 9 A u t h o r i t y ' s c o m m i t m e n t of financial assistance; or trains- 10 ( 2 ) employ, or w o u l d stimulate the application of, 11 technologies, processes or techniques w h i c h are essential 12 to the production or use of nuclear p o w e r ; or 13 ( 3 ) employ, or w o u l d stimulate the application of, 14 technologies, processes or techniques for the generation 15 of electricity f r o m fuel sources other than oil or n a t u r a l 16 gas or for the transmission of such electricity; or 17 (4) employ technologies, processes or techniques 18 for the development, production, transportation or trans- 19 mission of energy w h i c h at the time of the 20 i t y ' s c o m m i t m e n t of financial assistance are i n 21 spread domestic 22 project is ( i ) either of such size or scope that i t w o u l d 23 n o t be undertaken w i t h o u t the assistance of the A u t h o r - 24 i t y , or 25 rangement not i n widespread domestic commercial use (ii) commercial use, provided Author- that widesuch involves an institutional or regulatory ar- 47 1 the success of w h i c h w o u l d lead to improvements i n the 2 development or production of energy, or i n d i v i d u a l trans- 3 portation or transmission facilities related to 4 described i n clauses (i) or ( i i ) ; or projects 5 ( 5 ) employ, or w o u l d stimulate the application of, 6 technologies, processes or techniques for the protection 7 of the environment necessary i n connection w i t h activi- 8 ties of a type described i n paragraphs ( 1 ) through 9 10 LIMITATIONS SEC. 304. ON PROVISION (a) OF FINANCIAL (4). ASSISTANCE Financial assistance provided b y the 11 A u t h o r i t y shall be made upon such terms, and subject to 12 such conditions and restrictions, as shall be deemed b y the 13 B o a r d of Directors to be commensurate w i t h the purposes of 14 this A c t and the needs of the recipient. Adequate provision 15 shall be made by the A u t h o r i t y to insure that, w h e n financial 16 assistance provided b y the A u t h o r i t y results i n the profitable 17 operation of a project, the A u t h o r i t y shares i n such profits 18 on a basis commensurate w i t h the degree of risk assumed b y 19 the A u t h o r i t y . Financial assistance w i l l be provided i n a 20 manner w h i c h , to the extent possible, does not enhance un- 21 duly the recipient's competitive position. 22 (b) The A u t h o r i t y shall not provide financial assistance 23 to a project w h i c h w o u l d otherwise qualify for such financial 24 assistance if, i n the judgment of the B o a r d of Directors: 25 such project involves technology w h i c h is i n the research (i) 48 1 and development phase; or (ii) the project applicant does 2 n o t display satisfactory levels of efficiency, management ca- 3 pacity, or similar factors w h i c h are customarily considered 4 b y private sources of financing before m a k i n g an investment 5 decision. 6 (c) T h e A u t h o r i t y m a y provide financial assistance for 7 a project conducted b y a business concern whose rates are 8 regulated b y any State or local regulatory body only i f : 9 the State or local regulatory body regulating such rates has 10 issued a certificate of necessity for the project as prescribed 11 b y t h e A u t h o r i t y and 12 body, the business concern so regulated and the A u t h o r i t y 13 have entered into a three p a r t y 14 require the State or local regulatory body to p e r m i t , w i t h o u t 15 p r i o r hearing, quarterly rate adjustments on a basis such 16 that h a d such adjustment been i n effect for 17 preceding months the net earnings of the business concern 18 w o u l d have provided a m i n i m u m level of coverage of an- 19 nualized interest charges. The A u t h o r i t y shall establish the 20 m i n i m u m level of coverage of annualized interest charges, 21 to be applied u n i f o r m l y u n t i l changed, w h i c h shall, i n the 22 j u d g m e n t of the B o a r d of Directors, be sufficient to assure 23 r e p a y m e n t of the A u t h o r i t y ' s investment and restore 24 credit r a t i n g of the business concern so regulated to a level (ii) (i) such State or local regulatory agreement w h i c h the shall twelve capable of obtaining conventional capital at favorable the in- 49 1 terest rates w i t h o u t additional financial assistance f r o m the 2 Authority. For 3 t e r m " n e t earnings' 7 shall mean actual earnings before total 4 interest charges and taxes on income adjusted for the an- 5 nualization of any rate changes d u r i n g the preceding twelve 6 months, and 7 shall mean the annualized amount of total interest charges, 8 including interest components of leases and rents, but exclud- 9 i n g any effect of future debt issues. the purposes of this subsection: (ii) the t e r m "annualized interest (i) the charges" 10 ( d ) N o financial assistance m a y be provided unless an 11 application therefor has been submitted to the A u t h o r i t y i n 12 such manner and containing such information as the A u t h o r - 13 ity may 14 application, t a k i n g into account competitive alternatives to 15 meet the same energy need. N o t h i n g herein shall preclude 16 the A u t h o r i t y f r o m p r o v i d i n g 17 or more similar projects if i t determines such assistance is 18 appropriate and consistent w i t h the purposes of this A c t . 19 (e) require, and the A u t h o r i t y financial has reviewed assistance to I n no case shall the aggregate amount of such two finan- 20 cial assistance made or committed under this title to any 21 one business concern or affiliated business concerns exceed 22 at any one time 10 per centum of the sum of the original 23 authorized capital stock of the A u t h o r i t y and the aggregate 24 p r i n c i p a l amount w h i c h the A u t h o r i t y is originally author- 25 ized to borrow, w i t h o u t regard to any reduction of such 50 1 authorized capital stock or b o r r o w i n g level pursuant to section 2 311. 3 LOANS MADE BY THE AUTHORITY 4 SEC. 305. E a c h loan made under this title shall bear 5 interest at such rate as the B o a r d of Directors of the A u - 6 t h o r i t y m a y determine, g i v i n g consideration to the needs and 7 capacities 8 interest (public and p r i v a t e ) and the need of the A u t h o r i t y 9 to sustain continuing operations out of returns on investment: of their 10 Provided, 11 greater o f : recipient, the prevailing rates of however, T h a t such rate shall not be less than the 12 ( i ) the then current estimated b o r r o w i n g costs of 13 the A u t h o r i t y for borrowings of comparable m a t u r i t y to 14 the loan plus a reasonable amount to cover 15 trative expenses, or adminis- IQ ( i i ) the interest rate paid b y credit w o r t h y 17 rowers to private lenders for borrowings on comparable 18 terms (other than interest rate) for projects of a similar 19 nature, t a k i n g into account generally available indices 20 or credit worthiness and, where applicable, the purpose 21 and effect of any three-party agreement as p r o v i d e d i n 22 section 3 0 4 (c) : 23 Provided 24 i n f o r m a t i o n is not available t o make the computation de- 25 scribed i n clause ( i i ) , such rate shall n o t ' b e less than the further, bor- however, T h a t i n a case i n w h i c h sufficient 51 1 rate specified i n clause ( i ) . E x c e p t as provided i n section 308 2 of this title, all loans provided b y the A u t h o r i t y shall, i n 3 the opinion of the B o a r d of Directors, be made upon such 4 terms as to reasonably assure retirement or repayment, and 5 m a y be made or effected either directly or i n cooperation 6 w i t h banks or other lending institutions. Loans m a y be made 7 directly upon promissory notes or b y w a y of discount or 8 rediscount of obligations tendered for the purpose. Subject 9 to the provisions of section 312 of this A c t , the A u t h o r i t y 10 under such conditions as i t shall prescribe, m a y take over 11 or provide f o r the administration and liquidation of any 12 collateral accepted b y i t as security for such loans. 13 14 LOAN GUARANTEES MADE BY THE AUTHORITY SEC. 306. The A u t h o r i t y is specifically authorized, o n 15 such terms and conditions as the B o a r d of Directors m a y 16 prescribe, to guarantee any lender against loss of principal 17 and interest on securities, obligations, or loans 18 refinancings thereof) (including issued to provide funds to any busi- 19 ness concern where such funds substantially contribute to 20 accomplishment of the purposes of this A c t . A l l guarantees 21 entered into b y the A u t h o r i t y under this section shall con- 22 stitute general obligations of the U n i t e d States of A m e r i c a 23 backed b y the f u l l faith and credit of the Government of 24 the U n i t e d States of A m e r i c a . A n y guarantee made b y the 25 A u t h o r i t y under this section shall not be terminated, can- 52 1 celed, o r otherwise revoked, except i n accordance w i t h the 2 terms thereof; shall be conclusive evidence that such guar- 3 antee complies f u l l y w i t h the provisions of this A c t and of 4 the approval and legality of the p r i n c i p a l amount, interest 5 rate, and a l l other terms of the securities, obligations, or 6 loans and of the guarantee; and shall be v a l i d and incon- 7 testable i n the hands of a holder of a guaranteed security, 8 obligation, 9 representation on the p a r t of such holder. P r i o r to issuing 10 any such guarantee or m a k i n g any other type of c o m m i t - 11 m e n t to provide financial assistance w h i c h w o u l d have sub- 12 stantially the same legal effect and substantially the same 13 effect on the m a r k e t for U n i t e d States Government obliga- 14 tions as a guarantee b y the A u t h o r i t y , b o t h as determined 15 b y the Secretary of the Treasury, the A u t h o r i t y shall obtain 16 the concurrence of the Secretary of the Treasury as to the 17 t i m i n g and substantial terms and conditions of such guar- or loan, except f o r fraud o r material mis- antee or commitment. The A u t h o r i t y shall be subrogated 19 to the rights of any t h i r d p a r t y receiving payments of inter- 20 est or p r i n c i p a l out of funds p r o v i d e d b y the 21 under a guarantee arrangement authorized hereunder. 22 LIMITATION ON TOTAL AMOUNT OF FINANCIAL 23 ASSISTANCE 24 25 Authority SEC. 307. The total amount of financial assistancetoythe A u t h o r i t y outstanding at any time, computed to include the sum o f : ( i ) the f u l l amount of the A u t h o r i t y ' s actual and 53 1 potential l i a b i l i t y under all guarantees, ( i i ) reserves for all 2 other contingent liabilities, and 3 forms of financial assistance authorized under this section, all 4 as determined under generally accepted accounting principles, 5 shall not exceed the sum of: 6 the A u t h o r i t y and ( i i ) the amount the A u t h o r i t y is author- 7 ized to b o r r o w under section 402 of this A c t . 8 LIMITATION ON CERTAIN TYPES OF FINANCIAL ASSISTANCE ( i i i ) a l l loans and other ( i ) the authorized capital of 9 SEC. 808. The A u t h o r i t y m a y make high-risk loans or 10 direct investments, or provide product price guarantees or 11 other direct financial assistance, w h i c h i n the j u d g m e n t of 12 the B o a r d of Directors w i l l further the purposes of this A c t . 13 The B o a r d of Directors shall create such reserves as m a y be 14 necessary to meet contingent liabilities w h i c h m a y be created 15 under this section: Provided, 16 any other provision of this A c t , the A u t h o r i t y m a y not pro- 17 vide any financial assistance (except pursuant to previously 18 made b i n d i n g commitments) 19 ments for financial assistance if, after audit, the A u t h o r i t y is 20 required under generally accepted accounting principles to 21 establish a reserve or reserves for bad debts, price support 22 commitments, contingent liabilities, or other unrealized losses, 23 but excluding any reserve w i t h respect to liabilities incurred 24 pursuant to section 4 0 1 of this A c t , w h i c h reserves i n the 25 aggregate exceed the sum of ( i ) the A u t h o r i t y ' s authorized however, T h a t n o t w i t h s t a n d i n g or make any further commit- 54 1 capital stock previously paid i n ( w h e t h e r or not then out- 2 standing), 3 ized upon dispositions described i n section 3 1 1 (whether or 4 not the proceeds thereof have been previously applied t o 5 retirement of the A u t h o r i t y ' s obligations and capital s t o c k ) , 6 a l l of w 7 hich shall be determined i n 'accordance w i t h gen- 7 orally accepted accounting principles. 8 ( i i ) its earned surplus, a n d ( i i i ) net gains real- FEES 9 SEC. 309. The A u t h o r i t y shall charge reasonable fees 10 for issuing guarantees a n d for m a k i n g commitments t o p r o - 11 vide other forms of financial assistance pursuant t o this title. 12 DISPOSITION OF SECURITIES 13 SEC. 310. The A u t h o r i t y m a y sell i n public or p r i v a t e 14 transactions a l l or any part of the common o r preferred 15 stock, capital notes, bonds or any other evidences of i n - 16 debtedness or ownership acquired b y the A u t h o r i t y pursuant 17 to this title. 18 APPLICATION OF PROCEEDS FROM RETIREMENT OF 19 FINANCIAL ASSISTANCE 20 SEC. 311. ( a ) U p o n the sale b y the A u t h o r i t y of a n y 21 stock, bond or other evidence of ownership or indebtedness 22 o r any other asset acquired b y the A u t h o r i t y i n considera- 23 tion for the extension of financial assistance or upon the re- 24 p a y m e n t b y any business concern of any loan or upon the 25 cancellation of a n y guarantee or other contingent l i a b i l i t y 55 1 c o n s t i t u t i n g financial assistance 2 a c o m m i t m e n t to e x t e n d f i n a n c i a l assistance p r i o r 3 extension of such assistance), a n y proceeds t h e r e f r o m shall, 4 except to the extent p r o v i d e d i n subsection ( b ) , be i m m e d i - 5 ately a p p l i e d to retire a l l indebtedness of the A u t h o r i t y is- 6 sued pursuant to t i t l e I V of this A c t , i n accordance w i t h the 7 terms of such indebtedness, a n d thereafter to redeem 8 outstanding capital stock of the A u t h o r i t y . F o r t h e purposes 9 of section 3 0 7 of this A c t , each such sale or other disposition 10 shall a u t o m a t i c a l l y reduce the authorized b o r r o w i n g or au- 11 thorized capital stock of the A u t h o r i t y , as the case m a y be, 12 b y a n a m o u n t equal to the a m o u n t of f i n a n c i a l assistance 13 l i q u i d a t e d b y such sale or other disposition. 14 (b) (other t h a n cancellation of to N o t w i t h s t a n d i n g a n y p r o v i s i o n of subsection the all (a), 15 a n y g a i n realized b y the A u t h o r i t y i n connection w i t h a n y 16 t r a n s a c t i o n r e f e r r e d to i n isuch subsection m a y be retained 17 b y the A u t h o r i t y 18 realized b y t h e A u t h o r i t y ( w i t h respect to w h i c h losses funds 19 have n o t theretofore been r e t a i n e d p u r s u a n t to this 20 section). 21 22 to the extent of a n y losses theretofore sub- CONTROL OF OPERATING ASSETS SEC. 3 1 2 . (a) A s used i n this section: (i) the t e r m 23 " o p e r a t i n g asset" shall m e a n a n y r e a l or personal p r o p e r t y 24 used i n the development, p r o d u c t i o n , transportation, 25 mission, d i s t r i b u t i o n , or conservation of f u e l or electric p o w e r , trans- 56 1 and ( i i ) tlie t e r m " c o n t r o l " shall mean the power to direct 2 the use or disposition of operating assets, through direct o w n - 3 ership or through ownership of a m a j o r i t y of v o t i n g securities 4 of a corporation or other e n t i t y o w n i n g or leasing operating 5 assets: Q deemed to result f r o m the ownership of operating assets 7 w h i c h are leased to and i n the possession of parties inde- 8 pendent of the A u t h o r i t y . 9 10 Provided, however, That "'control" shall n o t he ( b ) The A u t h o r i t y shall not acquire or retain control of operating assets, except— H (i) when control is acquired by foreclosure of a 12 security interest or pursuant to a default under a lease, 13 and such control is not retained for more than four years, 14 or 15 ( i i ) w h e n control is acquired p r i o r to the oommence- 1(5 m e n t of commercial use of the operating assets and is 17 retained for no more than t w o years after commence- 18 m e n t of commercial use. 19 ACCESS TO INFORMATION 20 SEC. 313. E v e r y applicant for financial assistance under 21 this A c t shall, as a condition precedent thereto, consent t o 22 such examinations as the A u t h o r i t y m a y require f o r the 23 purposes of this A c t , and shall further consent that 24 reports 25 authorities of examinations may of the applicant any b y constituted be furnished b y such authorities to t h e 57 1 A u t h o r i t y upon request therefor. The A u t h o r i t y shall require 2 such reports as i t deems necessary f r o m any business concern 3 receiving financial assistance under this A c t regarding activi- 4 ties carried out pursuant to this A c t . The A u t h o r i t y is au- 5 thorized to prescribe the keeping of records w i t h respect to all 6 financial 7 all reasonable times for the purpose of insuring compliance 8 w i t h the terms and conditions upon w h i c h financial assistance 9 was provided. assistance and shall have access to such records at 10 ADVISORY PANEL 11 SEC. 314. The President may appoint a panel, of such 12 duration, organization, and membership as he m a y deem 13 appropriate, to study and report to the President, the Con- 14 gress, and the A u t h o r i t y concerning the effects of issuance 15 of obligations and provision of financial assistance b y the 16 A u t h o r i t y on the functioning of the Nation's capital markets, 17 including effects upon the volume and distribution of capital 18 flows 19 economy, and such other related matters as the President 20 m a y specify. to and w i t h i n the energy development sector of the 21 TITLE IV—CAPITALIZATION AND FINANCE 22 CAPITAL STOCK OF THE AUTHORITY AND DIVIDENDS 23 SEC. 401. The Authority shall have capital stock of 24 $ 2 5 , 0 0 0 , 0 0 0 , 0 0 0 , subscribed b y the U n i t e d States of A m e r - 25 ica acting b y and t h r o u g h the Secretary of the Treasury, pay- 58 1 ment for w h i c h shall be subject to call i n whole or i n p a r t 2 b y the B o a r d of Directors of the A u t h o r i t y and subject to 3 the availability of appropriations therefor. There is hereby 4 authorized to be appropriated to the Secretary of the Treas- 5 u r y $ 2 5 , 0 0 0 , 0 0 0 , 0 0 0 for this purpose. N o t later than one 6 hundred and eighty days after the close of each fiscal year 7 of the A u t h o r i t y , the A u t h o r i t y shall declare and shall there- 8 after pay a dividend on its outstanding capital stock, i n an 9 amount determined i n the discretion of the B o a r d of Directors 10 but not less than the amount, computed b y m u l t i p l y i n g a 11 percentage determined b y the Secretary of the Treasury, 12 t a k i n g into account the current average annual percentage 13 y i e l d on marketable obligations of the U n i t e d States as of 14 the close of such fiscal year, times the paid i n value of such 15 outstanding capital stock: Provided, 16 t h o r i t y m a y defer p a y m e n t of any such dividend if the A u - 17 t h o r i t y has no earned surplus as of the close of such fiscal 18 year or the B o a r d of Directors determines that the funds 19 otherwise available for p a y m e n t of the dividend should, i n 20 furtherance of the purposes of this A c t , be used to provide 21 financial assistance pursuant to title I I I 22 dividend deferred pursuant to this section shall, u n t i l paid, 23 bear interest at a rate, determined b y the Secretary of the 24 Treasury and adjusted at the commencement of each fiscal 25 year, t a k i n g into consideration the then current average an- however, T h a t the A u - of this A c t . Any 59 1 nual percentage y i e l d 2 U n i t e d States. 3 o n marketable obligations of the OBLIGATIONS OF THE AUTHORITY 4 SEC. 4 0 2 . ( a ) The A u t h o r i t y is authorized to issue and 5 to have outstanding at any one time notes, debentures, bonds, 6 or other obligations i n the aggregate p r i n c i p a l amount of 7 $ 7 5 , 0 0 0 , 0 0 0 , 0 0 0 : Provided, 8 shall not issue any such obligation w i t h o u t the p r i o r concur- 9 rence of the Secretary of the Treasury as to the method, 10 source, interest rate, t i m i n g and other terms and conditions 11 of such obligation. The Secretary of the Treasury m a y direct 12 that a n y such issuance b y the A u t h o r i t y be sold to the 13 D e p a r t m e n t of Treasury for its o w n account or to the Federal 14 Financing Bank. however, T h a t the Authority 15 ( b ) F o r purposes of purchasing the obligations of the 16 A u t h o r i t y pursuant to this section 402, the Secretary of the 17 Treasury is authorized to use as a public debt transaction the 18 proceeds f r o m the sale of any securities hereafter issued 19 under the Second L i b e r t y B o n d A c t , and the purposes for 20 w h i c h securities m a y be issued under the Second L i b e r t y 21 Bonds A c t are extended to include such purchases. E a c h 22 purchase of obligations b y the Secretary of the 23 under this section shall be upon such terms and conditions as 24 to y i e l d a r e t u r n at a rate not less than a rate determined b y 71-787 O - 76 Treasury 60 1 the Secretary of the Treasury, t a k i n g i n t o consideration the 2 current average y i e l d on outstanding marketable obligations 3 of the U n i t e d States of comparable m a t u r i t y . Interest due on 4 obligations of the A u t h o r i t y held b y the Treasury m a y be 5 deferred, a t the discretion of the Secretary, but a n y such 6 deferred interest shall bear interest a t the rate specified i n 7 this section. The Secretary of the Treasury m a y sell, u p o n 8 such terms and conditions and at such price or prices as he 9 shall determine, any of the obligations acquired b y h i m under 10 this section. A l l redemptions, purchases, and sales b y the 11 Secretary of the Treasury of such obligations under 12 section shall be treated as public debt transactions of the 13 U n i t e d States. this 14 ( c ) A l l obligations of the A u t h o r i t y issued under this 15 section shall be f u l l y and unconditionally guaranteed as to 16 p r i n c i p a l and interest and shall constitute general obliga- 17 tions of the U n i t e d States, backed b y the f u l l f a i t h and 18 credit of the Government of the U n i t e d States of A m e r i c a . 19 Such guarantee shall be expressed on the face of all such 20 obligations. 21 BUDGETARY TREATMENT 22 SEC. 403. The receipts and disbursements of the Sec- 23 r e t a r y of the Treasury i n connection w i t h the purchase o r 24 redemption of, and income from, capital stock of the A u t h o r - 25 i t y shall not be included i n the totals of the budget of the 61 1 U n i t e d States Government. The receipts and disbursements 2 of the A u t h o r i t y i n the discharge of its functions shall n o t be 3 included i n the totals of the budget of the U n i t e d States 4 Government and shall be exempt f r o m any general l i m i t a t i o n 5 imposed b y statute on expenditures and net lending 6 outlays) of the U n i t e d States: Provided, 7 the budget of the U n i t e d States Government shall be ad- 8 justed to include the net earnings or losses of the A u t h o r i t y , 9 as reported i n the annual audit required b y section 505 (c) 10 (budget T h a t the totals of of this A c t . 11 LAWFUL INVESTMENT 12 SEC. 4 0 4 . Obligations of the A u t h o r i t y issued pursuant 13 to this A c t shall be l a w f u l investments, and m a y be accepted 14 as seeurty for all fiduciary, trust, and public funds the in- 15 vestment or deposit of w h i c h shall be under the a u t h o r i t y 16 or control of the U n i t e d States or any officer or officers 1? thereof. 18 FORMS OF NOTES, BONDS, AND OTHER OBLIGATIONS 19 SEC. 4 0 5 . I n order that the A u t h o r i t y m a y be supplied 20 w i t h such forms of notes, debentures, bonds, or other such 21 obligations as i t m a y need for issuance under this A c t , the 22 Secretary of the Treasury is authorized to prepare 23 forms as shall be suitable and approved b y the A u t h o r i t y , 24 to be held i n the Treasury subject to delivery, upon order 25 of the A u t h o r i t y . The engraved plates, dies, bed pieces, and such 62 1 so forth, executed i n connection t h e r e w i t h shall remain i n 2 the custody of the Secretary of the Treasury. The A u t h o r i t y 3 shall reimburse the Secretary of the Treasury for any ex- 4 penses incurred i n the preparation, custody, and delivery 5 of such notes, debentures, bonds, or other obligations. 6 7 8 MONEYS OF THE AUTHORITY SEC. 4 0 6 . A l l moneys of the A u t h o r i t y n o t otherwise employed m a y be— 9 ( a ) deposited w i t h the Treasury of the United 10 States subject to w i t h d r a w a l b y the A u t h o r i t y , b y check 11 d r a w n on the Treasury of the U n i t e d States b y a Treas- 12 u r y disbursing officer, or 13 14 (b) with the a p p r o v a l of the Secretary of the Treasury, deposited i n any Federal Reserve bank, or 15 (c) with the a p p r o v a l o f the Secretary of t h e 16 Treasury, and b y authorization of the B o a r d of Directors 17 of the A u t h o r i t y , used i n the purchase for redemption 18 and retirement of a n y notes, debentures, bonds, or other 19 obligations issued b y the A u t h o r i t y . 20 TITLE 21 V—MANAGEMENT BOARD OF DIRECTORS 22 SEC. 501. ( a ) T h e p o w e r of the A u t h o r i t y to act shall 23 be vested i n the B o a r d of Directors, except as to those func- 24 tions, powers, and duties assigned t o the C h a i r m a n of the 25 B o a r d as provided i n this A c t and such matters as m a y be 63 1 delegated to the Chairman, directors and officers of the A u - 2 t h o r i t y pursuant to this title. The B o a r d of Directors shall 3 consist of five v o t i n g members appointed b y the President 4 b y and w i t h the advice and consent of the Senate, w h o shall 5 h o l d office at the pleasure of the President. The President 6 shall designate one of such members as C h a i r m a n of the 7 Board, and shall have the power at any time and f r o m time 8 to time to designate a n e w Chairman of the B o a r d f r o m 9 among the members of the Board. Of the five members of 10 the Board, not more than three shall be members of any one 11 political p a r t y . The Chairman shall devote his f u l l w o r k i n g 12 time to the affairs of the A u t h o r i t y 13 and shall h o l d no other salaried position. 14 (b) (and its subsidiaries) W i t h respect to each Director, other than the 15 D i r e c t o r w h o shall serve as Chairman of the Board, the 16 President shall determine whether such D i r e c t o r shall serve 17 i n a f u l l - t i m e or part-time capacity 18 a D i r e c t o r of any subsidiaries). Directors w h o are serving 19 p a r t time m a y h o l d other positions but shall devote such 20 time to the affairs of the A u t h o r i t y 21 as is necessary to discharge their duties. Directors 22 are serving f u l l time shall devote their f u l l w o r k i n g time 23 to the affairs of the A u t h o r i t y (and its subsidiaries) in- 24 eluding such responsibilities as m a y be assigned b y the 25 B o a r d of Directors or the C h a i r m a n of the Board, and shall (including service as (and its subsidiaries) who 64 1 b o l d no other salaried position. D i r e c t o r s of (the A u t h o r i t y , 2 w h e t h e r s e r v i n g f u l l time or p a r t time, shall be compensated 3 a t a n a n n u a l o r d a i l y rate t o be d e t e r m i n e d b y d i e President. 4 D i r e c t o r s shall be r e i m b u r s e d f o r reasonable expenses w h i c h 5 are i n c u r r e d i n connection w i t h t h e i r services as D i r e c t o r s 6 of t h e A u t h o r i t y a n d its subsidiaries. 7 (c) Before assuming office, each D i r e c t o r shall t a k e 8 a n o a t h f a i t h f u l l y to discharge the duties thereof. W h e n e v e r 9 a vacancy shall occur o n the B o a r d of D i r e c t o r s , the P r e s i - 10 d e n t shall, w i t h the advice a n d consent of the Senate, a p p o i n t 11 a person to f i l l such vacancy. A l l D i r e c t o r s shall be citizens 12 of ithe U n i t e d States. 13 (d) T h e B o a r d shall meet at a n y time p u r s u a n t to t h e 14 c a l l of the C h a i r m a n a n d as m a y be p r o v i d e d b y the b y l a w s 15 of the A u t h o r i t y . A 16 s e r v i n g D i r e c t o r s shall constitute a q u o r u m , a n d a n y a c t i o n 17 b y the B o a r d shall be effected b y m a j o r i t y v o t e of a q u o r u m . 18 T h e B o a r d of D i r e c t o r s shall a d o p t , a n d f r o m t i m e t o t i m e 19 amend, such b y l a w s as are necessary f o r the p r o p e r m a n a g e - 20 m e n t a n d f u n c t i o n i n g of the A u t h o r i t y . 21 majority OFFICERS AND of t h e d u l y a p p o i n t e d and EMPLOYEES 22 SEC. 5 0 2 . ( a ) T h e C h a i r m a n of the B o a r d shall be t h e 23 chief executive officer of the A u t h o r i t y , a n d as such shall be 24 responsible f o r the m a n a g e m e n t a n d d i r e c t i o n of the 25 thority (including the making of expenditures Au- associated 65 1 w i t h administration of the A u t h o r i t y ) . The President shall 2 f i x the compensation of the C h a i r m a n of the Board. 3 (b) T h e C h a i r m a n of the B o a r d m a y appoint and fix 4 the compensation of a l l such personnel as m a y be necessary 5 for the transaction of the A u t h o r i t y ' s business i n accordance, 6 except as otherwise authorized i n subsections (c) and 7 w i t h the provisions of title 5 of the U n i t e d States Code. 8 E x c e p t as expressly provided i n this section, title 5 of the 9 U n i t e d States Code shall a p p l y to such personnel i n the same 10 manner and under the same conditions required for the c i v i l 11 service generally. (d), 12 (c) I n addition to the number of positions w h i c h m a y 13 be placed i n G S - 1 6 , 17, and 18 under existing l a w , not to 14 exceed one hundred positions m a y be placed i n G S - 1 6 , 17, 15 and 18. The provisions of title 5 of the U n i t e d States Code 16 governing classification a n d appointment i n the competitive 17 service shall not a p p l y to t w e n t y - f i v e of such positions, as 18 designated b y the C h a i r m a n of the Board. 19 (d) I n addition to personnel authorized to be employed 20 under other provisions of this section, a reasonable number 21 of executive officers m a y be employed b y the A u t h o r i t y , on 22 terms and conditions 23 Board, under employment agreements for terms not exceed- 24 i n g five years and w i t h o u t regard to the provisions of title 25 5 of the U n i t e d States Code governing classification and ap- specified b y the C h a i r m a n of the 66 1 pointments i n the competitive service and w i t h o u t regard to 2 the laws, including title 5 of the U n i t e d States Code, w h i c h 3 f i x compensation f o r officers and employees of the U n i t e d 4 States. W i t h o u t prejudice to rights under a n y e m p l o y m e n t 5 agreement any person appointed b y the C h a i r m a n pursuant 6 to this subsection m a y be removed i n the discretion of the 7 Chairman. 8 (e) The Chairman shall define the duties of the offi- 9 cers and employees of the A u t h o r i t y , and provide a system 10 of organization to f i x responsibility and promote efficiency. 11 ( f ) The C h a i r m a n of the B o a r d shall have a u t h o r i t y to 12 obtain the services and f i x the compensation of experts and 13 consultants i n accordance w i t h the provisions of section 3 1 0 9 14 of title 5 of the U n i t e d States Code. 15 ( g ) U n d e r such regulations as the President m a y pre- 16 scribe, officers and employees of the Government w h o are 17 appointed, w i t h o u t a break-in service, to any position for 18 c a r r y i n g out functions under this A c t are entitled, upon sep- 19 aration f r o m such position other than for cause w i t h i n three 20 years of employment, to r e e m p l o y m e n t i n the position oc- 21 cupied at the time of appointment or i n a position of com- 22 parable grade and salary to t h a t held w i t h 23 Authority. ( h ) T h e employees of the A u t h o r i t y , including full-time 24 Directors and the individuals described i n subsection 25 shall be considered employees of the U n i t e d States Govern- (d), 67 1 m e n t for purposes of eligibility for benefits related to ein- 2 ployment. 3 CONFLICTS OF INTEREST 4 SEC. 503. The provisions of chapter 1 1 of title 18, 5 U n i t e d States Code, shall apply to the directors and a l l offi- 6 cers and employees of the A u t h o r i t y , and the B o a r d of D i - 7 rectors shall have a u t h o r i t y to promulgate regulations there- 8 under. 9 DELEGATION 10 SEC. 504. The B o a r d of Directors m a y , b y resolution, 11 delegate to the Chairman of the B o a r d such of its functions, 12 powers, and duties assigned to the B o a r d under this A c t 13 as i t deems appropriate. The Chairman of the B o a r d m a y , 14 b y w r i t t e n instrument, delegate such functions, powers, and 15 duties as are assigned t o the Chairman b y o r pursuant to 16 the provisions of this A c t to such other full-time directors, 17 officers, or employees of the A u t h o r i t y as the 18 deems appropriate. 19 20 Chairman FISCAL YEAR, REVIEWS AND AUDITS ,SEC. 505. ( a ) T h e fiscal year of the A u t h o r i t y shall 21 coincide w i t h the fiscal year of the U n i t e d States Govern- 22 ment. 23 ( b ) On or before J u n e 3 0 i n any year, the A u t h o r i t y 24 shall submit to the D i r e c t o r of the Office of Management 25 and Budget a financial and management plan, i n such detail 68 1 as the D i r e c t o r 2 y^r. may prescribe, for the succeeding T h e A u t h o r i t y shall r e t a i n a firm or 3 (c) 4 tionally 5 a n d r e p o r t a n a n n u a l a u d i t of the accounts of the A u t h o r i t y Q i n c l u d i n g the statements i d e n t i f i e d i n section 8 5 1 of 7 31, U n i t e d g is authorized to conduct such audits of the accounts, a n d to 9 r e p o r t u p o n the same to Congress, as such Office shall deem 10 necessary or as Congress m a y request. A l l books, accounts, 11 f i n a n c i a l records, reports, files, papers, a n d p r o p e r t y belong- 12 i n g to or i n use b y the A u t h o r i t y and necessary to facilitate 13 a n a u d i t shall be made available to the person or persons 14 c o n d u c t i n g the a u d i t a n d facilities f o r v e r i f y i n g transactions 15 w i t h the balances or securities h e l d b y depositories, 16 agents, a n d custodians shall be afforded to such person or 17 persons. recognized p u b l i c States Code. 18 accountants The who firms fiscal shall of n a prepare General A c c o u n t i n g title Office fiscal REPORTS 19 SEC. 5 0 6 . (a) T h e A u t h o r i t y shall submit a q u a r t e r l y 20 r e p o r t to the Congress a n d the President. T h e r e p o r t 21 state the aggregate sums then o u t s t a n d i n g or c o m m i t t e d as 22 loans, l o a n guarantees, or other 23 l i s t i n g of the business concerns so i n v o l v e d w i t h the A u t h o r - 24 ity. The quarterly report in financial which any will assistance a n d a expenditure or 69 1 c o m m i t m e n t to a business concern or project is first noted 2 shall contain a brief description of the factors 3 b y the B o a r d of Directors i n m a k i n g such expenditure or 4 commitment. The report shall also show, on an unaudited 5 basis, the assets and liabilities of the A u t h o r i t y as of the 6 end of the A u t h o r i t y ' s fiscal quarter preceding the date of 7 the report a n d the number, functions, and compensation of 8 persons employed or under contract b y the A u t h o r i t y 9 salary rates exceeding $ 2 , 5 0 0 per month. 10 (b) considered at The A u t h o r i t y shall submit to the Congress and 11 the President an annual report containing the audited finan- 12 cial statements 13 public accountants pursuant to section 505. The 14 report 15 required i n the quarterly report, a general description of the 16 A u t h o r i t y ' s operations during the year, a specific description 17 of each project or activity i n w h i c h the A u t h o r i t y is involved, 18 a status report on each such project or a c t i v i t y , and an 19 evaluation of the contribution w h i c h the project or a c t i v i t y 20 has made and is expected to make i n f u l f i l l i n g the purposes 21 of this A c t 22 of the amount of domestic energy produced or to be pro- 23 duced t h e r e b y ) . 24 and report prepared b y the shall also contain, i n addition to the (c) independent annual information (including, where possible, a precise statement On or before J u n e 30, 1983, the A u t h o r i t y shall 70 1 s u b m i t t o the Congress a n d the P r e s i d e n t a r e p o r t evalu- 2 a t i n g the o v e r a l l i m p a c t made b y the A u t h o r i t y a n d deserib- 3 i n g the status of each t h e n c u r r e n t a c t i v i t y o r p r o g r a m of 4 f i n a n c i a l assistance. T h i s r e p o r t shall c o n t a i n a l i q u i d a t i o n 5 p l a n . T h e l i q u i d a t i o n p l a n shall describe i n the greatest d e t a i l 6 practicable h o w each a c t i v i t y , p r o j e c t , or o b l i g a t i o n i n v o l v i n g 7 f i n a n c i a l assistance, a n d e v e r y substantial asset o r l i a b i l i t y 8 of the A u t h o r i t y w i l l be l i q u i d a t e d , t e r m i n a t e d , satisfied, sold, 9 transferred, o r o t h e r w i s e disposed o f . E a c h a n n u a l report 10 thereafter made b y the A u t h o r i t y w i l l describe w h a t progress 11 is b e i n g made i n effecting such l i q u i d a t i o n p l a n . 12 ( d ) O n o r before J a n u a r y 31, 1986, the Authority 13 shall s u b m i t to the P r e s i d e n t a r e p o r t setting f o r t h t h e r e c o m - 14 m e n d a t i o n as to w h e t h e r or n o t the existence of the A u t h o r - 15 i t y should be e x t e n d e d f o r the l i m i t e d p e r i o d a n d purpose 16 described i n section 8 0 3 ( c ) . 17 18 RECORDS OF OUTSIDE CONTACTS SEC. 5 0 7 . T h e A u t h o r i t y shall develop a n d p u b l i s h p r o - 19 cedures f o r r e c o r d i n g c o m m u n i c a t i o n s received 20 o r o t h e r w i s e ) f r o m persons outside t h e A u t h o r i t y , i n c l u d i n g 21 p r i v a t e i n d i v i d u a l s a n d p u b l i c officials, expressing an o p i n i o n 22 or v i e w p o i n t o n the m e r i t s or t e r m s of a n y proposal t h a t the 23 A u t h o r i t y e x t e n d f i n a n c i a l assistance p u r s u a n t t o t i t l e I I I (in writing 71 1 of this A c t . T h e A u t h o r i t y 2 m a k i n g such records available to the p u b l i c u p o n request. 3 TITLE VI—FEDERAL AGENCY 4 5 shall establish procedures f o r PROCEEDINGS DEFINITIONS SEC. 6 0 1 . A s used i n this t i t l e : 6 ( a ) T h e t e r m " F e d e r a l a g e n c y " means a n " E x e c u t i v e 7 a g e n c y " as defined i n section 105 of title 5 , U n i t e d States 8 Code, i n c l u d i n g a n independent 9 regulatory commission. ( b ) T h e t e r m " e n e r g y p r o j e c t " means a n y a c t i v i t y i n 10 connection w i t h 11 o p e r a t i o n of facilities i n v o l v i n g the p r o d u c t i o n , 12 transmission, o r t r a n s p o r t a t i o n o f energy, fuels, o r energy- 13 related commodities, facilities, or products. 14 the planning, initiation, construction, o r distribution, ( c ) T h e t e r m " l i c e n s e " means " l i c e n s e " as defined i n 15 section 5 5 1 ( 8 ) of t i t l e 5, U n i t e d States Code a n d the t e r m 16 " l i c e n s i n g " means " l i c e n s i n g " as defined i n section 5 5 1 ( 9 ) 17 of t i t l e 5 of the U n i t e d States Code. 18 ( d ) T h e t e r m " p r o c e e d i n g s " means a n y action t a k e n b y 19 a F e d e r a l agency i n i n i t i a t i n g o r c a r r y i n g out the process 20 l e a d i n g t o g r a n t i n g o r d e n y i n g a license f o r a n y 21 project. 22 23 (e) The term "Administration" means E n e r g y A d m i n i s t r a t i o n o r a n y successor e n t i t y energy the Federal thereto. 72 1 EXPEDITING FUNCTIONS OF THE FEDERAL ENERGY 2 ADMINISTRATION 3 'SEC. 6 0 2 . ( a ) T h e A d m i n i s t r a t i o n shall have the f o l - 4 l o w i n g duties and authorities i n the energy p r o j e c t l i c e n s i n g 5 process: 6 ( 1 ) The Administration shall keep apprised of t h e 7 processing of e n e r g y p r o j e c t l i c e n s i n g proceedings a t t h e 8 F e d e r a l , local, State, a n d r e g i o n a l levels and, w h e r e a p p r o - 9 p r i a t e a n d consistent w i t h applicable F e d e r a l , State, a n d l o c a l 10 l a w , m a y suggest procedures f o r e x p e d i t i n g such Federal 11 proceedings a n d s i m i l a r local, State, o r r e g i o n a l r e v i e w a n d 12 f o r consolidating F e d e r a l , local, State, a n d r e g i o n a l a p p l i c a - 13 tions a n d actions t o reduce d u p l i c a t i o n of effort and expedite 14 t h e o v e r a l l licensing process. 15 ( 2 ) W h e n a F e d e r a l agency has rendered a n y 16 l i m i n a r y or f i n a l decision i n the course of a proceeding, the 17 A d m i n i s t r a t i o n m a y , w h e r e t h e applicable l a w o r rules a n d 18 regulations of the F e d e r a l agency p e r m i t a d m i n i s t r a t i v e ap- 19 p e a l or reconsideration: 20 reconsider its decision, b y w a y of appeal o r otherwise, o r 21 ( i i ) j o i n i n a n y such a d m i n i s t r a t i v e appeal o r p e t i t i o n for 22 reconsideration b y the a p p l i c a n t . A n y p e t i t i o n b r o u g h t b y 23 the A d m i n i s t r a t i o n 24 shall be g r a n t e d or denied w i t h i n t h i r t y days of receipt b y the 25 F e d e r a l agency to w h i c h the p e t i t i o n is addressed. pre- ( i ) request such F e d e r a l agency t o o r i n w h i c h the A d m i n i s t r a t i o n joins 73 1 (b) The A d m i n i s t r a t i o n m a y , if i t deems i t desirable 2 and i n the interest of expediting proceedings, develop and 3 promulgate a composite f o r m of license application w h i c h 4 shall be the sole application required b y all Federal agencies 5 w i t h regard to the review and approval of all or a p o r t i o n of, 6 as the f o r m m a y specify, the proceedings related to an energy 7 project. I n such event, the A d m i n i s t r a t i o n m a y also provide 8 that such composite license applications be filed only w i t h 9 the A d m i n i s t r a t i o n , i n w h i c h case the A d m i n i s t r a t i o n shall 10 p r o m p t l y f o r w a r d the license applications, or relevant por- 11 tions thereof, to the Federal agencies required b y l a w to con- 12 sider them. Such a composite license application m a y be 13 composed of removable and insertable sections i n order to 14 accommodate the information necessary for different energy 15 project licensing decisions. The A d m i n i s t r a t i o n shall consult 16 w i t h Federal agencies h a v i n g licensing authority over energy 17 projects p r i o r to p r o m u l g a t i n g any f o r m of composite license 18 application, and such agencies shall cooperate w i t h the A d - 19 ministration in developing such an application. N o t h i n g i n 20 this section shall reelude any Federal agency f r o m request- 21 ing, i n an individual case, such additional information relat- 22 i n g to public health and safety or such other essential in- 23 formation as m a y be necessary to c a r r y out its licensing 24 functions. 74 1 CERTIFICATION BY THE FEDERAL ENERGY ADMINISTRATION 2 SEC. 603. ( a ) The A d m i n i s t r a t i o n m a y certify that an 3 energy project, whether or not receiving financial assistance 4 f r o m the authority, is of critical importance to the achieve- 5 m e n t of the purposes of this A c t 6 " c e r t i f i c a t i o n " ) . I n d e t e r m i n i n g whether or not an energy 7 project is critical to the achievement of such purposes, the 8 A d m i n i s t r a t i o n shall consider, among other factors, the con- 9 t r i b u t i o n that the energy project itself w o u l d make to the 10 achievement of energy independence and the stimulative 11 effect that its successful and expeditious completion and 12 operation w o u l d have on additional similar projects. The 13 A d m i n i s t r a t i o n shall b r i e f l y state, i n any certification i t is- 14 sues, the facts and reasoning supporting its f i n d i n g t h a t the 15 energy project i n question is of such critical importance. 16 The A d m i n i s t r a t i o n m a y suspend or cancel such certifica- 17 t i o n : Provided, 18 cancellation the p a r t y on whose behalf the certification was 19 g i v e n shall be allowed an o p p o r t u n i t y to express its views 20 on the proposed suspension or cancellation. The action of 21 the A d m i n i s t r a t i o n i n granting, denying, suspending, or can- 22 celing such certification shall be final and conclusive f o r 23 a l l purposes w i t h respect to a l l questions of l a w and fact 24 and not subject to r e v i e w b y a court b y mandamus or otlier- 25 wise. however, (hereafter referred to as T h a t p r i o r to such suspension o r 75 1 (b) Certification shall be made b y the A d m i n i s t r a t i o n 2 only pursuant to application therefor i n f o r m and substance 3 satisfactory 4 state the reasons w h y the applicant believes such certifica- 5 tion is appropriate. to the A d m i n i s t r a t i o n . The application shall 6 (c) The A d m i n i s t r a t i o n , w i t h i n f o r t y days of receiving 7 and accepting an application for certification, shall publish 8 i n the Federal Register a notice of the requested certifica- 9 tion, including pertinent parts of the application therefor, 10 i n v i t i n g w r i t t e n comments f r o m the public on such requested 11 certification for a period of t w e n t y days. The A d m i n i s t r a t i o n 12 shall consider such comments' and act on the 13 w i t h i n t w e n t y days of the closing of the public comment period. I n application deciding whether or not to certify an energy 14 project as critically important, the A d m i n i s t r a t i o n shall conlo ^ 17 sider the need for Federal agencies to complete all licensing decisions w i t h o u t undue delayJ and the effect w h i c h certifications ( i n d i v i d u a l l y and cumulatively) ^ orderly handling 20 Federal agencies. 18 (d) 22 of licensing w i l l have on the decisions by the affected The recipient of a certification m a y submit it to any Federal agency w h i c h is authorized by l a w to license or review any p a r t or any phase of the energy project to 23 w h i c h the certification relates, including the initiation, de24 • ° velopment, c o m p l e t i o n or operation of the energy project, 25 7 1 - 7 8 7 O - 76 - 6 76 1 (e) A n y Federal agency w h i c h receives a certification 2 shall f o r t h w i t h commence all necessary proceedings w h i c h 3 m a y be required for 4 affected energy project, and is authorized to give such pro- 5 ceedings preference over all other questions p e n d i n g before 6 i t except other proceedings i n v o l v i n g similar certifications. 7 D i l i g e n t efforts shall be made to complete all such proceed- 8 ings and render a decision w i t h i n eighteen months (or s,uch 9 shorter period as the A d m i n i s t r a t i o n m a y for good cause 10 specify) f r o m the date of submission of the certification to 11 such Federal agency. 12 (f) the licensing of any aspect of the E a c h Federal 'agency w h i c h conducts proceedings 13 related to energy projects shall, w i t h i n n i n e t y days of the 14 enactment of this A c t and i n cooperation w i t h the A d m i n i s - 15 tration, promulgate regulations i m p l e m e n t i n g procedures to 16 carry out the expedited treatment required b y this tile. Such 17 procedures shall include reports f r o m the Federal agency to 18 the A d m i n i s t r a t i o n , i n such f o r m and at such frequency as 19 they shall agree, on the progress of proceedings. 20 (g) E a c h Federal agency shall report semiannually 21 (commencing on the J u l y 1 or J a n u a r y 1 first occurring 22 after the enactment of this A c t ) to the Congress and to the 23 President w i t h respect to each certified matter i n w h i c h the 77 1 Federal agency has not completed any proceeding or ren- 2 dered a decision w i t h i n eighteen months f r o m the date of 3 certification, or such shorter period as the 4 m a y have specified pursuant to subsection (e) : ( i ) the rea- 5 sons therefor; ( i i ) actions being taken to complete the p r o - 6 eeedings as expeditiously as possible; 7 being taken to prevent such delays i n the f u t u r e ; and ( i v ) 8 any recommendations for further legislation w h i c h such F e d - 9 eral agency deems advisable f o r the purposes of avoiding 10 Administration ( i i i ) the measures such delays. 11 ( h ) Certification b y the A d m i n i s t r a t i o n as contemplated 12 b y this section shall not be considered a m a j o r Federal ac- 13 tion significantly affecting the quality of the h u m a n environment w i t h i n the meaning of section 1 0 2 ( 2 ) ( C ) of the N a t i o n a l E n v i r o n m e n t a l P o l i c y A c t of 1969. 16 JUDICIAL EEVIEW SEC. 604. A n y j u d i c i a l review of a Federal agency's final action concerning an energy project w h i c h has been certified 19 under section 603 of this A c t , and appeals therefrom, shall take precedence on the docket over all cases, except as to cases w h i c h the court considers of greater importance, and ^ shall be assigned for hearing and trial or for argument at the 23 earliest practicable date and expedited i n every w a y , 78 1 TITLE VII—UNLAWFUL 2 ACTS A N D PENALTIES FALSE STATEMENTS 3 SEC. 701. W h o e v e r makes any statement, k n o w i n g i t 4 to be false, or w i l l f u l l y overvalues any security, for the p u r - 5 pose of obtaining for himself or for a n y applicant a n y loan or q extension thereof b y renewal, deferment of action, or other- 7 wise, or the acceptance, release, or substitution of security 8 therefor, or for the purpose of influencing i n any w a y the 9 action of the A u t h o r i t y or a subsidiary, or for the purpose 10 of obtaining money, p r o p e r t y , contract rights, or a n y t h i n g 11 of value, under this A c t , shall be punished b y a fine of not 12 more than $ 5 , 0 0 0 or b y imprisonment for not more than t w o 13 years, or both. 14 15 FORGERY SEC. 702. W h o e v e r ( 1 ) falsely makes, forges, or coun- 16 terfeits any note, debenture, bond, or other obligation, or 17 coupon, i n i m i t a t i o n of or p u r p o r t i n g to be a note, debenture, 18 bond, or other obligation, coupon, or t h i n g of value issued b y 19 the A u t h o r i t y or a subsidiary, or ( 2 ) passes, utters, or pub- 20 lishes, or attempts to pass, utter, or publish, any false, forged, 21 o r counterfeited note, debenture, bond, or other obligation, 22 coupon, or t h i n g of value p u r p o r t i n g to have been issued b y 23 the A u t h o r i t y or a subsidiary, k n o w i n g the same t o be false, 24 forged, or counterfeited, or ( 3 ) falsely alters any note, de- 25 benture, bond, or other obligation, or coupon, issued o r 79 1 p u r p o r t i n g t o have been issued b y the A u t h o r i t y , o r a sub- 2 sidiary, o r ( 4 ) passes, utters, o r publishes, o r attempts t o 3 pass, u t t e r , or publish, as true a n y falsely altered or spurious 4 note, debenture, bond, o r other obligation, coupon, o r t h i n g 5 of value issued or p u r p o r t i n g to have been issued b y the A u - 6 t h o r i t y or a subsidiary, k n o w i n g the same to be falsely altered 7 o r spurious, shall be punished b y a fine of n o t m o r e t h a n 8 $ 1 0 , 0 0 0 o r b y i m p r i s o n m e n t for n o t m o r e t h a n five years, 9 or b o t h . 10 MISAPPROPRIATION" OF FUNDS AND UNAUTHORIZED 11 ACTIVITIES 12 SEC. 7 0 3 . W h o e v e r , b e i n g connected i n a n y capacity 13 w i t h the A u t h o r i t y or a subsidiary, ( 1 ) embezzles, abstracts, 14 purloins, or w i l l f u l l y misapplies a n y moneys, funds, securities, 15 or other things of value, w h e t h e r b e l o n g i n g to i t o r pledged 16 o r otherwise entrusted t o the A u t h o r i t y o r such 'subsidiary, 17 o r ( 2 ) w i t h i n t e n t to defraud t h e A u t h o r i t y a n d subsidiary 18 o r a n y other b o d y p o l i t i c o r corporate, o r a n y i n d i v i d u a l , 19 or t o deceive a n y officer, auditor, or examiner of the A u t h o r - 20 i t y o r such subsidiary, makes a n y false e n t r y i n any book, 21 r e p o r t , or statement of or to the A u t h o r i t y or such subsidiary, 22 or, w i t h o u t b e i n g d u l y authorized, draws a n y order or issues, 23 puts f o r t h o r assigns a n y note, debenture, bond, o r other 24 obligation, o r draft, b i l l of exchange, mortgage, 25 o r decree thereof, or ( 3 ) w i t h i n t e n t t o defraud, participates, judgment, 80 1 shares, or receives directly or indirectly any money, profit, 2 property, or benefit through any transaction, loan, commis- 3 sion, contract, or a n y other act of the A u t h o r i t y or such sub- 4 sidiary, or (4) gives any unauthorized information concern- 5 i n g any future action or p l a n of the A u t h o r i t y 6 subsidiary w h i c h m i g h t affect the value of securities, or, h a v i n g 7 such knowledge, invests or speculates, directly or indirectly, 8 in the securities or property of any company, bank, or cor- 9 poration receiving loans or other assistance f r o m the A u t h o r - 10 ity or such subsidiary shall be punished by a fine of not or such 11 more than $10,000 or by imprisonment for not more than 12 five years, or both. 13 INFRINGEMENT ON NAME 14 SEC. 704. NO individual, association, partnership, cor- 15 poration, or business entity shall use the words " E n e r g y I n - 16 dependence A u t h o r i t y " or a combination of these words 17 which a court of competent jurisdiction shall find reasonably 18 likely to mislead or deceive, as the name or a part thereof 19 under which he or i t shall do business. 20 UNLAWFUL CONTRACTS 21 . SEC. 705. T h e provisions of sections 4 3 1 t h r o u g h 433, 22 inclusive, of title 18, U n i t e d States Code, shall a p p l y to 23 contracts or agreements w i t h the A u t h o r i t y or subsidiary 24 pursuant to this A c t . Such contracts or agreements include, 25 but are not limited to loans, loan guarantees) purchase agree- 81 1 ments, advances, discounts and rediscounts, acceptances, re- 2 leases, and substitutions of security, together w i t h extensions 3 or renewals thereof. 4 ADDITIONAL PENALTIES 5 SEC. TOG. I n addition to any other penalties provided 6 i n this title, the defendant i n any action brought pursuant 7 thereto shall, on conviction, be liable t o the A u t h o r i t y o r 8 Subsidiary for any loss b y the A u t h o r i t y or such Subsidiary 9 and any p r o f i t or gain acquired b y h i m 10 t h e conduct 11 convicted. 12 constituting the offense as a result of for which he was SUITS BY THE ATTORNEY GENERAL 13 SEC. 707. N o suit shall be brought alleging that the 14 A u t h o r i t y (or a n y director, officer, employee, or agent there- 15 of) has engaged i n any action, practice or policy inconsist- 16 ent w i t h this A c t ; has violated any provision thereof; has 17 obstructed or interfered w i t h any activities authorized thercb y ; o r has refused, failed, or neglected to discharge duties 19 or responsibilities mandated b y the A c t except b y the A t - 20 torncy General of the U n i t e d States or his delegate. The 21 A t t o r n e y General m a y , b y petition i n any Federal district 22 court i n any State where the A u t h o r i t y is transacting busi- 03 ness or where a n y such individual resides (or i n the D i s t r i c t 24 of C o l u m b i a ) , seek such equitable relief as m a y be necessary 25 or appropriate to prevent or terminate such conduct. N o t h - 82 1 i n g i n this section shall be deemed or construed to p r e v e n t 2 the enforcement of the other provisions of his title b y ap- 3 propriate officials of the U n i t e d States, nor to preclude the 4 application of the Federal T o r t Claims A c t against the A u - 5 t h o r i t y nor to p r o h i b i t suits b y private parties against the 6 A u t h o r i t y based on breach of contract. 7 TITLE VIII—GENERAL 8 PROVISIONS COORDINATION WITH OTHER ENTITIES 9 SEC. 801. P r i o r to extending, or m a k i n g any coinmit- 10 ment to extend, financial assistance for any project, the A n - il t h o r i t y shall seek the advice and recommendations of the 12 members of the E n e r g y Resources Council, and such other 13 Federal agencies as the President m a y b y E x e c u t i v e order 14 designate, to assist i n determining whether 15 of financial assistance for such project w i l l further the p u r - 16 poses of this A c t and h o w such proposed 17 ance relates t o other programs a n d national policies. 18 such advice or recommendation shall be p r o v i d e d to the 19 A u t h o r i t y w i t h i n t h i r t y days of its request. 20 the provision financial assistAny SEVERABILITY 21 SEC. 802. I f any provision of this A c t , or the applica- 22 tion of any such provision to any person or circumstance, 23 shall f o r any reason be adjudged b y any court of com- 24 petent jurisdiction to be invalid, the remainder of this A c t , 25 or the application of such provision to persons o r circum- 83 1 stances other than those to w h i c h i t is held invalid, shall 2 not be affected thereby. 3 TEH MIX AT TON AXI) 4 LIQUIDATION OF TIIE AUTHORITY SEC. 808. N o t w i t h s t a n d i n g any other provision of this 5 Act: 6 ( a ) The A u t h o r i t y shall make no new commitments 7 for financial assistance after June 30, 1983, and shall furnish 8 no new financial assistance after June 30, 1980. 9 (b) From and after June 30, 1983, the B o a r d of 10 Directors of the A u t h o r i t y shall diligently commence a l l 11 practical and reasonable steps to achieve an orderly liquida- 12 tion of the A u t h o r i t y ' s affairs on or p r i o r to J u n e 30, 1986. 13 Such steps m a y include the sale or transfer to any agency 14 of the U n i t e d States, or the sale directly to the public, including any business concern, of all or any p o r t i o n of the 16 A u t h o r i t y ' s assets. 17 (c) The A u t h o r i t y shall terminate on J u n e 30, 1986, or 18 a t such earlier date as the President shall determine: 19 vided, 20 the orderly liquidation of the A u t h o r i t y ' s affairs requires the 21 continuation of the A u t h o r i t y beyond J u n e 30, 1986, the 22 President m a y , b y Executive order, extend the authorized 23 life of the A u t h o r i t y f o r not more than three years after 24 such date. 25 liotceuer, Pro- T h a t if the President shall determine that ( d ) I f , on the date of termination of the A u t h o r i t y , its 84 1 B o a r d of Directors shall not have completed the liquidation 2 of its assets and the w i n d i n g up of its affairs, the d u t y of 3 completing such liquidation and w i n d i n g up of its affairs 4 shall he transferred to the Secretary of the Treasury, w h o 5 for such purposes shall succeed to all the powers and duties 6 of the B o a r d of Directors and Chairman of the B o a r d of the 7 A u t h o r i t y under this A c t , and n o t h i n g herein shall be con- 8 strued to a fleet any right or privilege accrued, any penalty 9 or l i a b i l i t y incurred, any criminal or civil proceeding com- 10 menced, or any authority conferred hereunder, except as 11 herein provided in connection w i t h 12 r e m a i n i n g assets and the w i n d i n g up of the alTairs of the 13 Authority. 14 Treasury may assign to any officer or officers of the U n i t e d 15 States in the Treasury D e p a r t m e n t the exercise and per- 1G forniance, under the Secretary's general supervision and di- 17 r e d ion, of any powers and duties so t ransferred until the 18 Secretary of the Treasury shall find that such liquidation w i l l 19 no longer be advantageous to the U n i t e d States and that all 20 of its legal obligations have been provided for, whereupon 21 the Secretary shall retire any capital stock then outstanding, 22 l>ay into the Treasury as miscellaneous receipts the unused 23 balance of the moneys belonging to the A u t h o r i t y , and make 24 the final report of the A u t h o r i t y to the Congress. Thereupon 95 the A u t h o r i t y shall be deemed to be dissolved. the liquidation of the F o l l o w i n g such transfer, the Secretary of the 85 1 EEL AT I OX SI I IP TO OTIIEK LAWS 2 SEC. 804. ( a ) The provision of financial assistance for a 3 project pursuant to title I I I of this A c t shall be deemed to 4 be a " m a j o r Federal action significantly affecting the quality 5 of the human e n v i r o n m e n t " for purposes of section 102 ( 2 ) 6 ( 0 ) of the National E n v i r o n m e n t a l P o l i c y A c t of 1969, as 7 amended 8 Federal 9 mental impact statement pursuant to section 1 0 2 ( 2 ) ( C ) 10 of X E P A w i t h respect to the project, and ( i i ) the provision 11 of financial assistance does, in fact, constitute a m a j o r action .12 significantly a (Tec t i n g the quality of the human environment. 13 I n any instance where another agency of the Federal Gov- 14 eminent 15 statement pursuant to section 1 0 2 ( 2 ) ( C ) 16 respect to a project to w h i c h financial assistance has been 17 committed or extended, 18 agency w i t h such information as m a y be reasonably re- 19 quested b y the agency in order to prepare such statement. 20 ( b ) Except as may be provided elsewhere i n this A c t , ( " X E P A " ) , where Government ( i ) no other agency of the is required to prepare an environ- is required to prepare a n environmental the A u t h o r i t y impact of X E P A with shall provide the 21 the A u t h o r i t y shall not for any purpose be considered a n 22 " E x e c u t i v e agency" as defined i n section 105 of title 5, 23 U n i t e d States Code, or an " a g e n c y " as defined i n section 24 551 of title 5 of the U n i t e d States Code. 25 ( c ) The provisions of the U n i t e d States Code relating to 86 1 public contracts and public buildings and works, including the 2 Federal P r o p e r t y and A d m i n i s t r a t i v e Services A c t of 1949, 3 shall not apply to the operations of the A u t h o r i t y : P r o v i d e d , 4 however, 5 tractors or subcontractors i n any construction, 6 or repair 7 for w h i c h financial assistance is provided b y the A u t h o r i t y or 8 a subsidiary shall be paid at wages not less than those pre- 9 v a i l i n g on similar construction i n the locality, as determined 10 b y the Secretary of L a b o r i n accordance w i t h the B a v i s - 11 Bacon A c t , as amended ( 4 0 U.S.C. 276a through 2 7 6 a - 5 ) . 12 The Secretary of L a b o r shall have, w i t h respect to such labor 13 standards, the a u t h o r i t y and functions set forth i n K e o r g a n i : 14 zation P l a n N u m b e r e d 14 of 1950 ( 1 5 Fed. Reg. 3176, 64 15 Stat. 1267 and 4 0 U.S.C. 2 7 6 ( c ) ) . Federal labor stand- 16 ards and equal e m p l o y m e n t o p p o r t u n i t y requirements 17 provisions shall a p p l y to the A u t h o r i t y and business con- 18 cerns receiving financial assistance f r o m the A u t h o r i t y . T h a t all laborers and mechanics employed by con- (including p a i n t i n g and decorating) alteration, of projects and 19 (d) The securities laws of the U n i t e d States, including 20 but not l i m i t e d to the provisions of the Securities A c t of 21 1933, the Securities E x c h a n g e A c t 22 U t i l i t y H o l d i n g C o m p a n y A c t of 1935, the Federal P o w e r 23 A c t of 1935 and the Investment C o m p a n y A c t of 24 all as amended, shall not a p p l y to the A u t h o r i t y . A n y se- of 1934, the Public 1940, 87 1 curities issued l>y the A u t h o r i t y 2 b y the A u t h o r i t y , whether or not l i m i t e d i n scope), and 3 any securities guaranteed by the A u t h o r i t y as to both p r i n - 4 cipal and interest, shall be deemed to be exempted securities 5 w i t h i n the meaning of section 77c (a) ( 2 ) of title 15, U n i t e d 6 States Code and section 78c (a) ( 1 2 ) 7 U n i t e d States Code. 8 9 10 (including any guarantee of title 15 of the ( e ) N o t h i n g i n this A c t shall be deemed or construed to make the Government Corporation Control A c t (31 U.S.C. 841, et seq.) applicable to the A u t h o r i t y . 11 ( f ) N o t h i n g i n this A c t shall be deemed to change the 12 M i n e r a l Lands 13 U.S.C. 14 Lands A c t (43 U.S.C. 1331 through 1 3 4 3 ) , nor any other 15 l a w governing the ownership, management, and disposition 16 of Federal minerals or lands: P r o d d e d , h o w e v e r , T h a t the 17 A u t h o r i t y m a y acquire Federal minerals or lands i n ac- 18 cordance w i t h such laws. 19 Leasing A c t of J 920, 181 through 287), t h e Outer as amended ( 3 0 Continental Shelf RESERVATION OF RIGHT TO AMEND OR REPEAL 20 SEC. 805. .The r i g h t to alter, amend, or repeal this A c t 21 is expressly declared and reserved, but no such amendment 22 of repeal shall operate to i m p a i r the obligation of any contract 23 made b y the Corporation under any power conferred b y this 24 A c t . 88 The C H A I R M A N . N O W , gentlemen, M r . Rostow and M r . Commoner, would you sit at that table? W e are now honored to have as our w i t nesses a panel of W a l t Rostow, professor of economics and history at the University of Texas, Austin, Tex., a man of great distinction who served this country w i t h great a b i l i t y and controversy i n the Johnson A d m i n i s t r a t i o n ; and M r . B a r r y Commoner, director f o r the Center f o r the Biology of N a t u r a l Systems, Washington U n i v e r s i t y , St. Louis, Mo., whose name is synonymous throughout the country w i t h conservation and w i t h the struggle f o r a better, cleaner environment. D r . Rostow, w i l l you start ? STATEMENT OF WALT W. ROSTOW, PROFESSOR OF ECONOMICS AND HISTORY, UNIVERSITY OF TEXAS M r . ROSTOW. The b i l l before you and the testimony of the Vice President and M r . Zarb make the basic case f o r the p r o m p t creation of the Energy Independence A u t h o r i t y : the progressive rise i n our dependence on imported o i l to a level over 40 percent of consumpt i o n ; the likelihood of a f u r t h e r rise i n t h a t dependence w i t h economic recovery; the need r a p i d l y to increase domestic energy production and conservation under circumstances where private profit incentives, f o r a variety of reasons, do not suffice to generate the necessary level of investment. I have accepted your i n v i t a t i o n to appear today to make t w o points which go somewhat beyond the conventional case f o r the Energy Independence A u t h o r i t y . I support the case as i t was just made. F i r s t , u n t i l something like that A u t h o r i t y is at work and the rate of American investment i n energy and energy conservation is r i s i n g r a p i d l y , I doubt that a f r u i t f u l negotiation between O P E C and the major oil importers w i l l be possible. R i g h t now, we do not have a national or an O E C D energy policy w o r t h y of the name. O u r only serious leverage on O P E C , aside f r o m economies induced by higher energy prices—and, I m i g h t add, two soft winters—has been the severe recession experienced i n the past 2 years. T h a t is now, to a degree, ending. O P E C ' s leverage w i l l , therefore, increase. F o r reasons set out on pages 13 and 14 of m y attached paper, " T h e Case f o r Sectoral P l a n n i n g " , I believe a rational long-range negotiation w i t h O P E C is conceivable; but unless we move f o r w a r d on the lines of the Energy Independence A u t h o r i t y I see no reason O P E C should enter such a negotiation. I t u r n now to an even more urgent reason f o r supporting the Energy Independence A u t h o r i t y : W i t h o u t greatly enlarged levels of investment i n energy, energy conservation, and certain other directions I shall specify, I doubt that we can return quickly to a n y t h i n g a p p r o x i m a t i n g f u l l employment. The great economic expansion i n N o r t h America, Western Europe, and Japan since 1945—the most remarkable phase of economic expansion the w o r l d has experienced i n the last 200 years—was based on two kinds of forces: on the d i f fusion of the automobile, durable consumer goods, and the l i f e of suburbia; and on a sharp rise n real outlays f o r certain services, notably higher education, health services, and travel. The rise i n 89 energy prices has directly and indirectly weakened both these pillars of g r o w t h and prosperity. Directly, the rise i n energy prices has reduced purchases of automobiles and durable consumers goods. I agree w i t h Senator Stevenson that was i t essentially the rise i n energy prices that brought about the stage of stagflation that we have experienced and are experiencing throughout the world. The industries producing automobiles and durable consumers w i l l obviously continue to play a large role i n our economy; but i t is unlikely that, after some quick revival f r o m the p i t of recession, they w i l l continue to expand at the same rate as i n the era of cheap energy which accelerated their diffusion. I n d i r e c t l y , the rise i n energy prices has also reduced outlays f o r housing: by lowering real incomes, accelerating inflation, and raising interest rates. I n addition, as private real incomes stagnated or fell, a political revolt swept through the O E C D world, f r o m New Zealand to California and beyond a revolt against increased public outlays at the old rate. Some of these outlays, i n any case, have been approaching natural limits, linked to demography. L o o k i n g ahead, I do not expect outlays f o r public services greatly to decline; but I doubt that they w i l l continue to increase at the extraordinary pace of the past 20 years. I am t a l k i n g here about marginal changes i n the structure of our economy; but they are significant marginal changes. The result of these marginal changes is a universal prediction t h a t the present recovery w i l l leave us s t i l l w i t h something like 7 percent unemployment i n the U n i t e d States at the end of 1976. F o r the O E C D as a whole, the latest prediction is that, despite a moderate recovery, unemployment w i l l actually increase d u r i n g 1976 [ " O E C D Observer," December 1975, p. 3]. T h i s continued stagflation is not only corroding the social and political life of the advanced industrial societies, but i t has radically slowed down economic and social progress i n southern Europe, L a t i n America, A f r i c a , and Asia, except f o r the o i l exporters. T h i s slackening i n the w o r l d economy is obviously creating situations which provide a temptation to ambitious leaders to press outward their power and influence. I t is w o r t h recalling t h a t protracted economic problems i n the West helped quite directly to set i n motion the m i l i tary adventures which brought on the Second W o r l d W a r . I n a w o r l d precariously balanced between movement towards peace and movement towards increased violence and disintegration, we need an environment of r a p i d economic and social progress to maximize the chance that the movement towards peace w i l l prevail. As for remedy, i t obviously makes no economic (let alone political) sense to unbalance grotesquely the Federal budget so that consumers can go on b u y i n g b i g automobiles and energy-intensive durable consumers goods at the old rate. A neo-Keynesian focus on the direct expansion of demand w i l l no longer suffice. H o w , then, do we get back t o f u l l employment? W e must mount r a p i d l y expanded investment i n energy production, energy conservation, mass transit facilities, insulated housing, and i n solar energy w i t h existing technology; programs to clean the air and the water and otherwise to preserve the environment; programs to assure the long r u n v i a b i l i t y of our invaluable agricultural base; and f o r rea- 90 sons set out i n m y accompanying paper to expand outlays f o r research and development over a wide f r o n t . I m i g h t add parenthetically, that this is the f i f t h time i n the last 200 years the w o r l d economy has faced a period of relative expensive food and raw materials. I n each case i n the past we came back towards balance by opening up new physical frontiers. There are s t i l l a few physical frontiers i n Alaska, the N o r t h Sea, the sea beds and so on. B u t basically, the w o r l d must come back to structural balance this time through research and development, by generating new technologies which w i l l , i n effect expand our resources and conserve them and the environment. Prosperity over the past 30 years has been based on the direct expansion of consumers income and services, w i t h investment resulti n g f r o m that expansion. I n the next phase, prosperity w i l l have to be based somewhat more on increased investment i n the supply side of the equation, w i t h economic and social progress flowing f r o m the resulting level of steady f u l l employment. I n commonsense terms, that is just what one would expect i n a w o r l d where energy is likely to be expensive u n t i l some great technological breakthroughs occur i n solar energy or fusion power; where we w i l l experience over the next quarter century the maxim u m pressure of population increase on the food supply, u n t i l b i r t h rates recede i n the developing w o r l d ; where we have at last recognized that we must steadily allocate significant resources to assure clean air and water. I n general, we must expand i n degree our allocations to sustain the inputs of energy and food, air and water on which our industrial civilization depends. W e cannot go on assuming that they w i l l be cheap or free. I n a l l these areas—not merely energy—there is a significant marg i n a l role f o r government as well as private enterprise. W e shall, I believe, have to free ourselves i n the coming days f r o m the rhetoric and policies of confrontation between public and private enterprise and encourage a systematic partnership—and spirit of partnership. Therefore, I was delighted to hear you, M r . Chairman, and the Vice President, j o i n i n a proposition that I had already w r i t t e n into m y text. W e ought to split our Federal budget into investment and noninvestment components and be prepared to use the powers of government vigorously to expand both private and, where necessary, public investment i n the directions I have indicated. The Energy Independence A u t h o r i t y could play a v i t a l role i n such an effort. I w i l l not burden you w i t h an explanation of w h y our conventional economists—Republican and Democrat, liberal and conservative—find i t difficult to perceive this is the way out of chronic 7 percent unemployment. B u t I would call y o u r attention to the manner i n which 2 studies, at least, have backed into the same broad conclusion as t h a t I am presenting here by asking i f there is going to be a capital market "crunch"—whether investment rates must be increased. F i r s t , the study of Capital Needs i n the Seventies by B a r r y Bosw o r t h , James Duesenberry, and A n d r e w Carron. T h e f u l l employment path of 4 percent they assume requires f o r its f u l f i l l m e n t sharply increased investment outlays i n energy-related investment, mass transport, and p o l l u t i o n control. Second, i n the January 1976 91 Economic Report of the President to the Congress, the Council of Economic Advisers report (pp. 39-47) a study of capital requirements down to 1980 conducted w i t h i n the Department of Commerce. Here the target was to b r i n g unemployment below 5 percent by the end of the decade. Once again, increased outlays f o r pollution abatement and to reduce our energy dependence on imports are critical to the conclusions reached. M y argument is, then, that the prompt creation of the Energy Independence A u t h o r i t y is not only necessary to reduce our balance of payments burden and our strategic vulnerability but also to acquire the bargaining leverage necessary f o r a rational long-term agreement w i t h O P E C and to free us f r o m the danger of chronically high levels of unemployment. I urge you, therefore, to t h r o w your weight f u l l y behind the Energy Independence A u t h o r i t y . I urge you to set aside the odd alliance between some shortsighted representatives of private indust r y and some extremist conservationists wrho now oppose this bill. Their arguments, i f heeded, w i l l neither strengthen the private sector nor enhance the environment. They w i l l simply increase our dependence on O P E C i n a continued setting of stagflation. Continued stagflation weakens private enterprise and makes more difficult the generation of the resources required to clean the air and water and otherwise preserve our environmental heritage. I f you commend this b i l l to the Congress, you w i l l turn, I believe a decisive corner i n solving both our energy and unemployment problems and open the way to a rational approach to the difficult but manageable problems of the next generation. The C H A I R M A N . Thank you very much, D r . Rostow. D r . Commoner ? STATEMENT OF BARRY COMMONER, CENTER FOR THE BIOLOGY OF NATURAL SYSTEMS, WASHINGTON UNIVERSITY, ST. LOUIS, MO. M r . C O M M O N E R I t is widely acknowledged that the United States lacks a national policy to govern the production and use of energy, and that this defect has caused serious economic difficulties and threatens us w i t h worse ones i n the future. The energy problem is huge i n its size, complex i n its design, and pervasive i n its effects on the nation's economy. The Energy Independence A u t h o r i t y B i l l matches these needs only i n the huge size of the expenditures which i t proposes to authorize. To balance energy use against domestic supplies ("energy independence"), we know, f r o m the laws of thermodynamics, calls f o r a complicated match between the quality of the source and the quality of the task I n response to that complex situation, the b i l l proposes only to assure the flow of capital to domestic energy production. A n d the b i l l fails utterly to deal w i t h the powerf u l effects of the productivity of the capital that i t proposes to invest (that is, the amount of energy produced, or saved, per dollar of capital invested) on the cost of energy and of capital itself, and the pervasive effects of these costs on the entire economy. These are f a t a l flaws, and because of them, I believe that the b i l l is much more likely to widen the gap between energy demand and 71-787—71 92 domestic supply t h a n to accomplish ite stated purpose of reducing t h a t gap and of achieving "energy independence." The gravely flawed character of the b i l l is revealed i n its chief purpose, as set f o r t h i n section 102 (a) : T o encourage and assure t h e flow of c a p i t a l f u n d s to those sections of the n a t i o n a l economy w h i c h are i m p o r t a n t to the development of domestic sources of energy or w h i c h are otherwise i m p o r t a n t to the a t t a i n m e n t of energy independence f o r the U n i t e d States by 1985. . . . T h u s the b i l l is basically designed to meet the intense demand f o r capital by the energy industries. However, presumably the purpose of disbursing these huge amounts of capital is to receive value i n return, specifically enhanced domestic energy production, or its equivalent i n the matter of achieving "energy independence," reduced demand ( f o r example, t h r o u g h conservation). W h a t is relevant i n j u d g i n g the effectiveness of this b i l l is the p r o d u c t i v i t y of c a p i t a l — f o r example, the amount of annual energy production achieved per dollar of capital invested i n a given energy source. T h e p r o d u c t i v i t y of capital invested i n various energy sources is shown i n the attached table, which can guide us i n j u d g i n g the effectiveness of the b i l l . T h i s table shows t h a t different fuels vary by more t h a n t w e n t y f o l d i n the amount of energy that they y i e l d per dollar invested. Thus, i f capital is invested i n the production of shale o i l or of synthetic f u e l f r o m coal—new technologies which, according to the fact sheet on the energy independence a u t h o r i t y released by the W h i t e House on October 10, 1975, w o u l d be given h i g h p r i o r i t y by the a u t h o r i t y — i t yields about one-tenth as much energy as the same amount of capital invested i n enhanced o i l or coal production. I f , as is evident f r o m the language of the b i l l , the a u t h o r i t y w o u l d operate under a mandate t o increase the flow of capital into energy production i t w i l l obviously tend to spend its funds on those forms of energy production which generate the highest demand f o r capital, and those w i l l be the forms t h a t do so precisely because they are so inefficient i n converting the invested capit a l i n t o actual production of energy. T h i s aim is e x p l i c i t l y acknowledged i n the W h i t e House fact sheet, which emphasizes the need f o r funds to support, specifically, those methods of energy production shale oil, synthetic fuels, and nuclear power) that y i e l d a poor r e t u r n i n energy produced per dollar of capital invested. T h a t , after all, is the very reason w h y these sectors of the energy industry are so badly i n need of capital. Those particular sectors of energy t h a t the b i l l wants to support are inefficient users of capital i n the production of energy. T h i s is a k i n d of a parody of the w a r t i m e efficiency awards to U.S. industry. T h e b i l l w o u l d create a p r o g r a m of what we m i g h t call very costly, inefficiency awards to the energy industry. They w o u l d reward inefficiency i n the production of energy. So I t h i n k t h a t the bill's purpose would, i n effect, guarantee t h a t huge amounts of public funds w o u l d be spent wastefully. A n d i n this p a r t i c u l a r case, the waste of public funds would represent not only an added tax burden, but w o u l d also create an additional inflat i o n a r y effect, f o r energy production at low capital p r o d u c t i v i t y can be profitable only i f the energy is sold at a h i g h price. T h i s b i l l , i f i t goes through, w i l l guarantee the acceleration of the r i s i n g price of 93 energy. I n fact this was publicly acknowledged last February when M r . F o r d and Secretary Kissinger called f o r a floor on crude o i l prices i n order to protect private investments i n synthetic f u e l production. They d i d n ' t get O P E C to agree, and now they are coming to Congress w i t h another gambit f o r doing the same t h i n g — w h i c h is to raise the price of energy. So i t seems to me t h a t what this b i l l w o u l d do w o u l d waste the taxpayers' money and reduce the value of what he has left to spend. T h a t the proponents of the b i l l themselves anticipate t h a t i t w o u l d enormously reduce the p r o d u c t i v i t y of capital—the efficiency w i t h which the investment is converted to actual energy production—is evident f r o m a comparison of figures provided by the W h i t e House fact sheet w i t h those reported i n the attached table. According to the fact sheet " T h e $100 b i l l i o n f o r energy projects could help assure t h a t the equivalent of up to 10-15 m i l l i o n barrels of o i l per day of new energy production is realized by 1985." This would represent a capital p r o d u c t i v i t y of about 200,000 to 310,000 btu's of energy per year per dollar invested. I computed the energy product i v i t y of t h a t figure i n the same terms that are used i n the accompaning table—that is converting over to btu's gained per dollar invested—and the figure comes out to 200,000 to 310,000 btu's of energy per year per dollar investment. The gross economic inefficiency of this investment can be judged f r o m the capital productivi t y of overall energy production i n the U n i t e d States i n 1973: 1,845,000 btu's per dollar invested. Thus the p r o d u c t i v i t y of the capi t a l invested by the authority w o u l d be about 85 percent lower than the overall p r o d u c t i v i t y of capital invested i n energy i n 1973—a d i f ference w h i c h w o u l d be even greater i f inflation were taken into account. I n other words, they're asking f o r money to support the most wasteful ways of converting capital into energy. One reason w h y this comes about is t h a t you're dealing w i t h nonrenewable fuel, such as crude o i l and n a t u r a l gas which becomes increasingly capital-intensive as production continues. Each barrel of o i l taken out of the ground makes i t more expensive to produce the next one. A s you can see f r o m the attached table (p. 110), compared w i t h 1974 the projected figure f o r 1988 shows a f o u r f o l d drop i n the productivity of capital invested i n oil production. Solar energy represents the one way to escape this law of d i m i n i s h i n g returns because after a l l i f you capture one sunbeam i t has no effect on capturing the next one. I n keeping w i t h its perversely wasteful approach to energy production the b i l l and the associated documents largely ignore the issue of using solar energy f o r achieving energy independence. Now I want to make a few very brief remarks about the scientific background of this issue because I don't t h i n k they can be understood otherwise. There is often a tendency to separate the question of producing energy and using it. However, laws of thermodynamics t e l l us i n t h a t the efficiency of converting energy i n t o the only t h i n g that gives i t value, namely work, is a result of a proper match between the character of the source and the character of the task. W i t h o u t g o i n g i n t o detail I ' d like to simply mention the shocking fact t h a t the first estimate of the efficiency w i t h which we w i l l use energy according to the Second L a w of Thermodynamics was made 94 only last year and i t revealed t h a t we probably operate w i t h an efficiency of 10 to 15 percent overall. T h i s means t h a t there is an enormous potential f o r conservation and I t h i n k the figure w h i c h we have heard here of a m a x i m u m of 5 percent saving by conservation is a ridiculous under-estimation of the potential. I t ' s not going to be done simply by stuffing attics f u l l of insulation. F o r example, what w i l l have to be done is t o see to i t t h a t elect r i c i t y is not used f o r heating homes because that's an exceedingly thermodynamically wasteful way of p r o v i d i n g space heat. T h e CHAIRMAN. M a y I say. D r . Commoner, i f you w a n t to skip down, the entire text w i l l be p r i n t e d i n f u l l i n the record. M r . C O M M O N E R . I just want to go d o w n to one final p o i n t on the capital issue: Capital used f o r energy is already c u t t i n g into the availability of capital f o r business i n general. Between 1970 and 1973 energy production absorbed 24 percent of the capital invested i n U.S. business as a whole. Present estimates of the capital needed f o r energy production i n the 1975-85 period are l i k e l y t o raise this p r o p o r t i o n to more than one-third. A n d , f o r the reasons cited above, i f the b i l l is enacted i t w o u l d stimulate the development of precisely those energy sources t h a t are most wasteful i n their use of capital and so considerably worsen the position of nonenergy industries and of consumers i n the competition f o r capital. I n effect, the b i l l w o u l d encourage the already dangerous tendency o f the energy i n d u s t r y to devour its own customers. T h e last t h i n g I want to say is that I am staggered by the unexplained assumptions i n this b i l l . T h e business of national security has already been discussed. I n m y opinion, i f this is a b i l l t o defend the country, then its supporters ought to come before the people of the country and t e l l us t h a t that's the issue. T h e consideration of private enterprise raises very serious questions. I f the b i l l is designed to provide capital f o r those industries t h a t need i t and can't raise i t , then w h y aren't we doing t h a t w i t h the railroads; instead of h a v i n g the railroads r i p up tracks we ought to be g i v i n g them money to b u i l d tracks. W h y aren't we p r o v i d i n g capital f o r the auto industry w h i c h has to have i t i f it's ever g o i n g to retool to b u i l d a new k i n d of car, or to agriculture w h i c h has become one of the most capital intensive industries but can't raise i t very w e l l ? I n other w r ords, I t h i n k t h a t to be f a i r and honest these issues have to be brought out i n the open and i f M r . Rockefeller believes t h a t private enterprise can't take care of the country any more I wish he w o u l d say so openly and let's have a debate on t h a t subject. I n other words, 1 t h i n k the b i l l fails to meet the requirements of legislation. I don't t h i n k i t w i l l accomplish its purpose. I t h i n k it's wasteful and I t h i n k i t fails i n the m a j o r responsibility of h a v i n g an open and honest approach t h a t the country can debate on this issue. [Complete statements of M r . Rostow and M r . Commoner f o l l o w : ] STATEMENT BY W . W . ROSTOW T h e B i l l before y o u a n d t h e t e s t i m o n y o f t h e V i c e P r e s i d e n t a n d M r . Z a r b m a k e t h e basic case f o r t h e p r o m p t c r e a t i o n o f t h e E n e r g y Independence A u t h o r i t y : t h e progressive r i s e i n o u r dependence o n O P E C o i l t o a l e v e l over 95 40% of consumption; the likelihood of a f u r t h e r rise i n t h a t dependence w i t h economic recovery; the need r a p i d l y to increase domestic energy production and conservation under circumstances where p r i v a t e profit incentives, f o r a v a r i e t y of reasons, do not suffice to generate the necessary level of investment. I have accepted y o u r i n v i t a t i o n to appear today to make t w o points w h i c h go somewhat beyond the conventional case f o r the Energy Independence Authority. F i r s t , u n t i l something l i k e t h a t A u t h o r i t y is at w o r k and the rate of American investment i n energy and energy conservation is r i s i n g r a p i d l y , I doubt t h a t a f r u i t f u l negotiation between OPEC and the m a j o r o i l importers w i l l be possible. R i g h t now, we do not have a n a t i o n a l or an O E C D energy policy w o r t h y of the name. Our only serious leverage 011 OPEC, aside f r o m economies induced by higher energy prices, has been the severe recession experienced i n the past t w o years. T h a t is now, to a degree, ending. OPEC's leverage w i l l , therefore, increase. F o r reasons set out on pages 13 and 14 of my attached paper ( " T h e Case f o r Sectoral P l a n n i n g " ) , I believe a r a t i o n a l long range negotiation w i t h OPEC is conceivable; but unless we move f o r w a r d on the lines of the Energy Independence A u t h o r i t y , I see no reason OPEC should enter such a negotiation. I t u r n now to an even more urgent reason f o r supporting the Energy Independence A u t h o r i t y : w i t h o u t greatly enlarged levels of investment i n energy, energy conservation, and certain other directions I shall specify, I doubt t h a t we can r e t u r n quickly to a n y t h i n g a p p r o x i m a t i n g f u l l employment. The great economic expansion i n N o r t h America, Western Europe, and Japan since 1945 was based on t w o kinds of forces: the diffusion of the atuomobile, durable consumers goods, and the l i f e of suburbia; and on a sharp rise i n real outlays f o r certain services, notably higher education, helath services, and travel. The rise i n energy prices has directly and indirectly weakened both these p i l l a r s of g r o w t h and prosperity. D i r e c t l y , the rise i n energy prices has reduced purchases of automobiles and durable consumers goods. The industries producing these products w i l l obviously continue to play a large role i n our economy; but i t is u n l i k e l y t h a t , a f t e r some quick r e v i v a l f r o m the p i t of recession, they w i l l continue to expand at the same r a t e as i n an era of cheap energy, i n d i r e c t l y , the rise i n energy prices has also reduced outlays f o r housing: by l o w e r i n g real incomes, accelerating inflation, and raising interest rates. I11 addition, as private real incomes stagnated or fell, a p o l i t i c a l revolt swept t h r o u g h the OECD w o r l d against increased public outlays at the old rate, some of w h i c h may, i n any case, have been approaching n a t u r a l l i m i t s . L o o k i n g ahead, I do not expect outlays f o r public services greatly to decline; but I doubt t h a t they w i l l continue to increase at the e x t r a o r d i n a r y pace of the past t w e n t y years. I am t a l k i n g here about m a r g i n a l changes i n the structure of our economy; but they are significant m a r g i n a l changes. The result of these m a r g i n a l changes is a universal prediction t h a t the present recovery w i l l leave us s t i l l w i t h something l i k e 7% unemployment i n the U n i t e d States at the end of 1976. F o r the O E C D as a whole, the latest prediction is t h a t , despite a moderate recovery, unemployment w i l l actually increase d u r i n g 1976 ( O E C D Observer, December 1975, p. 3 ) . T h i s continued stagflation is not only corroding the social and p o l i t i c a l l i f e of the advanced i n d u s t r i a l societies, but i t has r a d i c a l l y slowed down economic and social progress i n southern Europe, L a t i n America, A f r i c a , and Asia, except f o r the o i l exporters. T h i s slackening i n the w o r l d economy is obviously creating situations w h i c h provide a temptation to ambitious leaders to press o u t w a r d t h e i r power and influence. I t is w o r t h recalling t h a t protracted economic problems i n the West helped quite directly to set i n motion the m i l i t a r y adventures w h i c h brought on the Second W o r l d W a r . I n a w o r l d precariously balanced between movement towards peace and movement towards increased violence a n d disintegration, we need an environment of r a p i d economic and social progress to maximize the chance t h a t the movement towards peace w i l l prevail. As f o r remedy, i t obviously makes no economic (let alone p o l i t i c a l ) sense t o unbalance grotesquely the federal budget so t h a t consumers can go on b u y i n g big automobiles and energy-intensive durable consumers goods at the old rate. A neo-Keynesian focus on the direct expansion of demand w i l l no longer suffice. H o w , then, do we get back to f u l l employment? W e must mount r a p i d l y expanded investment i n energy production, energy conservation, mass t r a n s i t facilities, insulated housing, and i n solar energy w i t h existing technology; pro- 96 grams to clean the a i r and the w a t e r and otherwise to preserve the environm e n t ; programs to assure the long v i a b i l i t y of our invaluable a g r i c u l t u r a l base; and f o r reasons set out i n my accompanying paper (pp. 16-18) t o expand outlays f o r research a n d development over a wide f r o n t . Prosperity over the past t h i r t y years has been based on the d i r e c t expansion of consumers income and services, w i t h investment r e s u l t i n g f r o m t h a t expansion. I n the n e x t phase, prosperity w i l l have to be based somewhat more on increased investment i n the supply side of the question, w i t h economic and social progress flowing f r o m the resulting level of steady f u l l employment. I n commonsense terms, t h a t is j u s t w h a t one w o u l d expect i n a w o r l d where energy is l i k e l y to be expensive u n t i l some great technological breakthroughs occur i n solar energy or fusion p o w e r ; where we w i l l experience over the n e x t quarter-century the m a x i m u m pressure of population increase on the food supply, u n t i l b i r t h rates recede i n the developing w o r l d ; where we have at last recognized t h a t we must steadily allocate significant resources to assure clean a i r and water. I n general, we must expand i n degree our allocations t o sustain the inputs of energy and food a i r and w a t e r on w h i c h our i n d u s t r i a l c i v i l i z a t i o n depends. W e cannot go on assuming t h a t they w i l l be cheap or free. I n a l l these areas—not merely energy—there is a significant m a r g i n a l role f o r government as w e l l as p r i v a t e enterprise. W e shall, I believe, have to f r e e ourselves f r o m the rhetoric and policies of c o n f r o n t a t i o n between public and p r i v a t e enterprise and encourage a systematic p a r t n e r s h i p — a n d s p i r i t of p a r t nership. Therefore, we ought to split our federal budget i n t o investment and non-investment components and be prepared to use the powers of government vigorously to expand both p r i v a t e and, where necessary, public investment i n the directions I have indicated. T h e Energy Independence A u t h o r i t y could play a v i t a l role i n such an effort. I w i l l not burden you w i t h a n explanation o f w h y our conventional economists—Republican and Democratic, l i b e r a l and conservative—find i t difficult to perceive this is the way out of chronic 7 % unemployment. B u t I w o u l d c a l l y o u r a t t e n t i o n to the manner i n w h i c h t w o studies, at least, have backed i n t o the same broad conclusion as t h a t I am presenting here by asking i f there is going to be a c a p i t a l m a r k e t " c r u n c h " — w h e t h e r investment rates must be increased. F i r s t , the study of C a p i t a l Needs i n the Seventies by B a r r y B o s w o r t h , Tames Duesenberry, and A n d r e w Carron. T h e f u l l employment p a t h of 4 % they assume requires f o r i t s f u l f i l l m e n t sharply increased investment outlays i n energy-related investment, mass transport, and p o l l u t i o n control. Second, i n the J a n u a r y 1976 Economic Report of the President to the Congress, the Counc i l of Economic Advisers report (pp. 39-47) a study of c a p i t a l requirements down to 1980 conducted w i t h i n the government. Here the target was to b r i n g unemployment below 5 % by the end of the decade. Once again, increased outlays f o r p o l l u t i o n abatement and to reduce our energy dependence on i m p o r t s are c r i t i c a l to the conclusions reached. M y argument is, then, t h a t the p r o m p t creation of the Energy Independence A u t h o r i t y is not only necessary to reduce our balance of payments burden a n d our strategic v u l n e r a b i l i t y but also to acquire the bargaining leverage necessary f o r a r a t i o n a l long-term agreement w i t h OPEC and to free us f r o m the danger of chronically high levels of unemployment. I urge you, therefore, to t h r o w your w e i g h t f u l l y behind the Energy Independence A u t h o r i t y . I urge you to set aside the odd alliance between some shortsighted representatives of p r i v a t e i n d u s t r y and some e x t r e m i s t conservationists who now oppose t h i s B i l l . T h e i r arguments, i f heeded, w i l l neither strengthen the p r i v a t e sector nor enhance the environment. They w i l l simply increase our dependence on OPEC i n a continued setting of stagflation. Continued stagflation weakens p r i v a t e enterprise and makes more difficult the generat i o n of the resources required to clean the a i r and water and otherwise preserve our environmental heritage. I f you commend t h i s B i l l to the Congress, you w i l l t u r n , I believe, a decisive corner i n solving both our energy a n d unemployment problems and open the w a y to a r a t i o n a l approach to t h e difficult but manageable problems of the next generation. 97 T H E CASE FOR SECTORAL P L A N N I N G I I ain t o l d by the organizers of this conference t h a t I was i n v i t e d to speak today because of the f o l l o w i n g passage i n a paper I recently p u b l i s h e d : 1 " W e must operate i n a w o r l d somewhere between a Keynesian m i x e d economy and an indefinitely prolonged w a r economy. We need to cultivate again the k i n d of indicative sectoral planning developed i n Western Europe i n the postwar years of reconstruction, but this time on a broader i n t e r n a t i o n a l level." I believe t h a t proposition holds f o r the next quarter-century, and perhaps f o r longer. I take t h a t view because I believe planning the sectoral p a t t e r n of investment is the key to the problem of r e t u r n i n g to f u l l employment and resuming a high rate of g r o w t h i n the U n i t e d States, the OECD w o r l d , and i n the developing n a t i o n s ; and i t is equally the key to the s t r u c t u r a l adjustments i n energy, agriculture, r a w materials, and the environment required to m a i n t a i n the v i a b i l i t y of the w o r l d economy. As i n wartime, we must concern ourselves not merely w i t h the level of investment and output or w i t h the real rate of increase i n investment and n a t i o n a l output. We must concern ourselves also w i t h the composition of investment and the composition of output. Our concern is not, of course, as detailed as i t is i n a w a r economy where reasonably precise sectoral targets are required over a wide r a n g e : u n i f o r m s and blankets, planes and ships, tanks and guns. B u t we are and shall remain i n a w o r l d where certain types of energy and a g r i c u l t u r a l output, certain levels of p u r i t y i n the a i r and water, certain kinds of r a w materials production are achieved and sustained i n our own country and i n other regions of the world. A n d i t is my central judgment t h a t the approximation of those targets requires a significant degree of n a t i o n a l and i n t e r n a t i o n a l planning w h i c h is not now t a k i n g place. The point I seek to make is at once quite simple and quite difficult. I n arguing i t over the past year w i t h neo-Keynesian economists, I am reminded of Keynes' observation i n the Preface to his General Theory 2 on the probable reaction to his book of classical economists who " w i l l fluctuate, I expect, between a belief t h a t I am quite wrong and a belief t h a t I am saying nothing new." The difficulty arises because a sectoral approach to investment and output clashes directly w i t h the reigning modes of economic thought. These suffuse our minds more p o w e r f u l l y t h a n we know. They d r i v e us towards highly aggregated concepts focused almost exclusively on the level of effective demand which make i t difficult to t h i n k systematically about our s t r u c t u r a l problems of supply. E v i d e n t l y , population, food, r a w materials, energy, a i r , water, and research and development have moved to the center of the stage i n the w o r l d economy. W e must act to t r y to make them move i n the r i g h t directions. B u t these are variables w h i c h i n modern economics are dealt w i t h i n one of f o u r w a y s : they are l e f t out of our equations (e.g., a i r and w a t e r ) ; they are assumed to be f i x e d ; they are introduced as exogenous, f r o m outside our equations (e.g., population) ; or they are assumed to be easily and automatically evoked, i n the correct amounts and patterns, by the price and profit incentives set up by our equations (e.g., food, energy, etc.). F o r good or i l l , the k i n d of w o r l d i n w h i c h we live and shall live is not w e l l i l l u m i n a t e d by frames of thought w h i c h are both highly aggregated and structured so as to rule out or to make dependent c r i t i c a l aspects of supply. A n authentic revolution is economic thought is involved i n the propositions I shall develop today. As always, the constructs of the past have not been rendered w h o l l y irrelevant. As I said at the beginning, we shall continue to live, i n part, i n a Keynesian m i x e d economy where we shall continue to need the tricks and methods of modern income analysis. B u t W a l t e r Heller spoke w i t h precision as w e l l as w i t when he said i n December 1973: " W e [economists] have been caught w i t h our parameters down." A great deal of useful ad hoc w o r k is now going f o r w a r d , conducted by economists and others, addressed to the problems of energy, population, food, 1 "The Developing World in the F i f t h Kondratieff Upswing," Annals, No. 420, July 1975, p. 114. 2 J. M. Keynes, The General Theory of Interest, Employment, and Money, New Y o r k : Harcourt, Brace and Company, 1936, p. v. 98 etc. B u t before we have a firm grasp on o u r times a n d i t s problems—before p o l i t i c i a n s a n d citizens see t h e p a n o r a m a we c o n f r o n t a n d w h a t we m u s t do t o cope w i t h i t — w e economists w i l l have t o create new s t r u c t u r e s of t h o u g h t , w h i c h fit these problems i n t o a comprehensible d y n a m i c t h e o r y of p r o d u c t i o n a n d prices. T h a t d y n a m i c t h e o r y m u s t be based on a d i f f e r e n t set of parameters t h a n those n o w c o n v e n t i o n a l l y t a u g h t or b u r i e d i m p l i c i t l y i n o u r a r g u ments a n d p r e s c r i p t i o n s ; and, i n t h e end, i t s h o u l d p r o v i d e t h e i n t e l l e c t u a l basis f o r t h e sectoral p l a n n i n g w e r e q u i r e . II So m u c h by w a y of i n t r o d u c t i o n . I s h a l l develop t h i s theme i n f o u r segments : F i r s t , t h e r e l a t i o n of sectoral p l a n n i n g t o o u r r e t u r n to f u l l e m p l o y m e n t ; Second, t h e r e l a t i o n of sectoral p l a n n i n g t o t h e m e d i u m t e r m s t r u c t u r a l a d j u s t m e n t r e q u i r e d i n the w o r l d economy ( a n d the U n i t e d States) between n o w a n d 1985 and, indeed, over the n e x t q u a r t e r - c e n t u r y , as n e a r l y as w e can perceive; T h i r d , a b r i e f aside on i n f l a t i o n ; F i n a l l y , some observations on the i m p l i c a t i o n s of a l l t h i s f o r t h e p o s i t i o n of t h e U n i t e d States i n the w o r l d arena, o u r s e c u r i t y , a n d the prospects f o r peace. F i r s t , then, the r e t u r n t o f u l l employment. T h e debate about t h e c u r r e n t state of t h e A m e r i c a n economy is c h a r a c t e r i z e d by a curious p a r a d o x . T h e p a r adox i l l u s t r a t e s the clash between h i g h l y aggregated a n d sectoral methods of analysis. On t h e one hand, w e are w o r r i e d a b o u t the sluggish recovery n o w t a k i n g place i n the U n i t e d States a n d t h e O E C D w T orld. T h e f o r e c a s t is t h a t by the end of 1976 we s h a l l s t i l l be w a l l o w i n g a l o n g w i t h something l i k e 7 % u n e m p l o y m e n t . I f past p a t t e r n s , hold, t h i s i m p l i e s perhaps 1 2 % u n e m p l o y m e n t f o r non-whites, 1 8 % u n e m p l o y m e n t f o r those ( w h i t e a n d n o n - w h i t e ) 16-19 years old. I n Europe, governments t e n d t o look f o r a n e x p o r t - l e d r e t u r n t o f u l l e m p l o y m e n t ; b u t , as the L o n d o n Economist recently r e m i n d e d i t s readers, 3 " Y o u C a n ' t A l l E x p o r t a t Once." A t the moment, the estimates are t h a t the O E C D w o r l d w i l l move ahead i n the second h a l f of the 1970\s m u c h m o r e s l o w l y t h a n i n t h e 1960's, w i t h serious decelerating consequences f o r t h e r a t e of g r o w t h i n the developing regions. On t h e o t h e r hand, economists a n d others are w o r r i e d a b o u t a c a p i t a l m a r k e t crunch. A d d i n g up the v o l u m e of i n v e s t m e n t r e q u i r e d f o r n e w f o r m s of energy a n d energy conservation, a n t i p o l l u t i o n programs, a n d o t h e r i n v e s t m e n t i m p l i c a t i o n s of stated p u b l i c objectives, m a n y f e e l i n s t i n c t i v e l y t h a t , i n t h e t i m e ahead, the U n i t e d States w i l l r e q u i r e a h i g h e r i n v e s t m e n t r a t e i n r e l a t i o n t o gross n a t i o n a l p r o d u c t t h a n i n the past. T h e O E C D energy analysts, f o r example, a f t e r e s t i m a t i n g a rise of 4 4 % i n t h e p r o p o r t i o n of energy t o t o t a l gross fixed c a p i t a l f o r m a t i o n , between 1977 a n d 1985, w i t h o i l a t $9 per b a r r e l , counsel against seeking a m u c h h i g h e r l e v e l of energy independence because of i t s p o t e n t i a l conflict w i t h " o t h e r objectives of government policy concerning income d i s t r i b u t i o n , i n d u s t r i a l s t r u c t u r e , a n d policies a i m e d a t c o m b a t i n g inflation." 4 I n t h e i r a n a l y s i s of C a p i t a l N e e d s i n t h e S e v e n t i e s , James Duesenberry a n d h i s colleagues e x a m i n e d c a r e f u l l y w h e t h e r Sve c o u l d a f f o r d t h e f u t u r e ' i n t e r m s of c a p i t a l r e q u i r e m e n t s f o r h i g h p r i o r i t y social purposes. 5 T h e y conc l u d e : " W e can a f f o r d the f u t u r e , b u t j u s t b a r e l y " ; t h a t is, they c a l c u l a t e increased o u t l a y s f o r energy, a n t i - p o l l u t i o n measures, a n d p u b l i c t r a n s p o r t , a r e m o r e or less balanced out by r e l a t i v e l y d i m i n i s h e d o u t l a y s f o r e d u c a t i o n a n d t h e i n t e r s t a t e h i g h w a y system i f t h e r e a r e no n e w m a j o r social p r o g r a m s , i f w e move to a f e d e r a l budget surplus, a n d i f a h i g h average r a t e of g r o w t h yields i t s flows of b o t h p r i v a t e i n v e s t m e n t resources a n d g o v e r n m e n t revenues. T h e p a r a d o x of severe u n e m p l o y m e n t a n d unused capacity versus t h e c a p i t a l c r u n c h w a s v i v i d b u t unresolved i n t h e response of W a l t e r H e l l e r to Secretary 9 .Tnly 12, 1075, p. 68. 4 "Energy Prospects to 1985." summarized in OECD Observer, No. 73, .Tanunrv-Februarv 1975, pp. 18-19. The caution is expressed with respect to a full exploitation of OECD?s energy import replacement potential, which could reduce the proportion of imports bv 198" to 2 - 7 % , as opposed to 36% in the early 1970's, 21% in the "S9 case". 8 Barry Bosworth, James S. Duesenberry, and Andrew S. Carron, Capital Needs in the Seventies, Washington, D. C.: The Brookings Institution, 1975. 99 of the Treasury Simon's proposal this summer f o r increased t a x incentives f o r private investment. 6 Heller points to American i n d u s t r y operating a t about 80% capacity. H e implies t h a t to cut business taxes now w o u l d be pushing 011 a s t r i n g : there w o u l d be no significant investment response. H e argues t h a t the aggregate level of investment i n relation to GNP has remained stable over the past decade; t h a t a h i g h rate of economic g r o w t h w o u l d generate the savings and investment to meet the investment needs of the n e x t decade; and t h a t we require, therefore, increased general stimulus to consumption and a closing of t a x loopholes r a t h e r t h a n regressive t a x changes to stimulate investment a t a t i m e of large, idle i n d u s t r i a l capacity. As a debating matter, Professor I l e l l e r scores some good p o i n t s ; b u t this is because the F o r d administrat i o n then posed the problem i n an over-aggregated way, p e r m i t t i n g Heller to reply i n s i m i l a r terms. W i t h great respect, I submit t h a t both Simon and Heller f a i l to get at the root of the matter. W h a t is required i n the U n i t e d States (and i n other OECD countries) to get back to f u l l employment is not an undifferentiated expansion of investment; but a r a p i d expansion i n certain p a r t i c u l a r directions. W e now know those directions i n the U n i t e d States: new energy resources; energy economy; investment to clean the a i r and w a t e r ; insulated housing; mass transport. To these I w o u l d add, f o r reasons I shall later develop, radically expanded investment i n R & D and, quite possibly, investment to rehabilitate a g r i c u l t u r a l acreage we believed was arable u n t i l we took off acreage restrictions and f o u n d the land sub-marginal. M y central point, then, is quite s i m p l e : the r e t u r n to f u l l employment should come f r o m r a p i d l y expanded investment i n certain key sectors; p r i v a t e enterprise has a role i n each of these sectors; but i n none of them w i l l investment expand promptly enough and on a sufficient scale to b r i n g us back to f u l l employment unless the government acts i n various ways to make investment flow. I n some cases, direct government outlays are necessary; i n others, the settlement of conflicts between production and environmental c r i t e r i a ; i n others, legislation is r e q u i r e d ; i n others, one f o r m or another of subsidy or guarantee. Thus, to get back promptly to f u l l employment requires more of government policy t h a n either Simon or Heller i m p l y ; although, evidently, intelligent fiscal and monetary policies r e t a i n an i m p o r t a n t role. A r e t u r n to f u l l employment on a viable basis requires i n t i m a t e and painstaking sectoral collaboration between the public and private parts of our society. As one who w o u l d prefer to see p r i v a t e enterprise carry f o r w a r d the economy to the m a x i m u m and who believes government i n t e r v e n t i o n has its costs, as w e l l as benefits, let me p u t the question b l u n t l y : W h y is i t t h a t neo-Keynesian prescriptions f o r reducing unemployment t h r o u g h stimulus to consumers demand are not now sufficient? The answer is t h a t the inescapable imperatives of higher energy prices and, f o r some advanced i n d u s t r i a l countries, a sharp unfavorable s h i f t i n the terms of trade, have cut i n t o real income. These factors (reflecting both price and income elasticities of demand) have radically reduced consumers' outlays on postponable i t e m s ; notably, automobiles and other consumers durables. They have also reduced the demand f o r housing. Against this background, and the combination of i n f l a t i o n and recession, governments cannot compensate adequately by r a p i d l y expanding real outlays f o r social services (e.g., education and health care). These may, i n any case, be approaching n a t u r a l l i m i t s . The r a p i d expansion of O E C D exports to the OPEC countries has been a balancing factor i n terms of employment. B u t i t also constitutes a quite insufficient compensation f o r these decelerating p r i v a t e and public outlays. Thus, the rise i n energy prices has weakened the leading sectors w h i c h have carried f o r w a r d economic g r o w t h i n N o r t h America, Western Europe, and Japan over the past quarter-century. Resumed prosperity and g r o w t h require a massive s h i f t of investment i n new d i r e c t i o n s ; and these directions ( u n l i k e automobiles, durable consumers goods, and suburban houses) require an enlarged government role and serious, sustained public-private collaboration. P u t another way, i t is the m u l t i p l i e r (expanding income and employment through new forms of investment) rather t h a n the accelerator (expanding investment t h r o u g h the increase i n income), t h a t w i l l be r a t h e r more required 6 "Taxes and the 'Capital Shortfall,' " W a l l Street Journal, August 19, 1975. 100 t h a n i n the recent past to p u l l the O E C D w o r l d out of recession and back to sustained g r o w t h . I n a sense, we are r e t u r n i n g to the dynamics of the pre-1914 w o r l d economy—the w o r l d of railroads, steel, and the opening of new t e r r i t o ries—as opposed to the environment we have k n o w n since the 1920's when the leading sectors of h i g h mass-consumption emerged, and investment was closely l i n k e d to the expansion of consumers' outlays on durable goods and certain services. T h i s proposition relates, of course, to a m a r g i n a l s h i f t i n the r e l a t i v e role of the t w o inter-acting mechanisms, not to a complete reversal. Surely, various b u i l t - i n supports to the level of income and consumption have cushioned the recession of 1974-75 i n the O E C D w o r l d , as have government deficits; and this cushioning has prevented even greater declines i n investment levels t h a n those w h i c h have i n f a c t occurred. A n d surely, as I have said, fiscal and monetary policy must contribute f u r t h e r to the r e t u r n to f u l l employment. Nevertheless, the m a r g i n a l s h i f t s required i n the w o r k i n g s of the O E C D economies are of significant orders of magnitude. They are the basis f o r my short-run case f o r sectoral planning. Ill I t u r n now to the longer r u n case f o r sectoral planning. A new phase i n the h i s t o r y of the w o r l d economy began at the close of 1972 when bad harvests and the Soviet g r a i n deal caused a convulsion i n g r a i n prices. W o r l d food reserves, w a n i n g i n the 1960*8 as a proportion of w o r l d consumption, suddenly disappeared. A t the same time, U n i t e d States gas and o i l reserves i n r e l a t i o n to consumption were declining, and production began absolutely to decline a f t e r 1970. Then i n the a u t u m n of 1973 came the q u a d r u p l i n g of the o i l price. R a w m a t e r i a l prices simultaneously moved up across the board under pressure of a p o w e r f u l w o r l d w i d e boom. A l t h o u g h r a w m a t e r i a l prices have considerably softened i n the subsequent recession of the i n d u s t r i a l w o r l d , most analysts w o u l d agree t h a t the prospects i n the time ahead are f o r relatively expensive energy and f o o d ; and i f the w o r l d economy recovers its lost momentum, i n r a w materials as well. The price revolution of 1972-75 yielded an accelerated general i n f l a t i o n ; an extremeley h i g h range of interest r a t e s ; pressure on the real wages of i n d u s t r i a l labor and on those w i t h relatively fixed incomes; a s h i f t of income and i n the terms of trade favorable to producers of food as w e l l as energy. T h i s is the fifth time i n the last t w o hundred years t h a t such a s h i f t i n relative prices has occurred; and on each of the other f o u r occasions i t has been accompanied by exactly the manifestations we have experienced since 1972. The other f o u r occasions occurred i n the 1790's; the early 1850's; the second h a l f of the 1890's and the late 1930*8. On each occasion these prices then remained i n a relatively high range f o r about a quarter-century. A roughly equal period followed i n w h i c h the trends reversed. Each of these periods was, i n an i m p o r t a n t sense, u n i q u e ; but the f a c t is t h a t the w o r l d economy f o r almost t w o centuries has been subject to a rough and i r r e g u l a r p a t t e r n of long cycles i n which periods of about 20 to 25 years of h i g h relative prices f o r food and r a w materials gave way to approximately equal phases of relatively cheap food and r a w materials. The last downswing r a n f r o m 1951 to 1972. I am not wedded to the notion t h a t these cycles w i l l continue i n t o the f u t u r e . B u t I w o u l d guess t h a t the inexorable pressure of excessive population increase i n the developing w o r l d ; the tendency of the poor to spend increases i n income disproportionately on f o o d ; the r i s i n g demand f o r grain-expensive p r o t e i n s ; the pace of i n d u s t r i a l i z a t i o n among those catching u p ; and the strains of the energy crisis w i l l persist. Given these p o w e r f u l and sustained demands operati n g on food, energy and r a w m a t e r i a l prices, and the costs we shall have to i n c u r to achieve and m a i n t a i n clean a i r and water, I believe we are i n f o r a long period when the prices of these basic i n p u t s to the economy w i l l r e m a i n relatively high. D o w n to 1914 the classic response was to open new agricult u r a l and r a w m a t e r i a l producing areas: the American West, Canada, Aust r a l i a , Argentina, the Ukraine. The great movements of i n t e r n a t i o n a l c a p i t a l d u r i n g this era were, i n substantial part, induced to b r i n g new supplies i n t o the m a r k e t and to restore balance i n the i n d u s t r i a l i z i n g w o r l d by the price system, combined w i t h new technologies of transport and production. B u t we confront this t r e n d period i n a setting quite different f r o m t h a t of the past. We cannot rely wholly on the automatic w o r k i n g s of the price system and p r i - 101 vate capital markets to restore and m a i n t a i n balance. A l l over tlie world, i n one way or another, policy t o w a r d resources is i n the hands of governments or is strongly influenced by governments. A t every stage, therefore, public policy w i l l be involved, seeking, i f we are wise, to reinforce—and i n some cases to control—the incentives and constraints set up by the price system. W h a t , specifically, do we have to do to b r i n g the w o r l d economy back towards some k i n d of balance? F i r s t , we need a concerted effort among energy importers to generate a m i x t u r e of expanded output and energy conservation sufficient to give us the bargaining leverage to negotiate a r a t i o n a l and equitable long-term agreement w i t h OPEC. A. large p a r t of t h a t effort must be undertaken by the U n i t e d States, given the a v a i l a b i l i t y here of alternative energy resources and, perhaps, greater margins f o r energy economy. As among Western Europe, Japan, and the U n i t e d States, only we command the capacity to reduce sharply our OPEC imports by 1985. We owe i t not only to ourselves but to a l l energy i m p o r t e r s to do so. I f we do, there is a f a i r chance t h a t an agreement could be reached between OPEC and the importers reconciling the three c r i t e r i s w h i c h ought t o be respected; an energy price sufficiently h i g h i n the U n i t e d States and other advanced i n d u s t r i a l countries to encourage economy and conservation and to induct the R & D required to supplant o i l and gas as a p r i m a r y energy source by, say, the end of the next generation; a politically and economically reliable flow of oil to consumers i n advanced i n d u s t r i a l countries at a price w h i c h does not impose chronic economic stagnation t h r o u g h excessive balance of payments pressures; a reliable long-term flow of o i l to non-OPEC developing nations w h i c h w o u l d p e r m i t them to accelerate a g r i c u l t u r a l production and resume over-all g r o w t h at high rates, either via a concessional o i l price or v i a longt e r m OPEC a i d on a scale (along w i t h OECD a i d ) capable of achieving the same dual objectives. To achieve the requisite bargaining position, the O E C D w o r l d evidently requires a concert among n a t i o n a l programs of energy production, conservation, economy, and R & D we have not yet achieved. The price system is slowly pushing us i n the r i g h t directions; but the price system by itself is palpably insufficient. A n d then we shall have to achieve a diplomatic concert f o r the negotiation w i t h OPEC w h i c h also does not now exist. Second, agriculture. I t is now agreed i n the i n t e r n a t i o n a l community t h a t w h i l e the O E C D w o r l d can help, the task of feeding the inescapable increase of population i n the developing w o r l d between now and the year 2000 must be undertaken p r i m a r i l y t h r o u g h a sharp increase i n the rate of g r o w t h of agric u l t u r a l output i n L a t i n America, A f r i c a , the M i d d l e East, and Asia. T h i s is an i m p o r t a n t consensus and a m a j o r result of the various i n t e r n a t i o n a l meetings of the past t w o years. As I say, the O E C D w o r l d can help i n various w a y s : by generating reserves f o r f a m i n e ; supplying capital and technical assistance ; offering enlarged markets f o r some a g r i c u l t u r a l exports. B u t the crucial variable may be the rate of increase of chemical f e r t i l i z e r consumption i n the developing regions. To achieve t h a t increase w i l l require public-private collabor a t i o n on a t r u l y i n t e r n a t i o n a l basis. The domestic a g r i c u l t u r a l policies of developing nations are involved as they affect the incentive f o r f a r m e r s to use more f e r t i l i z e r s ; t h e i r policies towards foreign p r i v a t e investors i n t h e i r countries are, i n some cases, i n v o l v e d ; the direction of public as w e l l as p r i v a t e a i d flows is i n v o l v e d ; the possibility of guarantees may have to be considered i n case of temporary f e r t i l i z e r surpluses, so t h a t investment i n f e r t i l i z e r capacity can proceed at a higher rate w i t h o u t excess a n x i e t y ; and, finally, there is the question of the price of f e r t i l i z e r feedstocks, w h i c h comes to rest on OPEC's price or OPEC's aid. Here, evidently is a task f o r sectoral p l a n n i n g on an i n t e r n a t i o n a l level of c r i t i c a l importance. T h i r d , i n t e r n a t i o n a l anti-pollution measures. I n the O E C D world, nations have generally moved to increase investment significantly to clear the a i r and water. This is p r o v i n g a manageable but expensive task. W e may argue about standards, t i m e periods to achieve them, and trade-offs; but the f a c t is t h a t we have irreversibly accepted the f a c t t h a t a i r and w a t e r are not free goods; and we shall have to argue about and plan the a i r and water sectors f o r as f a r ahead as any of us can peer. B u t we have barely begun the task of coming to grips w i t h the i n t e r n a t i o n a l dimensions of the problem, notably w i t h respect to the seas and oceans. Here, again, sectoral p l a n n i n g w i l l have to become i n t e r n a t i o n a l i f the A t l a n t i c and Pacific, the B a l t i c , Mediterranean, and Rhine are to be tolerably maintained. 102 F o u r t h , r a w materials. The w o r l d recession has, f o r the moment, cut r a w m a t e r i a l prices. I f the w o r l d economy resumes and m a i n t a i n s h i g h g r o w t h rates, a range of issues s i m i l a r to but less acute t h a n those we c o n f r o n t i n energy w i l l assert themselves. As i n the case of energy, there is no k n o w n physical l i m i t to r a w m a t e r i a l resources on the planet. B u t a great deal of crea t i v e effort w i l l be required t o continue to f e n d off d i m i n i s h i n g r e t u r n s ; to conserve and recycle; and to create an i n t e r n a t i o n a l f r a m e w o r k w i t h i n w h i c h the legitimate interests of producers and consumers are reliably guaranteed. F i f t h , R & D . I cannot prove i t , b u t I am m o r a l l y certain t h a t the maintenance of a r a p i d l y g r o w i n g i n d u s t r i a l c i v i l i z a t i o n requires a substantial increase of investment i n the f o r m of R & D . The imperatives of our s i t u a t i o n are already a t w o r k i n the energy sector. The most t h o u g h t f u l analysis of A m e r i c a n a g r i c u l t u r e I k n o w commends an increase i n a g r i c u l t u r a l R & D ; t h a t is, the report on A g r i c u l t u r a l Production Efficiency 7 done by the N a t i o n a l Academy of Sciences. W e ought t o be l e a r n i n g more about climate, as w e l l as new a n t i - p o l l u t i o n technologies. I w o u l d expect us to have to be creative w i t h respect to r a w m a t e r i a l s over the next generation. W e owe i t to the developi n g nations to find b i r t h c o n t r o l methods t h a t are cheaper, psychologically easier to accept, and longer l a s t i n g t h a n any we now have. There is a l o t more to b r i n g i n g b i r t h rates down r a p i d l y t h a n b i r t h control devices. B u t t h e i r inadequacy has diminished the effectiveness of f a m i l y p l a n n i n g efforts i n the southe r n continents. The l i s t could, evidently be extended; b u t the u n d e r l y i n g reason f o r m y j u d g m e n t about the necessary scale of R & D is t h a t , as compared to the longer past, we cannot generate the new, necessary i n p u t s to the w o r l d economy simply by opening up new territories. There is no American West, A r g e n t i n a , Canada, or A u s t r a l i a to redress the balance of i n d u s t r i a l c i v i l i z a t i o n . A f e w f r o n t i e r s there a r e : Alaska and the N o r t h Sea, Siberia and the seabeds. B u t every projective analysis of the longer f u t u r e I know—pessimistic or o p t i m i s t i c — comes to rest technically on the capacity of the human race to continue to defeat classical d i m i n i s h i n g r e t u r n s w i t h R & D and thus to provide a viable base f o r a global i n d u s t r i a l c i v i l i z a t i o n whose vast scale w i l l be determined by both the inescapable expansion of the world's population over the n e x t century and the determination of the developing w o r l d to achieve a m e a n i n g f u l version of affluence. F r o m the special perspective of t h i s discussion of planning, R & D is a f o r m of investment t h a t requires a significant public role. A great deal can be done and should be done by the p r i v a t e sectors i n response to p r i v a t e profit incent i v e s : but public policy must set p r i o r i t i e s and otherwise assure t h a t R & D is directed to ends w h i c h respect non-economic values ( i n c l u d i n g the environment and n a t i o n a l security) and w h i c h guarantee w o r k is done w h i c h is too large, risky, or d i s t a n t i n t i m e f o r the p r i v a t e sector to undertake. A n d i f , as I believe, R & D may prove to be our scarcest and most v i t a l sector f o r the next generation a t least, there is, as w i t h energy, a g r i c u l t u r e , r a w materials, and the environment, a whole new w o r l d of diplomacy to pioneer i n achieving effective coordination of n a t i o n a l efforts geared to commonly perceived priorities. So much f o r my positive longer r u n case f o r sectoral planning. I could, of course, debate the m a t t e r much more simply. The f a c t is governments are i n the sectoral p l a n n i n g business, i n c l u d i n g the government of the U n i t e d States. Indeed, bad sectoral planning, here and abroad, accounts not f o r the existence but f o r the severity of our c u r r e n t a g r i c u l t u r a l and energy problems. Governments are deeply involved i n R & D . There is no i n d i c a t i o n governments are about to get o u t of the sectoral p l a n n i n g business. The objective, therefore, is to do the best job intelligence and a sense of p r o p o r t i o n permit. B u t to a r r i v e a t t h i s conclusion, by one route or another, is the beginning, not the end of the matter. Governments face tasks as basic as new f o r m s of data collection and as d i f ficult as g u i d i n g the p r i v a t e sectors on to the r i g h t patterns of investment w i t h o u t f r u s t r a t i n g them and destroying t h e i r powers of i n i t i a t i v e . W i t h respect to energy, f o r example, E d w a r d Teller's report 8 concludes w i t h f o u r 7 8 Washington, D. C . : National Academy of Sciences, 1975. Energy: 1975. A Plan for Action, New Y o r k : Commission on Critical Choices for Americans, 103 teen substantive recommendations f o r federal action under the heading of conservation ; nine bearing on energy i n relationship to the e n v i r o n m e n t ; seven w i t h respect to o i l and gas p r o d u c t i o n ; f o u r w i t h respect to c o a l ; seven w i t h respect to nuclear reactors; t w o w i t h respect to e l e c t r i c i t y ; t w e n t y - t w o w i t h respect to R & D ; five bearing on demonstration p l a n t s ; one concerning underground nuclear p l a n t s ; three w i t h respect to highly specific f o r m s of internat i o n a l cooperation; and f o u r general and i n s t i t u t i o n a l recommendations, includi n g the creation of a N a t i o n a l Resource M o b i l i z a t i o n Corporation, a recommendation to w h i c h the F o r d a d m i n i s t r a t i o n has already responded. Every one of these seventy-one recommendations involves technical a n d / o r policy complexities, including, i n some cases, legislation. The F o r d F o u n d a t i o n report on energy concludes w i t h almost as long a list. 9 Studies of f a m i l y planning, agriculture, r a w materials, and the environment emerge w i t h s i m i l a r catalogues of recommended public action, n a t i o n a l and international. W i t h o u t accepting or rejecting any p a r t i c u l a r prescriptions, they a l l reflect a simple f a c t : i n the modern p o l i t i c a l w o r l d the price system w i l l not suffice to b r i n g about the kinds of s t r u c t u r a l adjustments—the changed patterns of investment—our common situation requires. T h i s does not mean we must create large new bureaucracies. The bureaucratic r a w materials f o r effective n a t i o n a l p l a n n i n g are sprawled a l l over t h i s city, i n a v a r i e t y of poorly coordinated departments and agencies. W h a t we lack are three t h i n g s : The k i n d of data intelligent sectoral planning demands; A Council of Economic Advisers and a centralized Economic Policy Council organized so t h a t they can set, i n coordination w i t h the Congress, n a t i o n a l sect o r a l targets i n r e l a t i o n to w h a t is going on i n the w o r l d economy as a w h o l e ; And, above all, new attitudes of m i n d i n the Executive B r a n c h and the Congress, the business community and the public, w h i c h w o u l d support the collabor a t i o n of p r i v a t e and public segments of our society i n achieving large common purposes. B u t behind each of these requirements is the basic need f o r a consensus on where we are i n the sweep of our own economic h i s t o r y and the evolution of the w o r l d economy; and a common sense of direction f o r the next years and generation. IV N o w one observation about i n f l a t i o n w h i c h is, evidently, as large a subject i n itself as planning. I n f l a t i o n relates to p l a n n i n g technically because wagepush i n f l a t i o n complicates the investment tasks we face, erodes provisions f o r the f u t u r e , i n h i b i t s the vigorous p u r s u i t of f u l l employment, and, by setting each group i n society against every other, makes difficult the n a t i o n a l consensus we badly need f o r effective planning. M y observation is t h a t the coming together of the public and p r i v a t e i n s t i t u tions of our society needed f o r selective sectoral p l a n n i n g should also make i t easier f o r us ( a n d the O E C D nations i n general) to b r i n g under control the pathology of wage-push inflation. As an early observer of European income policies remarked, a disciplining of wages and prices must be " p a r t of a coordinated effort to achieve a clearly defined n a t i o n a l objective." 1 0 The appropriate objective of the O E C D nations should be clear enough: to resume regular g r o w t h i n ways w h i c h maximize the chance t h a t t h e i r own societies and the larger c i v i l i z a t i o n of wThich they are a p a r t r e m a i n viable. W i t h i n the framew o r k of t h a t k i n d of consensus, i t ought to be possible to achieve stable social contracts r e l a t i n g money wages to increases i n p r o d u c t i v i t y , and to do so i n ways w h i c h do not result i n an excessive surge of profits. M y own p r e f e r r e d f o r m u l a is r a d i c a l by the standards of contemporary neo-Keynesian economists but more understandable to students of economic h i s t o r y who have examined the protracted periods i n the past when wages were stable, prices f a l l i n g , and real wages rising. I t should also commend itself to those who have examined the dangerous problem of wage struggles and strikes i n the public service sector of our economy. M y f o r m u l a i s : a protracted wage freeze f o r at least 9 A Time to Choose: America's Energy Future, Cambridge, Massachusetts: Ballinger Publishing Company, pp. 325-343. 10 Mark Leiserson, A Brief Interpretative Survey of "Wage-Push Problems in Europe Study Paper No. 11 for Consideration of the Joint Economic Committee, 86th Congress, 1st Session (Washington, D. C . : GPO, 1959), p. 55. 104 five years, accompanied by strong, credible measures to ensure t h a t increases i n p r o d u c t i v i t y are passed along to the consumer i n lower prices and n o t t r a p p e d i n excessive profits. T h i s w o u l d require not merely m u t u a l assurances among business, labor, and the Executive Branch, but also the backing of the Congress. U l t i m a t e l y , w h a t is involved, however, is not a technical f o r m u l a , b u t a coming together of labor, business, and government to achieve a common goal. And, i n t h i s case, the common goal reflects the authentic long-run i n t e r ests of business and* labor, since both groups suffer severely, on balance, f r o m the m u l t i p l e consequences of wage-push inflation. I a m w e l l aware t h a t i t is not easy to create a negotiating f r a m e w o r k i n w h i c h authentic long-run interests t r i u m p h over even c h i m e r i c a l short-run interests. The mediocre record of efforts i n t h i s direction by O E C D nations over the past generation underlines the psychological, i n s t i t u t i o n a l , and p o l i c i a l difficulties involved. I raise t h i s issue w i t h o u t naivety. B u t i n a t i m e when a higher sense of communal purpose w i l l be, i n any case, required to move the m a j o r sectors i n the r i g h t directions, the chances of i n s t i t u t i n g more stable social contracts, capable of d i s c i p l i n i n g wage-push i n f l a t i o n to common advantage, should be enhanced. V Now a final w o r d about the relationship of this argument about sectoral p l a n n i n g to the larger questions of the A m e r i c a n role i n the w o r l d and the task of moving t o w a r d s stable peace. I f I am r i g h t about the character of the period we entered at the close of 1972 and the character of i t s remedy, the responsibilities of the U n i t e d States a n d our p o t e n t i a l f o r influencing constructively the w o r l d economy have risen i n a r a t h e r d r a m a t i c way. The A m e r i c a n role emerges f r o m five circumstances. F i r s t , the U n i t e d States, i f i t continues to n u r t u r e i t s a g r i c u l t u r a l base, is a n d should r e m a i n the dominant source of food exports, i n c l u d i n g exports required to c e r t a i n developing nations u n t i l t h e i r own production can be expanded at a higher pace. About 75% of the world's g r a i n surplus flows f r o m the U n i t e d States. The U n i t e d States a g r i c u l t u r a l export capacity is also a significant cushioning f a c t o r i n our balance of payments strengthening the relat i v e position of the dollar among the m a j o r currencies and m a k i n g more possible large o i l imports. I n addition, the flow of g r a i n f r o m the U n i t e d States is i m p o r t a n t to the Soviet Union, Eastern Europe, and China, a l l of w h i c h are now i n a chronically deficit position. The deficit each year varies w i t h the h a r vests, but i t is not l i k e l y to disappear. T h i s i m p o r t a n t requirement does not give the U n i t e d States a b l a c k m a i l power over the f o r e i g n policy and internat i o n a l behavior of these nations. B u t i t is a f a c t of l i f e w i t h w h i c h they must reckon—and a stabilizing f a c t of life. Second, as I noted earlier, the U n i t e d States alone commands sufficient altern a t i v e energy resources to reduce sharply O E C D dependence on OPEC o i l and, thereby, set the stage f o r well-balanced agreement between o i l producers and consumers. I f we do so, OPEC w o u l d face the choice of reducing i t s prices or f o r c i n g c e r t a i n of i t s members (notably, Saudi A r a b i a ) to cut o u t p u t to unacceptable levels. T h e combination of good weather last w i n t e r and the O E C D recession began to pose this problem to OPEC a t i t s recent meeting. B u t they have thus f a r been protected because the U n i t e d States lacks an energy policy w o r t h y of the name. I f we are to get a r a t i o n a l o i l policy i n the w o r l d — r e l i e v i n g the burden imposed by OPEC on the poorest nations, easing the vulnerabili t y of the O E C D nations, i n s u l a t i n g our foreign policy f r o m b l a c k m a i l — i t w i l l come about only i f we break the costly impasse between the President and the Congress and get on w i t h the job. T h i r d , the energy and energy-related investment requirements i n the U n i t e d States are so large t h a t i t should be easier f o r the U n i t e d States to r e t u r n q u i c k l y to f u l l employment and thereby help lead the O E C D w o r l d i n t h a t direction. Changed patterns of investment w i l l be required i n a l l O E C D countries i n the n e x t phase of g r o w t h . They cannot rely w h o l l y on a p r i o r A m e r i can r e v i v a l p e r m i t t i n g a r e t u r n to f u l l employment based on expanded exports to the U n i t e d States. N o r can they continue t o rely, as over the past generation, o n r a p i d expansion i n production of automobiles, durable consumers goods, and other energy-intensive products. B u t the scale of a d d i t i o n a l investment required i n the U n i t e d States i n the expansion of energy output, the d i f fusion of methods f o r energy conservation, mass t r a n s p o r t facilities, insulated 105 housing, and energy R & D are such as to make i t somewhat easier f o r the U n i t e d States t h a n f o r others to r e t u r n to f u l l employment on such foundations and to help, a t least, to lead the OECD w o r l d back to f u l l employment and regular g r o w t h . F o u r t h , the U n i t e d States evidently has special advantages and responsibilities i n the R & D sector as a whole. The American advantage stems f r o m the absolute sclale of our R & D resources and the potentialities f o r orchestrating them efficiently w i t h i n a single n a t i o n a l community. The proportion of U n i t e d States GNP spent on R & D has f a l l e n i n t o the same range as t h a t , say, of Germany and the U n i t e d K i n g d o m (say, 2.2% per annum) ; but the absolute level of American R & D expenditures s t i l l towers over t h a t of the other m a j o r i n d u s t r i a l nations—by a factor of ten. I f organized around the appropriate p r i o r i t y tasks they are an asset of universal v a l u e ; and they place on the U n i t e d States a special responsibility i n b r i n g i n g about effective i n t e r n a t i o n a l cooperation i n this domain. F i n a l l y , the U n i t e d States has a special responsibility f o r p o l i t i c a l leadership i n dealing w i t h the new economic agenda. I n part, t h i s flows f r o m our potentialities i n agriculture, energy, research and development. B u t i t is also the case because i f the U n i t e d States f a i l s to lead there is, as yet, no n a t i o n or political group t h a t can fill the g a p : Western Europe is insufficiently u n i f i e d ; Japan too v u l n e r a b l e ; the Soviet U n i o n too constricted by its ideological commitments to lead comfortably a heterogeneous m i x t u r e of p o l i t i e s ; China is s i m i l a r l y constricted and at a stage of development when i t s inner problems and border anxieties must dominate its energies. Leadership i n t h i s context i n no way implies dominance. I t requires a m i x t u r e of three elements: a n a t i o n a l capacity to act significantly w i t h respect to the m a j o r issues; a capacity to define common objectives i n ways t h a t are not excessively self-serving; and, then, the capacity to help translate those objectives i n t o a w o r k i n g agenda, and to help move i t f o r w a r d w i t h dogged stubbornness. These are assets the U n i t e d States potentially commands. A f t e r a wobbly s t a r t i n 1974, the U n i t e d States began to exercise this potent i a l i t y i n the c r i t i c a l area of North-South relations d u r i n g the September 1975 special session of the U n i t e d Nations Assembly. Over the previous year things went badly. There was the acrimonious U n i t e d Nations General Assembly debate of A p r i l 1974; the population meeting at B u c h a r e s t ; the food conference at R o m e ; and the sterile session on the l a w of the sea at Caracas. I n a l l of them, the a i r was filled w i t h rhetoric about i m p e r a l i s m ; w i t h claims f o r the u n i l a t e r a l transfer of resources f r o m the r i c h to the p o o r ; w i t h the ardent assertion of national sovereignty by the less developed nations, combined w i t h equally ardent demands t h a t the more developed states surrender sovereignty and behave i n terms of the requirements of the i n t e r n a t i o n a l community. I t was not difficult to envisage a l l this y i e l d i n g a neomercantilist f r a g m e n t a t i o n of political, economic, and m i l i t a r y affairs—and disaster f o r the human race— as men and nations squabbled meanly f o r scarce resources i n a nuclear age. The September 1975 meeting was better not only because the U n i t e d States outlined the headings f o r a North-South partnership but f o r t w o other reasons. The develoinng nations, w h i c h i n 1974 were t a l k i n g about the excessive r a w m a t e r i a l consumption of the N o r t h , had f e l t f u l l y the effects of recession i n the North. T h e i r exports and export prices were down and their development prospects were badly damaged. I n addition, they had come to appreciate how badly damaged they were by OPEC's price policy. The somewhat specious u n i t y of OPEC and other developing nations i n 1974 was strained. The result was a wide-ranging series of f o r m a l l y agreed resolutions covering aid, trade, a g r i c u l t u r a l production, the transfer of technology, commodity agreements and the other legitimate headings f o r action i f North-South confrontation is to be converted into the partnership the facts of interdependence demand. B u t i t was only a beginning. U n i t e d Nations resolutions do not automatically translate themselves i n t o action. H a r d w o r k lies ahead. Moreover the U n i t e d States took i t s distance f r o m several i m p o r t a n t resolutions including t h a t which reaffirmed the U n i t e d Nations a i d target f o r the 1970's: an expansion i n official a i d by 1980 up to the level of 0.7% of GNP as opposed to the present figure of about one-third t h a t proportion. R i g h t now, the potentialities of North-South partnershp—and much more— are endangered. The danger is not of a great depression. I t is of a protracted period of chronically h i g h levels of unemployment, w i t h i t s damaging social 106 consequences compounded by continued h i g h rates of inflation. These could b r i n g about a k i n d of progressive weakening of our society l i k e t h a t experienced by Great B r i t a i n between the t w o w o r l d wars. I t w o u l d enfeeble the O E C D w o r l d and d r a g down the rate of recovery of the developing nations. The W o r l d B a n k staff recently estimated t h a t i f the OECD countries grow i n the second h a l f of the decade a t an average r a t e of 4.9%, the lower income developing countries w i l l more ahead at 1.2% per capita—an inadequate b u t positive rate. I f the OECD countries grow a t only 3.5%, the poorest nations w i l l v i r t u a l l y stagnate. Moreover, i t is extremely d o u b t f u l that, i f the O E C D w o r l d continues to experience a disappointing recovery and sluggish g r o w t h rate, i t can generate the p o l i t i c a l w i l l to liberalize trade, expand aid, a n d do the other things a serious North-South partnership requires. Something of the same can be said f o r the prospects of detente a n d the stab i l i t y of Europe, the Middle East, and Asia. I t is w o r t h r e c a l l i n g t h a t the chronic d e b i l i t a t i o n of Great B r i t a i n between the t w o w o r l d w a r s weakened i n quite direct ways the balance of power and palpably played a p a r t i n b r i n g i n g on the Second W o r l d W a r . I t is not difficult to envisage a n America, f a i l i n g to solve i t s domestic economic problems, wracked by increasing social unrest, t u r n i n g away f r o m i t s responsibilities i n Europe, the M i d d l e East, and Asia. I n t h a t process, the potentialities of detente could easily be lost and i m p o r t a n t parts of the w o r l d plunged i n t o chaos or worse. On the other hand, i f we can shake loose f r o m the neo-Keynesian f r a m e w o r k w h i c h distorts the vision of our task, define our agenda, and act on i t w i t h the President and Congress united, the prospects are rather hopeful. The stabilizat i o n of the M i d d l e East and A s i a as w e l l as Europe is not impossible; the economic tasks of the quarter-century ahead are difficult b u t doable and, i n t h e i r way, r a t h e r exciting. I n a toast to the R o y a l Economic Society i n December 1945, shortly before liis death, Keynes spoke of economics and economists as " t h e trustees not of c i v i l i z a t i o n but of the possibility of c i v i l i z a t i o n . " T h a t has never been more t r u e t h a n of this time when we must s h i f t f r o m an obsessive focus on effective demand—which Keynes* General Theory set i n motion—to the generation of the sectoral inputs required to sustain an i n d u s t r i a l w o r l d economy. Keynes w o u l d have been among the first to urge us to make t h a t s h i f t . 1 1 STATEMENT OF BARRY COMMONER, DIRECTOR, CENTER FOR T H E BIOLOGY OF N A T U R A L SYSTEMS, W A S H I N G T O N UNIVERSITY, ST. L O U I S , M o . I t is w i d e l y acknowledged t h a t the U.S. lacks a n a t i o n a l policy to govern the production a n d use of energy, and t h a t this defect has caused serious economic difficulties and threatens us w i t h worse ones i n the f u t u r e . The energy problem is huge i n i t s size, complex i n i t s design, and pervasive i n i t s effects on the nation's economy. The Energy Independence A u t h o r i t y B i l l matches these needs only i n the huge size of the expenditures w h i c h i t proposes to authorize. I n response to the enormously complex problem of balancing energy use against domestic supplies ("energy independence")—which, as we know f r o m the L a w s of Thermodynamics, requires a detailed m a t c h i n g of the thermodynamic qualities of different energy sources to the qualities of the numerous tasks to w h i c h energy must be applied—the B i l l proposes only to "assure the flow of c a p i t a l funds to domestic energy production." A n d the B i l l f a i l s u t t e r l y to deal w i t h the p o w e r f u l effects of the p r o d u c t i v i t y of the c a p i t a l t h a t i t proposes to invest ( t h a t is, the amount of energy produced, or saved, per d o l l a r of capital invested) on the cost of energy and of c a p i t a l itself, and the pervasive effects of these costs on the entire economy. These are f a t a l flaws, and because of them, I believe t h a t the B i l l is much more l i k e l y to w i d e n the gap between energy demand and domestic supply t h a n to accomplish i t s stated purpose of reducing t h a t gap a n d of achieving "energy independence." 11 This observation reflects not merely a judgment about Keynes' flexibility of mind but the fact t h a t , as a young man, he was much concerned w i t h the problem of the relative (See, notably, his note " R e t u r n of Estimated Value of Foreign Trade of United Kingdom nt Prices of 1900," Economic Journal. 1912, pp. 6 3 0 - 3 1 . ) This anxietv suffused his Economic Consequences of the Peace, especially Chapter I I . H i s focus shifted quickly, however, when the break of relative prices i n 1920-21 confronted B r i t a i n w i t h excessively favorable terms of trade, weakened export markets, and chronic high unemployment. 107 The gravely flawed character of the B i l l is revealed i n its chief purpose, as set f o r t h i n Sec. 102(a) " T o encourage and assure the flow of c a p i t a l funds to those sections of the n a t i o n a l economy w h i c h are i m p o r t a n t to the development of domestic sources of energy or w h i c h are otherwise i m p o r t a n t to the attainment of energy independence f o r the U n i t e d States by 1985 . . .". Thus the B i l l is basically designed to meet the intense demand f o r capital by the energy industries. However, presumably the purpose of disbursing these huge amounts of c a p i t a l is to receive value i n r e t u r n , specifically enhanced domestic energy production, or its equivalent i n the m a t t e r of achieving "energy independence", reduced demand ( f o r example through conservation). W h a t is relevant, then, is the p r o d u c t i v i t y of c a p i t a l — f o r example, the amount of annual energy production achieved per dollar of capital invested i n a given energy source. The p r o d u c t i v i t y of capital invested i n various energy sources is shown i n the attached table. D i f f e r e n t fuels v a r y by more t h a n t w e n t y f o l d i n the amount of energy t h a t they y i e l d per dollar invested. Thus, i f capital is invested i n the production of shale o i l or of synthetic f u e l f r o m coal—new technologies which, according to the Fact Sheet on the Energy Independence A u t h o r i t y released by the W h i t e House on October 10, 1975, w o u l d be given high p r i o r i t y by the A u t h o r i t y — i t yields about one-tenth as much energy as the same amount of capital invested i n enhanced o i l or coal production. I f , as is evident f r o m the language of the B i l l , the A u t h o r i t y w o u l d operate under a mandate to increase the flowT of capital i n t o energy production, i t w i l l obviously tend to spend i t s funds on those forms of energy production which generate the highest demand f o r capital—precisely because they are so inefficient i n converting the invested capital i n t o actual production of energy. T h i s a i m is explicitly acknowledged i n the W h i t e House Fact Sheet, w h i c h emphasizes the need f o r funds to support, specificially, those methods of energy production (shale oil, synthetic fuels and nuclear power) t h a t y i e l d a poor r e t u r n i n energy produced per dollar of capital invested. T h a t , a f t e r all, is the very reason w h y these sectors of the energy i n d u s t r y are so badly i n need of capital. I n a k i n d of parody of the w a r t i m e "Efficiency A w a r d " to U.S. industry, the B i l l w o u l d create a program of costly "Inefficiency A w a r d s " to the energy industry. I n effect paragraph 102(a) of the B i l l ' s purposes essentially guarantees t h a t huge amounts of public funds w o u l d be spent wastefully. A n d i n this particul a r case, the waste of public funds w o u l d represent not only an added t a x burden, but w o u l d also create an a d d i t i o n a l inflationary effect, f o r energy production a t low capital p r o d u c t i v i t y can be profitable only i f the energy is sold at a high price. T h i s f a c t was publicly acknowledged by the A d m i n i s t r a t i o n when President F o r d and Secretary Kissinger, i n February, 1975, called f o r a floor on crude o i l prices i n order to protect p r i v a t e investments i n synthetic f u e l production. I n t h i s sense the B i l l does have its own perverse k i n d of efficiency: i n a single move i t w o u l d simultaneoulsy waste the taxpayer's money, and reduce the value of w h a t he has l e f t to spend. T h a t the proponents of the B i l l themselves anticipate t h a t i t w o u l d enormously reduce the p r o d u c t i v i t y of capital—the efficiency w i t h w h i c h the investment is converted to actual energy production—is evident f r o m a comparision of figures provided by the W h i t e House Fact Sheet w i t h those reported i n the attached table. According to the Fact Sheet " T h e $100 b i l l i o n f o r energy projects could help assure t h a t the equivalent of up to 10-15 m i l l i o n barrels of o i l per day of new energy production is realized by 1985". T h i s w o u l d represent a capital p r o d u c t i v i t y of about 200,000 to 310,000 B T U ' s of energy per year per dollar invested. The gross economic inefficiency of t h i s investment can be judged f r o m the c a p i t a l p r o d u c t i v i t y of overall energy production i n the U.S. i n 1973: 1,845,000 B T U ' s per dollar invested. Thus the p r o d u c t i v i t y of the capit a l invested by the A u t h o r i t y w o u l d be about 85 percent lower t h a n the overall p r o d u c t i v i t y of c a p i t a l invested i n energy i n 1973—a difference w h i c h w o u l d be even greater i f i n f l a t i o n were taken i n t o account. I t is w o r t h n o t i n g t h a t a nonrenewable fuel, such as crude oil and n a t u r a l gas, becomes increasingly capital-intensive as production continues. Each b a r r e l of o i l taken out of the ground makes i t more expensive to produce the next one. The l a w of d i m i n i s h i n g returns is at w o r k and, as shown by the first t w o items i n the attached table, capital p r o d u c t i v i t y is bound to f a l l . I n contrast, a renewable energy source, such as the sun, is not affected i n t h i s w a y ; a f t e r 71-787—76 S 108 all, c a p t u r i n g one sunbeam makes the capture of another one no more costly. Thus, investment i n solar energy is the one way to produce energy t h a t avoids escalating c a p i t a l costs. B y reducing f u t u r e f u e l expenditures a t escalating prices, solar energy is also a p o w e r f u l hedge against inflation. And, i n keeping w i t h i t s perversely w a s t e f u l approach to energy production the B i l l gives a noticeably low p r i o r i t y to solar energy. I n order to appreciate more f u l l y the enormously w a s t e f u l approach t h a t the B i l l represents i t is useful to consider the basic relations between the physical and economic aspects of the energy problem. I n physical terms the end-use of any sou,rce of energy is w o r k , and the amount of w o r k t h a t energy yields is the basic measure of i t s economic value. Therefore i f we are to measure the a c t u a l value to be got out of a capital investment i n energy production we must determine not only the amount of energy yielded, but also the efficiency w i t h w h i c h t h a t energy can be converted i n t o w o r k . The L a w s of Thermodynamics—the science of energy—tell us t h a t the efficiency w i t h w h i c h an energy source is converted i n t o w o r k depends not only on the n a t u r e of the source, but also on how w e l l i t is matched to the energy-using task. Thus, mechanical motion ( f o r example, of a vehicle) demands energy of a h i g h thermodynamic q u a l i t y , w h i l e space heat can be provided by low-quality energy. S i m i l a r l y , the electricity produced by a power p l a n t represents energy of h i g h thermodynamic q u a l i t y , w h i l e the low temperature heat w h i c h the p l a n t rejects i n t o the environment represents low-quality energy. Thus, to maximize the efficiency w i t h w h i c h such energy is used, the power plant's electric output should be used exclusively f o r tasks (such as transportation, and other motor-drive a c t i v i t i e s ) t h a t demand h i g h q u a l i t y energy, w h i l e its l o w q u a l i t y output of rejected heat should be used f o r low-quality tasks such as space heat. Thus, when electricity is used to provide space heat—a process w h i c h is very widespread and s t i l l being encouraged by some power companies—the t r u e thermodynamic efficiency is about one percent. W h e n the overall efficiency w i t h w h i c h energy is used i n the U.S. is computed according to these thermodynamic principles, i t t u r n s out t h a t i t is not more t h a n about 10-15 percent. T h i s shockingly l o w thermodynamic efficiency—which was estimated f o r the first time about a year ago by a study group of the A m e r i c a n Physical Society—tells us t h a t the most import a n t w a y to reduce the present gap between energy demand and domestic energy supply is to improve the efficiency w i t h w h i c h i t is used. H o w f a r we are f r o m even addressing this task is evident f r o m the f a c t t h a t although the most efficient means of l a n d t r a n s p o r t is the electrified railroad, less t h a n one percent of our r a i l r o a d locomotives are electrified. I f there is a real need to close the gap between energy demand and domestic energy production, the sensible route to t a k e — w h i c h has thus f a r been grossly neglected by the A d m i n i s t r a t i o n — i s energy conservation, based on these thermodynamic principles. I f the B i l l is enacted i t w o u l d encourage not only the w a s t e f u l production of energy, b u t also its w a s t e f u l use—and thus tend to widen the gap between domestic supply and demand. T h i s w o u l d result f r o m the emphasis—which is evident i n the language of the B i l l and of the W h i t e House Fact Sheet—on meeting the intense demand f o r capital f o r nuclear power production. As shown i n the attached table, the p r o d u c t i v i t y of energy production i n the f o r m of electric power is considerably less t h a n the capital p r o d u c t i v i t y of direct f u e l production. T h i s makes good economic sense because of the h i g h thermodynamic q u a l i t y of e l e c t r i c i t y : once i t has been produced i t can be applied to high-quality tasks such as motion w i t h essentially 100 percent efficiency. H o w ever, the e x t r a c a p i t a l cost of producing electricity is economically sound only i f the electricity is used f o r high-quality tasks (which, as indicated above, i t is n o t ) , and the rejected low-quality heat is used f o r low-quality tasks such as space heat. However, because nuclear power plants are too r i s k y to be sited i n u r b a n centers there is no way to use them w i t h m a x i m u m thermodynamic efficiency by p i p i n g t h e i r rejected heat i n t o nearby homes. Perhaps the most dangerous f e a t u r e of the B i l l is t h a t i t is a " h i t - a n d - r u n " attack on the energy question. I n less t h a n ten years the A u t h o r i t y w o u l d pump a huge amount of c a p i t a l i n t o the most w a s t e f u l f o r m s of producing energy a n d w o u l d then go out of business—washing i t s hands of the inevitable economic chaos t h a t w o u l d result. Using the " f l o w of c a p i t a l " as i t s c r i t e r i o n of success, and mandated to disburse its c a p i t a l at w h a t amounts (given the complexity of the problem) to breakneck speed, the A u t h o r i t y w o u l d i n e v i t a b l y f u n d those energy projects t h a t can be quickly assembled. T h i s would, o f 109 course, f a v o r single, huge projects, thereby avoiding the need f o r locally suitable—and therefore more v a r i e d and numerous—designs. I n e v i t a b l y , the A u t h o r i t y ' s funds w o u l d be spent f o r relatively few, huge synthetic f u e l and nuclear plants r a t h e r t h a n f o r solar projects which, given the wide d i s t r i b u t i o n of sunshine and wind, are best designed as relatively small, decentralized units. I n e v i t a b l y , the A u t h o r i t y w o u l d saddle the n a t i o n w i t h few, huge, enormously costly—and risky—projects, f o r as pointed out by the W h i t e House Fact Sheet, i t is precisely those energy sources w h i c h suffer f r o m "technological uncertainties" or are "too large and economically r i s k y to be financed by the p r i v a t e sector alone," t h a t w o u l d be supported by the A u t h o r i t y . I n sum, the B i l l w o u l d not only lead to a wasteful, i n f l a t i o n a r y use of capital, but also tie up t h a t c a p i t a l i n projects which, given t h e i r "technological uncertainties" are l i k e l y to produce not so much huge energy sources as huge w h i t e elephants. As a final irony, the B i l l , i f enacted, m i g h t direct so much of available capit a l i n t o the w a s t e f u l m a w of huge energy projects as to starve the customers t h a t the energy i n d u s t r y is supposed to serve of the c a p i t a l t h a t they need to buy the cars, homes and factories t h a t are, a f t e r all, the reason f o r energy production i n the first place. Between 1970 and 1973 energy production absorbed 24 percent of the c a p i t a l invested i n U.S. business as a whole. Present estimates of the c a p i t a l needed f o r energy production i n the 1975-85 period are l i k e l y to raise t h i s proportion to more t h a n one-third. And, f o r the reasons cited above, i f the B i l l is enacted i t w o u l d stimulate the development of precisely those energy sources t h a t are most w a s t e f u l i n t h e i r use of c a p i t a l and so considerably worsen the position of non-energy industries and of consumers i n the competition f o r capital. I n effect, the B i l l w o u l d encourage the already dangerous tendency of the energy i n d u s t r y to devour its own customers. F i n a l l y , there is the m a t t e r of t w o very meaningful, but unexplained assumptions t h a t are embedded i n the language and design of the B i l l . One of these is t h a t energy independence is essential to " n a t i o n a l security", presumably because dependence on f o r e i g n sources of energy w o u l d weaken the nation's defense capabilities. However, i f the A d m i n i s t r a t i o n wishes to come before the American people and ask f o r the committment of $100 b i l l i o n of public funds f o r such a purpose, they have the obligation to explain w h y this should not be necessary. A f t e r all, we have now depended on energy imports f o r a number of years w i t h no apparent threat to our n a t i o n a l security, and i t seems to me t h a t anyone proposing such drastic action t o eliminate this dependency by 1985 is obliged to explain exactly w h y this course of action, i n j)reference to a l t e r n a t i v e ones t h a t are less based on belligerence has now become essential. None of t h i s reasoning is revealed i n the B i l l , or i n any of the associated A d m i n i s t r a t i o n statements. Another unexplained assumption is t h a t although p r i v a t e enterprise is to be encouraged, i t is the government's obligation to do so by p r o v i d i n g taxpayer's funds when p r i v a t e entrepreneurs are unable to produce the capital needed to m a i n t a i n the nation's production system f r o m t h e i r o w n resources. I t seems to me t h a t this assumption raises more questions t h a n i t answers. I f , as the B i l l and the W h i t e House Fact Sheet acknowledge, the energy i n d u s t r y is f a l t e r i n g because i t cannot raise sufficient capital, on w h a t grounds has i t been determined t h a t this i n d u s t r y is more e n t i t l e d to a vast i n j e c t i o n of public c a p i t a l t h a n any other equally capital-short industry? The business community has recently placed heavy stress on the serious shortage of investment c a p i t a l t h a t is expected to develop i n the next ten years. W h y should not the B i l l ' s economic principle be applied to the railroads ( w h i c h are being forced to abandon capital, i n the f o r m of trackage t h a t w i l l surely be essential i n the nation's energy-short f u t u r e , r a t h e r t h a n restoring i t ) ; t o the auto i n d u s t r y ( w h i c h clearly lacks the c a p i t a l needed to retool i n order to produce the r a d i c a l l y new types of vehicles t h a t w T ill be essential to save energy and reduce p o l l u t i o n ) ; to agriculture (which, although i t has become one of the most capital-intensive sectors of production is—because of the relatively small size of the average enterprise—limited i n i t s a b i l i t y to raise capital) ? On w h a t grounds can the A d m i n i s t r a t i o n argue t h a t i t is reasonable to use public funds to support p r i vate enterprise—and s t i m u l a t i n g i n f l a t i o n thereby—when i t also argues t h a t the use of public funds to meet u r b a n and other urgent social needs is inflat i o n a r y , and therefore unwise? A n d indeed, since p r i v a t e enterprise has long claimed t h a t the capitalist system, i f unencumbered by government intervention, is the most successful possible means of meeting the nation's m a t e r i a . 110 and human needs, is i t f a i r and honest to the American people to base this B i l l on evidence t h a t this claim is no longer t r u e without openly discussing the enormous implications of this conclusion? I f , as the B i l l argues, the national need for goods as essential as energy cannot now be met by private enterprise are we not obliged to discuss, openly and honestly, the reasons for this default and to debate the basic issue of how we can retain public control of public funds t h a t are to be invested i n a f a l t e r i n g production system? I n sum, the Energy Independence Authority B i l l , i f enacted, would f a i l i n the basic responsibilities t h a t any legislative action must meet. I t would worsen, not improve, the problem which i t is supposed to solve: the gap between energy demand and domestic production. I t would r e w a r d energetic and economic waste and neglect the most effective way of closing the g a p : energy conservation and the promotion of solar energy. A n d i t would f a i l i n the most important responsibility of government to the American people: to make an open appraisal of the problems t h a t w e face, and honestly debate the r e a l issues t h a t i t reveals. Capital Productivity of Alternative Energy Sources Capital productivity (Btu's per year per dol- Energy source: Crude o i l p r o d u c t i o n * 1974 (actual) 1978 (projected) Coal (strip mined) 2 Shale o i l p r o d u c t i o n 3 S y n t h e t i c f u e l f r o m coal ( l i q u i d ) Coal gasification 3 Coal-fired e l e c t r i c i t y generation ($800/kw) < N u c l e a r e l e c t r i c i t y generation ( $ l , 0 0 0 / k w ) 4 invested) 16,800,000 4, 480, 000 2, 000, 000 420, 000 2»4, 000 160, 000 28, 688 22, 423 1 The capital productivity of oil production was derived from information in Oil: Possible Levels of Future Production, Final Task Force Report, Project Independence, F E A (Washington, D.C., November, 1974), pp. I V - 2 and 1V-21. 2 The capital investment required to produce one ton of coal was obtained from U.S. Energy Outlook: Coal Availability (Washington, D . C . : National Petroleum Council; 1973), p. 38. 3 The capital investment required to produce different synthetic fuels was obtained from the Project Independence Task Force Report on Synthetic Fuels from Coal, p. 35. and also the Task Force Report on Oil Shale, p. 65. F E A , U.S. Dept. of the Interior, Washington, D.C.: U.S. Government Printing Office; November. 1974. 4 The estimates for coal-fired and nuclear power plants are for base load power generation, operating at 5% of capacity for 1 year. 7 T h e C H A I R M A N . N O W , D r . Commoner and both of you gentlemen, t h a n k you f o r g i v i n g us t w o very provocative as w e l l as rather controversial viewpoints on this matter. D r . Commoner, you argue t h a t the way this b i l l is designed i t w o u l d automatically f u n d the less efficient technologies and provide a diversion of capital into the area where the technologies are less efficient. I t seems t o me t h a t overlooks t w o points. I t makes the assumption that the technology is frozen and t h a t the investment of these funds w o n ' t improve the technology. T h e whole point, as I understand i t , i n p r o v i d i n g f o r the development phase is so t h a t d u r i n g the development phase you can w o r k out the bugs, you can find out where the inefficiencies are and make i t more efficient. Where i t may cost now $13 or $14 a barrel to produce o i l f r o m o i l shale, the n o t i o n is t h a t once you establish a method and do i t on a large basis y o u can find a way of g e t t i n g i t down to $7 or $8 and thereby make i t more efficient. That's no. 1. No. 2 is t h a t you don't confront the fact t h a t the efficient energy is so finite and so l i m i t e d as was stated. W e have something l i k e 30 Ill years of o i l at best available and we are depleting t h a t very, very fast, whereas we have 200 or 300 years of coal and we have a great deal of o i l shale. Therefore, i t w o u l d seem t h a t even i f the nonpetroleum energy sources are less efficient, t h a t is the only game i n town. The more efficient are just n o t available. H o w do y o u meet those arguments ? M r . C O M M O N E R . I ' l l take the first one first. The language of the b i l l makes i t clear t h a t only those forms of energy production which are ready to be exploited technologically w i l l be funded the agency waved tend to spend money so fast that there w i l l be no time f o r development; there's language i n the b i l l which indicates to me that only those technologies that are already to go w i l l be funded. The whole t h i n g w i l l be over i n 7 years; there's no time f o r research or even f o r development. The C H A I R M A N . W e l l , it's not a research b i l l . I t ' s a development bill. M r . C O M M O N E R . Exactly. So I have to disagree w i t h you, there is no evidence t h a t there w i l l be technological improvement i n the course of the operation of the energy sources funded by this b i l l . T h i s is not the intent of the b i l l . T h e b i l l is supposed to take available technologies and put them to work.. A s a matter of fact, I m i g h t add t h a t I t h i n k some of the technologies that are proposed f o r p r i o r i t y support w i l l become less efficient in their use of capital as they get more experience. L e t me give you one example. The C H A I R M A N . Some of them may, but others would not. I presume that the judgement they w o u l d make w o u l d be to move i n the areas where the investment w o u l d make them more efficient. I f they didn't they are certainly incompetent. M r . C O M M O N E R . T h i s field is f u l l of technological surprises. I n the 400-odd page report of the F E A on synthetic fuels they don't ment i o n the one c r i t i c a l fact w h i c h i n m y opinion is going to make i t enormously more complex than they t h i n k , and that is t h a t the product causes cancer. The C H A I R M A N . The product what? M r . C O M M O N E R . The product causes cancer. Synthetic fuel o i l is carcinogenic. Shale o i l is carcinogenic. T h i s has been k n o w n since 1876. W h e n shale o i l was used i n the cotton m i l l i n g industry i n England, a whole series of cases of skin cancer resulted. Now what that means is t h a t it's going t o be f a r more complicated to process and use t h a t product than y o u m i g h t t h i n k . I n the same way, nuclear power plants became more and more capital intensive as the environmental consequences were discovered—and y o u know the rate of capital expenditure per k i l o w a t t of nuclear power plants is going up three times faster than coal-fired plants. These are risky technologies and risky technologies have very nasty ways of r u n n i n g into capital cost overruns just because we don't understand them. I n other words, I appreciate your f a i t h t h a t technology is going to make things better, but the fact of the matter is our experience w i t h these advanced technologies such as nuclear power is exactly the other way around. 112 T h e C H A I R M A N . W e l l , I share t h a t concern very strongly. There's no question t h a t the environmental problems develop, but w h a t I ' m arguing, however, is t h a t technologies, by and large, as we have experience w i t h them, become more efficient. I f they don't become more efficient, then there certainly is no argument at a l l f o r m a k i n g a nickel of investment. M r . C O M M O N E R . I disagree. I f y o u measure efficiency as I do by the efficiency of converting capital into power, nuclear power has become decidedly less efficient over the years. I t used to be estimated t h a t you could b u i l d a nuclear power p l a n t f o r $250 or $300 per kilowatt. Now it's $1,000 and it's going up at $31 a year per k i l o w a t t . I n other words, i t is l i t e r a l l y becoming less efficient i n converting captial i n t o energy because it's f u l l of surprises and the surprises mean increased capital costs. I t h i n k we are heading f o r exactly the same t h i n g w i t h coal conversion and shale o i l production. The C H A I R M A N . L e t me ask you, D r . Kostow, you mentioned the Bosworth, Duesenberry study of capital needs i n the seventies. T h a t concludes t h a t there w i l l be enough capital available f r o m the p r i vate market to meet energy investment need just barely b u t there w i l l be enough available. A Bankers T r u s t study published this year reaches the same conclusion, even considering the most stringent case of energy independence by 1985. Now i f we deregulate prices, w h y can't the private market meet our energy investment needs? W h y do we need an E I A on top of the private capital markets and where is the documented case i n view of these studies that I have pointed to f o r the other side ? M r . ROSTOW. I n part, the argument is that we do not now have deregulation. I n additon, there is the problem discussed between you and the Vice President; t h a t is, the development on a commercial basis of new evergy production techniques. F o r example, how do wTe move f r o m i n situ m i n i n g experiments to commercial i n situ conversion? I n a number of fields the question i s : H o w wTould you get f r o m laboratory tests to commercial tests? H o w w o u l d you get new coal gassification techniques ? I t ' s m y understanding f r o m the indust r y t h a t they are s t i l l using technologies a quarter of a century old. H o w shall we find out i f some of the newrer technologies could be more efficient ? A s your aside, when you wTere listening to D r . Commoner, i n d i cated, there is a distinction between research and development. A s nearly as I can perceive f r o m a l l the energy studies t h a t I have read, a considerable potential exists on the development side w i t h respect t o both production and conservation. W e k n o w things may by p r o m i s i n g ; but we w 7 ill not be certain u n t i l we t r y . A n d wye need something like the A u t h o r i t y to finance the first stage of commercial development. I n addition, there's the question of projects which are too b i g f o r the private sector. I know of one m a j o r coal gassification project f o r the West Coast i n which 3 of the biggest firms i n the country have worked together. They finally decided the project was too b i g f o r them and abandoned it. The C H A I R M A N . L e t me i n t e r r u p t to point out t h a t the A l a s k a n operation has been privately operated, number one. Number two, 113 there's a l i m i t i n this b i l l of $10 b i l l i o n and the Alaskan operation is about 7. M r . ROSTOW. Some of these projects have very long lead times. P r i v a t e firms, therefore, require guarantees of rate of r e t u r n at the end of the line. The risks over such long periods may go beyond the simple freeing of gas and coal prices, u t i l i t y prices and so on. A s I understand the b i l l , i t would permit them to go f o r w a r d w i t h the government h o l d i n g their hand so they can undertake projects that otherwise w o u l d be too risky, given the lead time and the ambiguities at the end of the line so t h a t these plants could get built. This k i n d of reassurance may be relevant to a good deal of the utilities investment we, as a nation, require. A s I look at the figures on current energy investment, they are well below any curve that would promise to b r i n g us anywhere near energy independence i n a meaningful sense. The C H A I R M A N . W e l l , you have the Bankers T r u s t study and you have the Bosworth study. M r . ROSTOW. The Bosworth study is quite abstract, although I regard i t as a useful exercise. I ' d like to t u r n i t f r o m an i n q u i r y into the " c a p i t a l crunch" into a f u l l employment study. They took gross categories and made some assumptions. They thought the national highway program w o u l d level off. T h a t freed some capital. The C H A I R M A N . I s n ' t that a pretty good assumption ? M r . ROSTOW. Yes, I hope it's true. They made some assumptions about various categories of public expenditures: housing, f o r example. They then took some energy independence investment figures f r o m an early p l a n n i n g study. They d i d not go into the question o f whether the private sector wTould, i n fact, finance those figures. They simply inserted those conventional estimates of 6 to 8 hundred bill i o n or whatever i t is that people then estimated energy independence would require. They d i d not, then, address themselves to the problem before this Committee; t h a t is, whether, w i t h o u t government assistance, energy investment w i l l , i n fact, follow the curve they assumed. They were t r y i n g to answer the question: W i l l there be a capital crunch? They said no, i f there were no newT starts i n social programs i n this count r y ; i f we leveled off on housing and some educational expenditures; leveled off on interstate highway outlays. A n d there were other ifs. Then they assumed 2 b i g items would increase: outlays to achieve energy independence and investment required by the anti-pollution laws adopted by the Congress. They concluded those increases could just about be accommodated w i t h i n the level of gross investment to G N P t y p i c a l of recent years. They d i d not address themselves—and i t was not the purpose of t h a t study—to the question we have before us here; t h a t is, whether uncertainty, the condition of the markets, etc. would, i n fact, permit the level of energy investment they assumed actually to take place. I don't t h i n k the Bosworth study really gets at the subject we are dealing w i t h at this morning, sir. The C H A I R M A N . Senator Packwood ? Senator P A C K W O O D . D r . Commoner, d i d you hear Vice President Rockefeller or F r a n k Zarb's statement about 5 percent energy saved ? 114 M r . COMMONER. Y e s , I c e r t a i n l y d i d . Senator P A C K W O O D . I n your estimation is that accurate? M r . C O M M O N E R . N O . I t h i n k they are way off. They are t h i n k i n g about the w r o n g law of thermodynamics. There are 2 laws of thermodynamics. The first law simply says energy can't be destroyed or created, i n w h i c h case you compute the efficiency w i t h w h i c h you use i t and that tells you how much conservation is possible simply by finding out how much of the heat goes u p the stack. W h e n you do a computation of t h a t let's say on an o i l burner you get an efficiency of about 65 or 75 percent. T h a t means t h a t there's not much room f o r i m p r o v i n g i t f o r conservation. B u t that's the w r o n g law of thermodynamics because w h a t y o u want out of energy is w o r k , and wTork is lost every time you take i t out of the energy. The first computations by the second l a w made on o i l burners and a few other things were made just about 1 year ago, and the computation on the efficiency of the average o i l burner, b y the second law, is 8 percent. T h a t means there's a huge o p p o r t u n i t y f o r conservation i n space heating. I n other words, the 5-percent figure is a very serious underestimation of the potential of conservation. Senator P A C K W O O D . I ' m neither a chemist nor a physicist. I don't want to dispute your answer because I t h i n k you agree w i t h the conclusion I come to, t h a t there's got to be a bigger saving i n energy conservation i n this country t h a n 5 percent. M r . C O M M O N E R . I t h i n k easily i n physical terms. I t may take a good deal of organization. W e could have a 50-percent saving. The sort of t h i n g that has to be done is to recognize t h a t a powerplant has t w o energy outputs. One is electricity and the other is low-temperature heat w h i c h is o r d i n a r i l y wasted and released into the environment. Now a home has t w o energy inputs. F o r one of these i t needs electricity to r u n the motors and f o r the other i t needs lowtemperature heat f o r hot water and space heating. W e l l , when you have an all-electric home, w h i c h is what is o f t e n fostered now, you've got the home plugged into the w r o n g outlet i n the power company. This means t h a t we have to design powerplants i n such a way t h a t the waste heat can be piped around as i t is incidental! v i n Moscow and i n downtown New Y o r k . B u t w i t h a nuclear pow T erplant you can't possibly do i t because you can't keep the p l a n t near people's homes. I t ' s t h a t k i n d of t h i n g t h a t w i l l give us a b i g conservation. Senator P A C K W O O D . L e t me ask you a specific question. I n the table on the last page of your statement. "Capital P r o d u c t i v i t y of A l ternative Energy Sources," you've got Btu's per year per dollar. Where does solar fit into that ? I t ' s not on the chart. M r . C O M M O N E R . I t ' s very h a r d to come up w i t h the figure on t h a t because the capital cost of solar equipment is changing so r a p i d l y . One way I could put i t to you is t h i s : I n a city like St. Louis i f solar heat is used f o r hot water, b u i l d i n g a device at the present construction cost and the present cost of capital, b o r r o w i n g a l l the money and p a y i n g interest—a device to take care of h a l f of your hot water requirements today i n St. Louis, would save 10 percent on your hot water b i l l . I n other words, it's i n the b a l l p a r k of competi n g w i t h capital costs of let's say electric power. However, solar 115 collectors are being handmade now and I t h i n k the cost can come way down i f there was any sort of mass production. Senator P A C K W O O D . O f course, the same argument m i g h t be true f o r some of the other, at this moment, more esoteric sources that are very h i g h because they're not mass made. M r . C O M M O N E R . I disagree w i t h you because this is the same point. L e t me p u t i t this way. A solar collector is a metal box w i t h a glass l i d and a pipe r u n n i n g through i t to collect heat. I can't conceive of any surprises t h a t anybody is going to r u n into about hazards that were unforeseen i n a metal box w T ith a glass l i d . I don't t h i n k there's going to be a problem of unexpected carcinogenicity or radioactivity. I t ' s a very simple device. Senator P A C K W O O D . Except I ' m o l d enough to remember 2 5 years ago when clean, safe atomic power wras going to be the salvation of the future and everybody believed it. A l l the eastern scientists and environmentalists looked at i t as preferable to dams. M r . C O M M O N E R . N o t everybody. There were an a w f u l lot of us who d i d n ' t believe i n i t at a l l because i t wasn't true. T h a t was just A E C propaganda. Sure, i t looks clean, but you can't see radioactivi t y . That's the trouble. A n d you see, these new, very large-scale, intense technologies always raise problems. Another t h i n g about the solar t h i n g is t h a t you can have small-scale operations. There is no economic advantage of scale i n any solar device because i t costs you exactly as much t o add on as to what you have already done. T h a t immediately puts t h a t k i n d of device i n a completely different economic situation. Another t h i n g about solar energy is that instead of d r i v i n g inflat i o n — w h i c h any one of these other things w r ill do—it's a hedge against inflation because what you do is invest money now i n somet h i n g that w i l l avoid expenditures on r a p i d l y escalating fuel prices later. Senator P A C K W O O D . L e t me ask you a t h i r d question, and i t comes in your statement where you're t a l k i n g about this being essential to national security. I f we're going to sell i t on that basis we ought t o sell i t on that basis. I t h i n k the administration is t r y i n g very hard. Cert a i n l y the Vice President and M r . Zarb talked about i t , and I ' m inclined to agree that it's important, but what I ' m intrigued w i t h is your statement. " I t seems to me that anyone proposing such drastic action to eliminate this dependence by 1085 is obliged to explain exactly why this course of action, i n preference to alternative ones which are less based on belligerence, has now become essential." W e l l , the Arabs, by and large, precipitated the boycott because they d i d n ' t like our support of Israel. W h a t should we have done? I t ' s been our policy t o w a r d Israel i n order t o — I don't t h i n k it's a belligerent one—avoid the boycott ? M r . C O M M O N E R . W e l l , I assume t h a t M r . Rockefeller was not talki n g about the Arabs but about the Russian Navy and I assume that's really what's behind it. I really don't believe t h a t the security of the U n i t e d States is threatened by Saudi Arabia. M r . Rockefeller said that there's been a lot of propaganda about the Russian Navy, that i t might interdict, as he said, the transport of oil. 116 W e l l , I ' d like to hear t h a t talked about because i n m y understandi n g of the danger of war w i t h the Soviet U n i o n is t h a t i t w o u l d be a nuclear war. I t would be over i n a matter of hours and the question of shipping o i l Senator P A C K W O O D . W e l l , w a i t a minute. H i s statement about the Soviet N a v y was just an aside. T o come back to the M i d d l e East, what could we have done? H o w are we going to assure ourselves i f we depend upon overseas power of an adequate source of power w i t h o u t i t being cut off by somebody whether or not we're belligerent? I don't t h i n k we were belligerent i n the M i d d l e East. I t was just Saudi Arabia. B u t i f 5 years down the road there erupts another war i n the M i d d l e East and we say to Israel, we w i l l supp o r t you, and the M i d d l e East cuts us off of oil, we're going to be i n serious difficulty i n this country. M r . C O M M O N E R . W e l l , I t h i n k what I really meant by t h a t statement is that the U n i t e d States has been belligerent f o r the last 20 years. Y o u know, w7hat was the figure? We're selling arms w h i c h represents about a t h i r d of our balance of trade. A n y country t h a t builds and sells arms a l l over the w o r l d can't be regarded as a proponent of peace. A n y country that has a record t h a t we do i n V i e t nam and, as wre now know, i n Chile, i n Guatamala, w h i c h threatens the Cubans—is, i n my opinion, belligerent. Now W a l t Rostow is going to say this belligerence is essential to maintain the security o f the planet and so on, but looked at let's say f r o m Mars, you look down and ask who's been m a k i n g war, b u i l d i n g war machines—we are one of those countries. I t h i n k t h a t i t w o u l d be a lot better i f we f o u n d more peaceful wTays to relate to the rest of the w r orld, b u t that's a matter of political philosophy w h i c h we can debate some other time. I do t h i n k that the national security aspect of this issue has got to be discussed openly. W h a t are wre t a l k i n g about? A naval blockade by the Soviet U n i o n w i t h missiles a l l over the place? I t ' s a very unrealistic k i n d of discussion and I t h i n k what the people of this country wrant is openness r i g h t now rather than inferences that we have got to pour money into b i g energy corporations i n order to save the country f r o m the Russians. Senator P A C K W O O D . I t looks like M r . Rostow wants to comment. I ' m not sure. B u t I hate to t h i n k wThat the situation w o u l d be f o r Israel i f we d i d n ' t supply the arms. M r . C O M M O N E R . Sure. I ' m not really an expert on that. I ' m not p a r t i c u l a r l y interested i n debating t h a t issue r i g h t now. B u t I do t h i n k t h a t any b i l l t h a t presumes to deal w i t h national security i n such a fundamental way really has to be based on a discussion o f national security instead of just m a k i n g assumptions. Senator P A C K W O O D . M r . Rostow, let me ask you, because I just came off of 4 wreeks of hearings i n the Finance Committee on tax r e f o r m and every industry t h a t has been there has talked about we need capital and wTe're capital short and the power i n d u s t r y was there also. A s another avenue, should we grant them additional t a x incentives f o r investment i n mass transportation, p o l l u t i o n control, and powrer generation ? 117 M r . R O S T O W . I believe as the paper I filed w i t h your committee suggests, sir, t h a t what we require now is the use of indirect and occasionally direct methods, not to raise the level of investment i n general, but to raise i t i n specific areas. I have not worked t h r o u g h the details of the capital requirements by sectors sufficiently to give you advice w i t h the refinement your responsibilities j u s t i f y . B u t i n terms of the broad analysis that I have just completed of where Ave stand i n the sweep of history I would underline again the areas I t h i n k are i m p o r t a n t , where the use of the indirect and, i f necessary, at the margin, the direct powers of the Government are justified to increase investment. F i r s t , energy. Second, energy conservation I share w i t h my colleague of this morning, D r . Commoner, the view that i f you can invest economically—as a practical matter—in energy conservation it's better than investing i n energy because of the positive environmental effects. I t ' s w o r t h a lot of creativity, including exploring the practical implications of the second law of thermodynamics. T h i r d , i n agriculture. I ' m much impressed by a serious, but not alarmist, report f r o m the National Academy of Sciences on A g r i c u l t u r a l Production Efficiency. I t suggests that certain of the technologies which have helped us i n the remarkable surge of the last quarter-century i n agricultural production are now yielding, as is normal, diminishi n g returns. Therefore, we need greatly to increase our investment as a nation i n a g r i c u l t u r a l R. & D . We ought to be finding new technologies f o r food production, notably i n the area that spinsoff f r o m the breakthroughs i n biology at the basic scientific level. The authors of that report are also troubled because, when the Government took off acreage controls, a good deal of our land we assumed to be part of the productive reserve turned out to be submarginal, even w i t h prices high. I can't t h i n k of anything more important f o r onr nation as we look ahead, or f o r the world, than to nurture our agricultural base by enlarged investment i n R. & D . and i n preserving our land. Then, I believe we ought to be doing what we can i n mass transport. I t would be good i f we could separate, at reasonable cost, the use of the automobile f o r recreational purposes f r o m commuting. A s we b u i l d new houses, we ought to be insulating them and prov i d i n g incentives f o r insulation. I don't know w h y private enterprise won't pick i t up, but i f i t won't, I ' d like to see some Government encouragement f o r the diffusion of solar heating, and, i f the technology improves enough, as some suggest i t w i l l , f o r house cooling. I l e r e we must solve the front-end financing problem. I don't know w h y D e t r o i t hasn't gone into this business. I t ' s a great expert on front-end financing. Most of us buy our cars t h r o u g h front-end financing devices. Perhaps the m a r g i n of capacity and employment by which the automobile industry w i l l be diminished by higher gas prices could be taken up by mass production and diffusion of solar energy. I quite agree w i t h D r . Commoner that solar energy is i m p o r t a n t ; although, as near as I know, at the moment the technology of solar energy is rather l i m i t e d as to its practical possibilities. Then there's cleaning the air and water, and R. & D . over a wide front. 118 That's quite a list. Some of m y friends now argue t h a t we should change our t h i n k i n g about unemployment. They argue t h a t the structure of the w o r k i n g force has changed. We've got more women, more young people. Seven percent unemployment doesn't mean w h a t i t meant. B u t , as I look at the group of tasks t h a t we as a society ought to undertake, I t h i n k we need everybody we've got. There's no excuse f o r not getting unemployment down to, say, 4 percent. B u t i t w i l l require a way of inducing higher levels of investment i n those directions: i f possible, indirectly t h r o u g h taxes and t h r o u g h guarantee devices such as those the Energy Independence A u t h o r i t y w o u l d command. W e need public-private collaboration to induce investment i n the r i g h t directions. Thus, m y major difference w i t h m y old friends who are advising a good deal of the Democratic P a r t y is t h a t I do not believe we w r ill get back t o f u l l employment merely by a f u r t h e r gross unbalancing of the Federal budget. I differ w i t h m y respected colleagues on the r i g h t who say let's just have a generalized investment t a x credit. I don't t h i n k that's a correct view. W e don't want to stimulate a l l forms of investment. There are some sectors we want to stimulate and others we don't want to stimulate. W h a t we've got to do is to decide the directions of investment our economy and the w o r l d economy need to be brought back into balance. W e should be clear t h a t this price convulsion which started i n 1972 had a l o n g history. I t was b u i l d i n g up i n the 1960's. I f you look at the declining proport i o n of w o r l d food reserves to consumption, or the U.S. p r o p o r t i o n of o i l and gas reserves to consumption, you can see how deeply out of balance we have become. A n d I t h i n k we're going to have raw material problems i f the w o r l d resumes h i g h and steady g r o w t h rates. We're going to have to invest purposefully on the supply side. A l l I can give you is a rough suggested list, as an economist and historian. I am confident, however, t h a t we should use the great power t h a t wTe have t h r o u g h taxation and other indirect devices to induce people to do things t h a t are r i g h t i n terms of the national purpose, while m i n i m i z i n g direct governmental bureaucratic involvement. Senator PACKWOOD.'Thank y o u . The C H A I R M A N . F i r s t , I want to agree wholeheartedly w i t h Senator Packwood and w i t h the remarks of D r . Commoner on the potent i a l i t y f o r saving i n conservation. I t ' s ridiculous to say the best we can do is to reduce the rate of increase b y 5 percent i n the next 10 years. I t h i n k they have said something like Sy 2 percent to 2y 2 percent increase, something l i k e that. There's so manv arguments on that. No. 1, we use five times as much per capita as the Japanese. W e a l l know how shamefully extravagant we are i n our automobile travel, both the miles per gallon we get i n our cars and the number of people who travel per car. There are just many, many ways i n w h i c h we can save energy. W e won't do i t by t a l k i n g about i t . W e have to have a method. The clearest method and maybe the cruelest method is to let the price go up. W e ' d get conservation overnight i f the price went to $1 a gallon probably. There are other ways to do i t , b u t I t h i n k we are going to u n f o r tunately, p a i n f u l l y , especially those of us who have to look to an 119 electorate to be elected or reelected or hope to—are going to have to probably come to a higher price per gallon and higher price of gasoline. D r . Rostow, I ' d like to ask you, because this national defense issue has been discussed and I t h i n k I agree wholeheartedly w i t h D r . Commoner on that, but I ' d like to have you disabuse me i f you could. I d i d n ' t have a chance, because our time was finite, to challenge M r . Rockefeller on his national defense assumption. Somehow, once you say national defense and wrap yourself i n a flag it's a Pavlovian response, okay, we're f o r it. We're all patriotic. W e want to go that way. W e a l l want a strong defense. B u t i t would seem to me we have to have a breakdown. H o w much oil do we need f o r our A i r Force, our A r m y , our Navy? Then how much do we need f o r the very essential economic support i n our country, our agriculture, the energy t h a t we need to produce other essential goods ? W h e n you t a l k about national defense you envision some k i n d of a war situation. W h a t k i n d of a war situation is realistic? A n all-out war now, of course, would be over probably i n a few hours, i f not a few minutes. I f we have a war of a more l i m i t e d nature, what k i n d of energy does that call for? I f we're simply t a l k i n g about remaini n g strong so we can deter a war, then what do we have to have ? A l l we got f r o m the main proponents of the b i l l this m o r n i n g was that this was essential to national defense. No documentation, no spelling out of what the assumptions are, no indications of how much more wTe needed and how this would affect national defense i f we can go ahead w i t h this proposal. So you favor the proposal. You're one of the outstanding experts i n the country on national defense and so i f you could give us your justification on t h a t M r . ROSTOW. That's a good and f a i r question. I t h i n k we face a spectrum of potential threats. Let's take the least likely but the most serious t h r e a t ; that is, the use of the naval power of the Soviet U n i o n to interdict the flow of energy supplies f r o m abroad to the U n i t e d States. I don't believe that our political authorities are so irrational that we shall become vulnerable to a first nuclear strike. I t h i n k the wisdom of the Congress and the executive branch are going to be sufficient to continue to make Soviet i n i t i a t i o n of nuclear war irrational. B u t the fact is that since the nuclear age we have had a good many occasions of danger, a l l of which involved conventional arms. W e had the B e r l i n blockade and the Cuban missile crisis. W e also had two cutoffs o f Mideast oil, one i n 1956-57 period and then again more recently. I do not believe the direct use of the Soviet Navy to cut our lines of supply is a very h i g h risk because i t would be a very dangerous act. O n the other hand, looking statistically at what's happened i n this turbulent w o r l d since the Second W o r l d W a r , I t h i n k i t would be most unwise f o r us to put ourselves i n the The C H A I R M A N . W o u l d n ' t h a v i n g a reserve of energy, of oil, help ? M r . ROSTOW. I t h i n k that's r i g h t . B u t I ' d also say we need a reserve naval position and an energy position that would make such action irrational, so they won't be tempted. 120 T h e C H A I R M A N . That's the answer to t h a t k i n d of catastrophe. M r . R O S T O W . W e l l , I t h i n k not to a naval blockade. A naval blockade requires a navy to respond. The C H A I R M A N . W e l l , of course. M r . R O S T O W . I was delighted t o see t h a t the energy b i l l of 1 9 7 5 gave us some o i l reserves. B u t there's a second element w h i c h I t h i n k the Vice President referred t o and w h i c h I would rate high. I t is, perhaps, the most important consideration. I f I understand the statistics, we are now up to about 41 percent dependence on i m p o r t e d oil. T h e p r o p o r t i o n is r i s i n g ; and i t probably w i l l rise f u r t h e r this year because of the revival of our economy. W e h o l d i n the w o r l d a p a r t i c u l a r k i n d of responsibility to our allies m a i n l y or p a r t l y because of our own policy. W e have discouraged Japan and other allies f r o m developing independent nuclear weapons capabilities. W e are the only power that can deter the Soviet U n i o n and the only power t h a t has the freedom of action t o act credibly at a t i m e of intense crisis; as i n the case of B e r l i n , the Mideast, or Cuba. W h a t I ' m a f r a i d o f , rather more t h a n of a direct m i l i t a r y confrontation, is the loss of our bargaining power and our credibility—both to our allies and w i t h our potential adversaries—as they see us move up to 41, 42, 50, or whatever our energy dependence becomes. W i t h t h a t r i s i n g degree of dependence, they may well feel t h a t wTe are so dependent that wTe are incapable of acting decisively i n a crisis not of war but of diplomacy like the B e r l i n crisis, l i k e the Cuban missile crisis, like the M i d d l e East war of 1967. T h e C H A I R M A N . B u t w h y is the reserve not the answer to t h a t particular problem rather t h a n a $100 b i l l i o n development p r o g r a m ? M r . R O S T O W . I t h i n k the diplomats of the w o r l d are not g o i n g t o calculate that's a sufficient answer. They w i l l w o r r y about the w i l l and capacity to lead of a nation t h a t would p u t itself i n t o t h a t degree of dependence when i t obviously commanded the resources to prevent such dependence. I t h i n k they w i l l regard us as being much more vulnerable i n a period of tension and diplomatic blackmail than i f we had, i n a meaningful sense, energy independence. W e just don't look like serious people. B u t that's not the only reason I feel this is important. I f you look at our situation f r o m the point of view of O P E C , we look like a giant t h a t can't p u l l up his pants. They know very w r ell what our energy potential is. They know t h a t we have let ourselves go i n t o f u r t h e r dependence. They know that we are g i v i n g them increased leverage over price every day that goes by t h a t we don't get on w i t h the job. The fact is that there's a lot of thought i n O P E C t h a t there ought to be a stable deal between the O E C D w o r l d and themselves. B u t I don't t h i n k that under present prospects f o r U.S. o i l dependence we have a chance o f negotiating i n the Paris committee a wise agreement on behalf of ourselves, O P E C and the developing w T orld. W e should remember t h a t the worst sufferer f r o m this h i g h price is not the U n i t e d States, Western Europe, and Japan. I t ' s the poorest people i n the w o r l d whose chances to get fertilizers and essential imports are greatly reduced by the h i g h o i l price. Therefore, I believe t h a t our own security, the strategic stability of w r orld, and the balance of the w o r l d economy w r ould be greatly enhanced i f we 121 could get a firm long-term agreement w i t h O P E C . B u t I don't t h i n k we have a chance i f wre go along w i t h the energy policy we have, w i t h no serious effort made to achieve a h i g h degree of energy independence. The CHAIRMAN. L e t me ask you, D r . Commoner, you indicated this b i l l could raise the price. I can't buy that. Y o u may be r i g h t , but i t seems to me t h a t the b i l l would increase the supply. I t would develop and refine and improve techniques of production so the price would be lower t h a n i t would be w i t h o u t the b i l l . I t would b r i n g on scene some energy resources we don't have now. Vice President Rockefeller said this morning, f o r example, t h a t this m i g h t help us construct the Canadian gas pipeline we don't have at the present time. T h a t would mean we would have more gas here, and on any basis we would have a greater supply of energy available i f we pass this b i l l than i f we don't pass the b i l l , i f they use it. So how can you have a situation—in which you increase the supply and yet the price goes up. H o w does that w o r k ? M r . C O M M O N E R . W e l l , the m a i n point I t r i e d to make i n my presentation is that the b i l l would specifically produce the energy by using the least efficient techniques f o r converting capital into energy. Therefore, this w i l l be expensive. The C H A I R M A N . Not necessarily. H o w about the pipeline? W h y would that be ? M r . C O M M O N E R . I don't have the figures on the pipeline but the main t h i n g we're t a l k i n g about is shale oil, coal conversion, nuclear power. T h e C H A I R M A N . W e l l , they are also t a l k i n g about delivery. They are t a l k i n g about the fact you've got natural gas i n remote areas of the w o r l d and i f you can deliver that here you can obviously M r . C O M M O N E R . I ' m sure that you could get relatively cheap supplies that way, but take shale o i l or synthetic oil. The latest figures are u p w a r d of $25 a barrel, r i g h t now, without their having r u n into the snags t h a t I assure you they are going to r u n into as they go along, and then the price w i l l go up and up. I n other words, the b i l l points toward investing i n those aspects of the energy which inevitably, f r o m our experience, f r o m what we know about the way things work, w i l l eat up more and more capital. They w i l l therefore require higher and higher profits i n order to maintain a decent rate of return. I t ' s simply headed i n the wrong direction. A s I say, the A d m i n i s t r a t i o n recognizes that because i t has said that i t wants to keep the price of oil up so that private industry w i l l be w i l l i n g to invest i n this expensive k i n d of energy. I t h i n k the b i l l represents a crossroads. I f we go i n that direction we are going to intensify the present escalation of the price of energy. The only solution is to t u r n i n the direction which represents a hedge against h i g h prices of fuel because you don't use any fuel—conservation and solar energy. The C H A I R M A N . N O W let me ask M r . Rostow, I t h i n k that D r . Commoner has made an extremely strong case here and I t h i n k it's a case that would stand up unless you can show us how to answer i t . I n your paper you make a strong case f o r investment i n research and development to supplant o i l and gas as a p r i m a r y energy source. 122 This b i l l wouldn't do that. A l l this b i l l would do is take existing technologies and b r i n g them on scene a l i t t l e faster. I n doing so i t w o u l d channel funds away f r o m research and development i n new technology. W e wTould have less aggressive pursuit of solar energy, f o r example, which is clean and inexhaustible and, as D r . Commoner has said so convincingly, i t offers such an attractive answer f o r us. Now how, then, would you j u s t i f y the E I A proposal i n view of the fact t h a t i t would seem t o reduce, rather than increase, the k i n d of research which is most promising t h a t we need ? M r . ROSTOW. F i r s t , I don't see wThy i t should reduce the amount of R & D devoted by the U n i t e d States and the other countries to the two prime candidates f o r supplanting existing forms of energy when hydrocarbons r u n down. Thos candidates are: Solar energy w i t h some new technology we do not now know which w o u l d efficiently concentrate this abundant but diffuse resource; and fusion power as a basic f o r m o f energy f o r i n d u s t r i a l civilization. I f our experts are anywhere near correct, we shall need one or both down the line and not so f a r down the line. No dollar should be spared w o r k i n g on those t w o and perhaps other candidates; because, unless a l l our experts are wrong, we are going to need them i n about 30 years. I can't t h i n k of higher p r i o r i t y investment i n our i n d u s t r i a l society. B u t I don't believe the order of magnitude involved i n R & D — t h e m a x i m u m absorptive capacity of serious R & D institutions—is of an order of magnitude t h a t w o u l d i n any way interfere w i t h the exercise t h a t we are t a l k i n g about, which is designed to preserve our position f r o m now u n t i l the time such new technologies become efficiently available. Now, the second point The C H A I R M A N . W e l l , let me say this is a tremendous increase i n b r i n g i n g these new technologies on. I t h i n k that we were really fed a fast one when i t was compared to the t o t a l investment i n the entire energy industry and said that's $600 to $800 b i l l i o n and therefore $100 b i l l i o n isn't very much, but $100 b i l l i o n i n this particular area is an enormous increase. I t seems to me i t would absorb a l l kinds of l i m i t e d h i g h l y skilled experts who otherwise m i g h t be w o r k i n g i n this area f o r one t h i n g , and also w o u l d necessarily, whether you put i t i n the budget or not—it's got t o go i n the budget, I ' m convinced of t h a t — i t w o u l d mean that we w o u l d emphasize that aspect of energy rather than the research which is more promising. M r . ROSTOW. Y O U know very well—having worked on energy as h a r d as you have—that we have 2 major historic problems. One, to get t h r o u g h f r o m here u n t i l we get a breakthrough which does not now exist i n either solar energy or i n fusion power; and, t w o , to create that new energy source which is perhaps the biggest challenge i n d u s t r i a l civilization has faced since the beginning 200 years ago. The b i l l we are t a l k i n g about is addressed p r i m a r i l y to the first of those tasks: G e t t i n g f r o m here t o there; g i v i n g us some cushion i n time. W e do have coal and we do have shale. A n d we may even have to use them f o r a longer period than 30 years, i n case fusion power and a new technology f o r solar energy don't come through. 123 B u t there's another point. I have long believed i n and would advocate and support m a x i m u m rational expenditures wTe could get under this authority or f r o m other public funds to increase the rate of savings i n enegy. A s an economist and a historian, I know somet h i n g about how technology is produced and diffused. D r . Commoner said, quite properly, that electric heating o f houses may now be wasteful at existing energy prices. B u t i f you're going to reconvert a l l the electrically heated houses i n the U n i t e d States p r o m p t l y on to w a r m water f r o m electric powder plants, you're i n f o r one tremendous capital b i l l , a b i l l which he d i d n ' t present to us. I t may be rational but it's going to take t i m e ; and i t w i l l be m i g h t y expensive. Yes, there may be potentialities i n the second law of thermodynamics. The C H A I R M A N . A r e n ' t you a lot less likely to convert i f at the same time you're absorbing such a colossal amount of your energy dollar into these established technologies that are less efficient ? M r . ROSTOW. I ' d like to see these ideas about energy savings and economy translated into a relatistic program, w i t h costs and benefits measured. The b i l l before us is so w r i t t e n t h a t i t permits the Energy Independence A u t h o r i t y to invest i n energy conservation. I f we could get aw7ay f r o m rhetoric and the w a v i n g of scientific slogans and get down t o some practical energy-saving methods, I w7ould be pleased to see the role of energy conservation raised i n this bill. B u t what we have, M r . Chairman, is t h i s : opposition to this b i l l based on vague t a l k about solar energy and energy conservation. The net effect of all this t a l k and the postponement of action has not been greater use of solar energy or greater energy conservation. F o r 2 years the net effect has been simply to p u t us every day into greater dependence on O P E C . T h a t is the operational consequence of putt i n g things off and projecting dreams into the sky of howT solar energy is going to solve a l l our problems. T h e fact i s : W e don't have the solar energy technology to meet most of our basic energy requirements efficiently. I wish we did. I t can do some things f o r us now. Those things should be done. B u t i f we exaggerate, we are simply p u t t i n g ourselves deeper into hock every day. The C H A I R M A N . L e t me ask D r . Commoner to answer that. M r . C O M M O N E R . I have really got to speak emphatically on this solar energy issue. I t is a fact t h a t today, w i t h existing technologies we could build, solar collectors to take care of at least h a l f of the residential requirements f o r space heat and hot water at a cost of about $200 b i l l i o n , w h i c h would be recoverable i n the amount of energy saved over a period of about 10 years. M r . R O S T O W . I agree; but D r . Commoner said residential heating, which is fine, but M r . C O M M O N E R . Residential and commercial as well. There is nothi n g t h a t is as well suited to solar energy as the flat roof of the modern shopping center. I t ' s just perfect. I t ' s made f o r that. This idea originated w i t h one o f the officers of the National Science Foundation, D r . Joel Snow. Probably the most practical way, i f you insist on closing the gap between domestic demand and supply—the most practical wTay to do i t is to set up a program of let's say $200 to $300 b i l l i o n spent over a 10-year program on loans which would 71-787—70 9 124 be paid back i n energy savings; t h a t plus about a 5-percent saving due to insulation would close the gap. I n other words, i f you really want to do i t , t h a t is the most practical way. The technology is simple. I t can be done on a widely dispersed geographic scale and the collectors could be b u i l t i n a n y t h i n g f r o m an idle auto p l a n t to a small garage-sized factory. The C H A I R M A N . H O W much of t h a t can be done i n the private sector ? W o u l d i t be all public sector ? M r . C O M M O N E R . E v e r y last b i t of i t . The C H A I R M A N . E v e r y last b i t of i t would be what ? M r . C O M M O N E R . Could be done i n the private sector except I ' m sure there w i l l have to be Government-sponsored loans, not to the corporations but T h e C H A I R M A N . H O W b i g do the Government-sponsored loans have to be ? Y o u said $200 b i l l i o n was the t o t a l cost ? H o w much of t h a t would have to come f r o m the Government ? M r . C O M M O N E R . W e l l , I t h i n k t h a t you'd have to compute the sort of progressive savings i n f u e l and I imagine i t could be handled like a mortgage i n w h i c h the savings i n f u e l w o u l d be used t o pay back the i n i t i a l costs. I ' m no expert i n financing this sort of t h i n g b u t I w o u l d guess t h a t i f you took the $100 b i l l i o n and used i t as a rotati n g mortgage f u n d you could get most of this t h i n g done. The C H A I R M A N . You've got a tough economic-social problem inasmuch as nobody r i g h t now w i l l make a k i l l i n g out o f i t . Y o u don't help the o i l companies. I t w o u l d h u r t them. I t won't help the u t i l i t y companies. I t w i l l h u r t them. So you don't have any vested group that's going to come to Congress and get i t moving. M r . C O M M O N E R . Except the people i n the country. The C H A I R M A N . You're absolutely r i g h t . M r . C O M M O N E R . Everybody asks me wThy aren't we developing solar energy and you've got the answer there. Solar energy has no advantage to b i g business, no advantage at a l l because you can do just as well by b u i l d i n g the k i n d of t h i n g I have on m y f a r m wThich is an 8- by 2-foot box to provide hot water. I t ' s just as cheap relative to the amount of energy produced, to do t h a t as i t is to b u i l d a huge i n t a l l a t i o n out i n the desert. I t h i n k what we have to face is, as you p u t i t , a very serious, essential question: A r e we going to handle the energy question w i t h the self-interest of the people of this count r y i n m i n d or are we going to assume t h a t there's no way to do i t other t h a n p o u r i n g money into the energy corporations t h a t are asking f o r i t ? I t h i n k t h a t is what has held up the resolution energy question. I t h i n k that there hasn't been an honest look at what the real needs are, what the real opportunities are. F o r example, there are existing techniques of producing electricity f r o m solar energy. A l l you do is put a boiler on a towTer and surround i t by mirrors. I t ' s simply a question of how to b u i l d the mirrows t h a t are cheap enough and finding good ways to keep them clean. That's really the major problem i n producing electricity f r o m solar energy at this moment, w i t h existing technology. N o w there's a w o r d t h a t is appropriate here—mystification. I t h i n k the solar energy situation i n this country is t o t a l l y mystified. 125 There's been a cloud put over i t so that people f a i l to realize the enormous potential there is i n solving exactly the k i n d of problems that we have discussed here. I t h i n k t h a t W a l t Rostow's requirement f o r a practical p r o g r a m could be met today largely by using solar energy t o provide low-quality heat f o r space heat and hot water. I t h i n k this w o u l d be the most practical way to begin to move i n the direction that we w i l l have to take, which is to depend on the sun. The C H A I R M A N . W e l l , gentlemen, I want to thank both of you very, very much. Y o u are t w o excellent witnesses. Y o u have given us different viewpoints and an insight into the b i l l which is most valuable. The committee w i l l stand i n recess u n t i l 10 o'clock tomorrow morning. [Whereupon, at 12:45 p.m., the hearing was recessed.] ENERGY INDEPENDENCE AUTHORITY ACT OF 1975 T U E S D A Y , A P R I L 13, 1976 U . S . SENATE, C O M M I T T E E ON B A N K I N G , H O U S I N G , AND U R B A N A F F A I R S , 'Washington,, D . C . T h e c o m m i t t e e m e t at 10:05 a.m. i n r o o m 5302, D i r k s e n Senate Office B u i l d i n g , S e n a t o r W i l l i a m P r o x m i r e ( c h a i r m a n o f t h e committee) presiding. P r e s e n t : Senators P r o x m i r e , Stevenson, a n d G a r n . T h e CHAIRMAN. T h e c o m m i t t e e resumes i t s h e a r i n g s o n S. 2532, the b i l l p r o v i d i n g f o r the creation of an E n e r g y Independence Authority. O u r f i r s t witnesses t h i s m o r n i n g a r e M r . M o n t e C a n f i e l d , J r . , D i r e c t o r o f t h e Office o f S p e c i a l P r o g r a m s f o r t h e G e n e r a l A c c o u n t i n g Office, t o be a c c o m p a n i e d b y M r . J . D e x t e r P e a c h , D e p u t y D i r e c t o r , a n d M r . J o h n Sprague, Associate D i r e c t o r . STATEMENT OF MONTE CANFIELD, JR., DIRECTOR, OFFICE OF SPECIAL PROGRAMS, GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY JOHN SPRAGUE, ASSOCIATE DIRECTOR; RALPH CARLONE AND CHARLES ADAMS M r . CANFIELD. G o o d m o r n i n g , M r . W e changed the lineup a l i t t l e bit. T h e CHAIRMAN. A l l Chairman. right. Mi*. CANFIELD. I h a v e M r . R a l p h C a r l o n e , A s s i s t a n t D i r e c t o r o u r Resources a n d E c o n o m i c D e v e l o p m e n t D i v i s i o n i n c h a r g e o p e r a t i o n s a t t h e E R D A a u d i t site. T h e CHAIRMAN. A l l of of right. M r . CANFIELD. O n m y r i g h t is M r . J o h n S p r a g u e , A s s o c i a t e D i r e c t o r i n c h a r g e o f e n e r g y p r o g r a m s i n m y office, a n d o n h i s r i g h t , M r . Charles A d a m s o f m y staff. T h e CHAIRMAN. A l l r i g h t . G o r i g h t ahead. T h e s t a t e m e n t w i l l be p r i n t e d i n f u l l i n the record. M r . CANFIELD. E n e r g y d e v e l o p m e n t is a s l o w process. L e g i s l a t i v e a c t i o n w i l l o c c u r y e a r s i n advance o f a c t u a l i m p a c t s . W h i l e w e reco g n i z e t h a t l e g i s l a t i v e decisions w i l l be r e q u i r e d w i t h o u t f u l l i n f o r m a t i o n , i t is i m p o r t a n t t h a t t h e Congress a n d t h e N a t i o n f o c u s o n some c r i t i c a l issues a n d t r a d e o f f s t h a t can enhance t h e q u a l i t y o f t h e decisions t o be m a d e . F i r s t : T h e r e a r e n o s i m p l e choices. E a c h t e c h n o l o g y has t o be w e i g h e d a g a i n s t t h e benefits a n d costs o f c o m p e t i n g o p t i o n s . T h o s e o p t i o n s are n o t o n l y o n t h e domestic p r o d u c t i o n side. F o r e x a m p l e , w h i l e o f t e n o v e r l o o k e d , c o n s e r v a t i o n is t r u l y one o f o u r least c o s t l y (127) 128 supply options. Consideration of financing conservation improvements as alternatives to, and complements to, large capital-intensive supply technologies is essential to rational decisionmaking. Second: A l t h o u g h no consensus exists among financial experts, sufficient capital w i l l probably not be forthcoming to support the entire range of developing energy technologies. W e can't do everything—we must choose. F u r t h e r , since i t is unlikely that private industry w i l l be able to capture the benefits of many of the more expensive and risky research and development options, some f o r m of Government financi n g w i l l probably be necessary to stimulate new energy technologies. Developing the criteria to choose among competing technologies and choosing the f u n d i n g levels f o r each w i l l be difficult, but equally essential. F o r each option, we should pursue the question: W h e n could the technology be commercialized? Also, the energetics, or thermodynamic efficiencies, should be caref u l l y weighed. Such a weighing of the net energy o u t p u t f o r each technology w i l l enable, us to make energy efficiency comparisons among competing technologies. Adverse environmental effects and social costs of development must be considered as p a r t of the t o t a l cost of any energy development project. E x t e r n a l influences, such as dependence on foreign oil, must be considered i n choosing among f u t u r e options. Even once a decision is made to pursue a given option, we are not home free. Deciding among the most desirable methods f o r encouraging development, including various forms of Government ownership, tax policy, i m p o r t controls, loan guarantees, price supports, et cetera, all depend upon the technology and the energy strategy and goals. I t is useful to recognize that there are three main types of legislative proposals to financially assist the development of new energy technologies. O n l y by looking at a l l three areas comprehensively can a true picture of the total costs of energy development emerge. F i r s t : W h a t is termed " f r o n t - e n d " assistance is proposed. T h i s amounts to subsidies to States and local governments i n regions which are largely r u r a l and unindustrialized to help them p l a n f o r development and to provide the public facilities necessary as a result of the development. Assistance could be i n the f o r m of loans, loan guarantees, and p l a n n i n g grants, as proposed i n S. 3007 [ H . R . 11792], the " F e d e r a l Energy Development I m p a c t Assistance A c t of 1976." Legislation now under consideration to aid coastal states impacted by OCS oil and gas development is another good example. Second: Since private investors are reluctant to b u i l d and operate new risky commercial or near-commercial facilities, incentives i n the f o r m of loan guarantees, interest subsidies and tax writeoffs are proposed. S. 2532 and H . R . 10267, the " E n e r g y Independence A u t h o r i t y A c t of 1975," includes many of these incentives. F i n a l l y , even after commercial-sized plants are subsidized and operating, there is a potential that synthetic fuels w i l l be too h i g h priced to compete w i t h alternatives such as domestic oil and coal or o i l imports. Therefore, subsidies to producers i n the f o r m of price supports or to users i n the f o r m of tax incentives or low-interest 129 loans have been proposed to enable higher cost technologies to compete i n the marketplace. The Energy Independence A u t h o r i t y A c t includes authority f o r price supports. H . R . 10108, the "Permanent T a x Reduction A c t of 1975," provides tax incentives and H . R . 8524 would provide lowinterest loans to users installing solar heating equipment. Legislative proposals, such as 973, also have been submitted, which w o u l d guarantee purchase of products. The point is that no one piece of proposed legislation covers i n any comprehensive way the entire range of financial support being considered. W h i l e legislation on energy development need not be comprehensive, i t should seem obvious that a balanced and consistent energy strategy can provide a useful framework w i t h i n which individual proposals can be evaluated. Attachment No. 1 discusses a "sample" of pending legislation i n this area. Rather t h a n go through attachment 1, I understand you w i l l include i t f o r the record. The C H A I R M A N . Yes, we w i l l . M r . C A N F I E L D . The administration's most comprehensive energy development proposal would establish an E n e r g y Independence A u t h o r i t y ( E I A ) . The b i l l , S. 2532, would encourage the development and commercial operation of domestic energy sources and to a lesser extent encourage energy conservation. A t o t a l of $100 b i l l i o n would be available to the E I A . The proposal would authorize direct investment i n energy technologies, loans, loan guarantees, and price guarantees. O u r detailed comments on this legislation are i n attachment I I to this statement, which I hope w i l l be made p a r t of the record. I w i l l simply sketch some of the key points i n our comments. O u r central concern lies i n the proposal's lack of balance. The b i l l exhibits a clear preference f o r initiatives of the supply-increasing variety. According to one provision of the b i l l , the conservation projects eligible f o r f u n d i n g appear to be those not i n widespread use. This would appear to preclude, f o r example, assistance to a u t i l i t y administered residential insulation project, since home insulation is already i n "widespread domestic commercial use." No equivalent condition is attached to supply increasing options. The b i l l would hamper conservation efforts rather t h a n simply f a i l to promote them. T h i s is true because the b i l l would result p r i m a r i l y i n the allocation, not creation of capital. The E I A ' s loan funds would, i n large part, be raised i n the p r i vate capital market. I t s guarantees would make projects i t assists financially more attractive to private capital than conservation projects not backed by Federal guarantees. Thus, both its loans and its guarantees w i l l siphon private capital away f r o m conservation projects which m i g h t have been able to obtain private financing i n the absence of E I A operations. The choice of projects to receive financial assistance, and the f o r m of assistance, ought to be based upon reasonable forecasts of the degree to w h i c h each project w i l l advance the goal of independence per dollar of assistance afforded it. W e believe the b i l l should contain specific criteria f o r evaluating the relative merits of claims f o r 130 financial assistance whether the initiatives are w i t h i n either the conservation or supply category. A n example of the k i n d of approach we are suggesting is the method f o r evaluating conservation techniques developed by the Federal E n e r g y A d m i n i s t r a t i o n . Stated broadly, this approach divides the dollar investment required to obtain increased energy efficiency i n a particular application by the barrel of o i l equivalent w h i c h w r ould be saved. Thus, i t results i n a dollar figure per equivalent barrel of o i l which represents the real value of the initiative. U s i n g this technique, conservation initiatives can be readily compared w i t h each other and w i t h supply-increasing options. W e believe t h a t many initiatives i n the direction of conservation h o l d the promise of moving the country farther down the road t o w a r d energy independence per dollar spent t h a n do most supply-increasi n g options. Also, any criteria established by the legislation should recognize and prefer projects w i t h energy gains which have a m u l t i p l i e r effect i n a wider economic sector. F o r example, an energy savings i n the manufacture of a particular paper product w h i c h causes i t t o become economically more attractive than some energy-intensive plastic w i l l m u l t i p l y the o r i g i n a l saving i f there is substitution of the paper f o r the plastic over an entire sector of use. I n addition, the b i l l is underlaid by some assumptions regarding national policy wThich are by no means settled. I t s predilection t o w a r d nuclear power generation is the most obvious example. A n o t h e r is seen i n its willingness to give the Government a large quasi-commercial interest i n energy supplies which w o u l d be i n competition w i t h imported crude oil. Since the b i l l does n o t h i n g to l i m i t imports directly, the underlyi n g assumption appears to be that w o r l d crude prices"will stay h i g h enough to insure the p r o f i t a b i l i t y of the E I A ' s investments i n alternative domestic supplies. Thus, the Government w o u l d have a financial interest i n keeping w o r l d crude prices artificially h i g h when, i n the opinion of many, the interest of the U n i t e d States w o u l d be best served by an opposite policy. A f u r t h e r concern is that the b i l l w o u l d create a Government corporation to undertake its stated purposes. O u r office has consistently taken the position that the public interest is best served when congressional control over activities is exercised t h r o u g h annual reviews and affirmative action on planned programs and financing requirements w h i c h attend the appropriation processes. W e believe t h a t departures f r o m this standard should be permitted only on a clear showing that an activity cannot be successfully operated i n the public interest w i t h i n that framework. W e note also that the Energy Research and Development A d m i n istration is not mentioned i n the b i l l , although E R D A already has extensive responsibilities to plan, program and assist f u n d i n g of demonstration energy projects and technologies. I n view of this potential duplication between E R D A and the proposed E n e r g y Independence A u t h o r i t y , we believe that S. 2532 should specifically address its intended effects on E R D A . F i n a l l y , we are generally concerned t h a t the b i l l seems to treat a number of established, statutory policies as obstacles to be overridden or avoided i n pursuit of its goals. One provision w o u l d exclude 131 E I A f r o m the definition of "agency" w i t h i n the meaning of the A d m i n i s t r a t i v e Procedures A c t , which, as one consequence, exempts i t entirely f r o m the provisions of the Freedom of I n f o r m a t i o n A c t . Another provision would exempt E I A f r o m a l l federal laws relating to public contracts and public buildings and works. I n addition, the requirements f o r filing environmental impact statements pursuant to the National Environmental Policy A c t are not clear. D u r i n g the past year we have been extensively involved i n the Government's role i n energy development and related methods of financing. Last October we completed an evaluation of the administration's proposed Government assistance to private uranium enrichment groups and a related proposal submitted to E E D A by a p r i vate organization—the U r a n i u m Enrichment Associates. Last month we commented on the administration's proposed synthetic fuel commercialization program. Copies of the f u l l reports are available f o r committee use. A l l existing uranium enrichment technologies i n the U n i t e d States are owned by E E D A . Since 1971 the executive branch has encouraged private industry development i n any expansion of uranium enrichment capacity. D u r i n g June 1975 the President proposed legislation which would authorize E E D A to provide various forms of Government assistance and assurances to private firms that wish to build, own, and operate enrichment plants. I n particular the President proposed that the next increment of capacity be privatized and turned over to private development w i t h major guarantees for the v i a b i l i t y of the effort. O u r analysis showed that a basic difference exists between a decision on p r o v i d i n g the next increment and f u r t h e r increments of uran i u m enrichment capacity. The next increment of capacity w i l l be the last-of-kind using existing technology and, i n our view, could best be b u i l t by adding onto the existing Government enrichment plants. A d d i t i o n a l future capacity w i l l use advanced technologies and, given the uncertainties, w i l l need Government assistance and assurances. O u r M a r c h 1976 report discussed an administration proposal to authorize E E D A to provide up to $6 b i l l i o n i n loan guarantees f o r , among other things, commercial demonstration facilities f o r the production of synthetic fuels. T o encourage industry t o participate i n synthetic fuels commercial demonstration programs, the administration recommended Government incentives consisting of loan guarantees, price supports, and construction grants. Because of time constraints we d i d not evaluate the pros and cons of the various forms of Federal assistance considered by the administration i n a r r i v i n g at its recommendations. W e d i d note, however, that important policy and judgmental questions were involved i n a r r i v i n g at the recommendations. A different emphasis on certain considerations such as impact on the budget, degree to which an alternative preserves and enhances competition, ability t o achieve program goals, and extent of Federal involvement i n management of operations—could conceivably lead to a different choice of alternative forms of assistance. O u r view is that the Congress should consider a w a i t i n g f u r t h e r studies which E E D A expects t o complete i n J u l y 1976 before approving any legislation. 132 F i n a l l y , M r . Chairman, G A O is undertaking f u r t h e r w o r k w h i c h w i l l deal w i t h alternative methods of financial support f o r synthetic fuels. I t w i l l address the tradeoffs involved i n choosing among such alternatives and i n allocating l i m i t e d Federal dollars to synthetic f u e l projects, as opposed to other competing energy projects. T o the extent possible, we w i l l address some of the pros and cons of implementing financial support programs on a piecemeal basis as opposed to a comprehensive umbrella approach. Here are some examples of tradeoffs which we believe should be considered. Questions should be raised regarding the desirability of subsidizi n g h i g h cost synthetic fuel output when the price of domestic oil is regulated at an average price, currently $7.66 a barrel. A recent study prepared f o r the Federal E n e r g y A d m i n i s t r a t i o n stated that an increase i n crude oil prices could increase recoverable reserves of crude o i l by billions of barrels by extending well l i f e and by enab l i n g increased use of secondary and t e r t i a r y recovery operations. This indicates additional potential f o r o i l and gas recovery i f secondary and t e r t i a r y operations and technological research were given Government support. A t the h i g h price levels discussed f o r synthetic fuel production, such recovery techniques may be a more attractive option than, say, sj-nthetic fuel development. A n o t h e r question which should be looked at is the question of incremental versus average p r i c i n g of synthetics. R o l l i n g i n the price of synthetics could make them appear more cost competitive than they actually are. O n the other hand, incremental p r i c i n g requires payment of the true product cost and, therefore, has a d i f ferent impact on final consumption patterns. Incremental p r i c i n g w o u l d also require synthetic fuels to compete w i t h other alternatives to imported oil, such as energy conservation and solar energy, where rolled-in p r i c i n g is impossible or limited. Consideration should be also given to optional uses of the f u e l produced by synthetic fuel plants. F o r example, the administration is now considering where oil f o r the recently authorized strategic petroleum reserve is going to come f r o m , how much i t w i l l cost, and whether, i n fact, the oil can be obtained at all. The possibility could be considered of using the output f r o m a synthetic fuels p r o g r a m — p a r t i c u l a r l y i f costs and government involvement are extensive. A s you can see, M r . Chairman, there are many serious matters r e q u i r i n g closer examination. W e hope our continuing study of these issues and tradeoffs can provide some useful insights. W e hope to complete our study early this summer, i n the same general time frame i n which E R D A plans to complete its follow-up studies on synthetic fuels. T h a n k you, M r . Chairman. W e are available to answer questions f o r the committee. [ T h e complete statement f o l l o w s : ] S T A T E M E N T OF M O N T E C A N F I F X D , J R . , D I R E C T O R , O F F I C E OF S P E C I A L P R O G R A M S O N DEVELOPING AND COMMERCIALIZING ENERGY TECHNOLOGY, GENERAL ACCOUNTING OFFICE M r . C h a i r m a n and Members of the Committee, we welcome the o p p o r t u n i t y to be here today t o consider w i t h you the difficult problems of developing and commercializing energy technology. I w o u l d l i k e to lay out a perspective a n d then focus my comments on three t h i n g s : 133 A n overview of the scope a n d v a r i e t y of bills now before the Congress t h a t w o u l d provide various combinations of Federal financial support f o r developing and commercializing energy technologies. Our specific views on the b i l l under consideration by this Committee to create a $100 b i l l i o n Energy Independence A u t h o r i t y w h i c h w o u l d provide financial support f o r developing and commercializing energy technologies. A b r i e f description of recent and ongoing GAO w o r k bearing on the question of Federal financial assistance f o r developing and commercializing energy technologies. PERSPECTIVE O N ENERGY DEVELOPMENT A large number of issues and choices face Congress i n dealing w i t h energy development. Energy development is a slow process. Legislative action w i l l occur years i n advance of actual impacts. W h i l e we recognize t h a t legislative decisions w i l l be required w i t h o u t f u l l i n f o r m a t i o n , i t is i m p o r t a n t t h a t the Congress and the N a t i o n focus on some c r i t i c a l issues and trade-offs t h a t can enhance the q u a l i t y of the decisions to be made. F i r s t , there are no simple choices. Each technology has to be weighed against the benefits and costs of competing options. Those options are not only on the domestic production side. For example, w h i l e often overlooked, conservation is t r u e l y one of our least costly supply options. Consideration of financi n g conservation improvements as alternatives to, and complements to, large capital-intensive supply technologies is essential to r a t i o n a l decisionmaking. Second, although no consensus exists among financial experts, sufficient capit a l w i l l probably not be f o r t h c o m i n g to support the entire range of developing energy technologies. We can't do everything—we must choose. F u r t h e r , since i t is unlikely t h a t p r i v a t e i n d u s t r y w i l l be able to capture the benefits of many of the more expensive and r i s k y research and development options, some f o r m of Government financing w i l l probably be necessary to stimulate new energy technologies. Developing the c r i t e r i a to choose among competing technologies and choosing the f u n d i n g levels f o r each w i l l be difficult, but equally essential. F o r each option we should pursue the question: When could the technology ho commercialized? Also the energetics, or thermodynamic efficiencies, should he carefully weighed. Such a weighing of the net energy output f o r each technology, w i l l enable us to make energy efficiency comparisons among competing technologies. Adverse environmental effects and social costs of development must he considered as p a r t of the t o t a l cost of any energy development project. Also, external influences, such as dependence on f o r e i g n oil, must be considered i n choosing among f u t u r e options and short t e r m security. Even once a decision is made to pursue a given option, we are not home free. Deciding among the most desirable methods f o r encouraging development, including various forms of Government ownership, t a x policy, i m p o r t controls, loan guarantees, price supports, etc. a l l depend upon the technology and the energy strategy and goals. ENERGY DEVELOPMENT LEGISLATION W i t h this perspective i n mind, i t is useful to recognize t h a t there are three m a i n types of legislative proposals to financially assist the development of new energy technologies. Only by looking at a l l three areas comprehensively can a t r u e picture of the t o t a l costs of energy development emerge. F i r s t , w h a t is termed " f r o n t - e n d " assistance is proposed. T h i s amounts to subsidies to states and local governments i n regions w h i c h are largely r u r a l and unindustrialized to help them plan f o r development and to provide the public f a c i l i t i e s necessary as a result of the development. Assistance could be i n the f o r m of loans, loan guarantees, and planning grants, as proposed i n S. 3007 (H.R. 11792; the " F e d e r a l Energy Development I m p a c t Assistance A c t of 1976." Legislation now under consideration to aid coastal states impacted by OCS o i l and gas development is another good example. Second, since p r i v a t e investors are reluctant to b u i l d and operate new risky commercial or near-commercial facilities, incentives i n the f o r m of loan guarantees, interest subsidies and t a x write-offs are proposed. S. 2532 (and H.R. 10267), the " E n e r g y Independence A u t h o r i t y A c t of 1975" includes many of these incentives. F i n a l l y , even a f t e r commercial-sized plants are subsidized and operating, there is a potential t h a t synthetic fuels w i l l be too h i g h priced to compete w i t h alternatives such as domestic oil pnd coal or o i l imports. Therefore, subsidies to producers i n the f o r m of price supports or to users i n the f o r m of 134 t a x incentives or l o w interest loans have been proposed to enable higher cost technologies to compete i n the m a r k e t place. The Energy Independence A u t h o r i t y A c t includes a u t h o r i t y f o r price supports. H . R . 10108, the " P e r m a n e n t T a x Reduction A c t of 1975," provides t a x incentives to users a n d H . R . 8524 w o u l d provide low (interest loans to users i n s t a l l i n g solar heating equipment. Legislative proposals also have been submitted w h i c h w o u l d guarantee p u r chase of products. One (S. 973) w o u l d set up a board to purchase synthetic fuels and solar energy, and auction them off to the highest bidder. Some of these proposals cover more t h a n one of the three financing categories discussed ; but none is t r u l y comprehensive. The, point is t h a t no one piece of proposed legislation covers i n any comprehensive way the entire range of financial support being considered. W h i l e legi s l a t i o n on energy development need not be comprehensive, i t should seem obvious t h a t a balanced and consistent energy strategy can provide a u s e f u l f r a m e w o r k w i t h i n w h i c h i n d i v i d u a l proposals can be evaluated. ENERGY I N D E P E N D E N C E A U T H O R I T Y The A d m i n i s t r a t i o n ' s most comprehensive energy development proposal w o u l d establish an Energy Independence A u t h o r i t y ( E I A ) . The b i l l , S. 2532, w o u l d encourage the development and commercial operation of domestic energy sources and to a lesser extent, encourage energy conservation. A t o t a l of $100 b i l l i o n w o u l d be available to the E I A . The proposal w o u l d authorize d i r e c t investment i n energy technologies, loans, loan guarantees and price guarantees. Our detailed comments on t h i s legislation are i n A t t a c h m e n t I I t o t h i s statement w h i c h I hope w i l l be made p a r t of the record. I w i l l sketch some of the key points i n our comments. Our c e n t r a l concern lies i n the proposal's lack of balance. T h e b i l l exhibits a clear preference f o r i n i t i a t i v e s of the supply-increasing v a r i e t y . According t o one provision of the b i l l the conservation projects eligible f o r f u n d i n g appear to be those not i n widespread use. T h i s w o u l d appear to preclude, f o r example, assistance to a u t i l i t y - a d m i n i s t e r e d residential insulation project, since home i n s u l a t i o n is already i n "widespread domestic commercial use". No equivalent condition is attached to supply increasing projects. The b i l l w o u l d hamper conservation efforts r a t h e r t h a n simply f a i l to promote them. T h i s is t r u e because the b i l l w o u l d result p r i m a r i l y i n the allocation, not creation of capital. The E I A ' s loan funds would, i n large p a r t , be raised i n the p r i v a t e c a p i t a l market. I t s guarantees w o u l d make projects i t assists financially more a t t r a c t i v e to p r i v a t e capital t h a n conservation p r o j ects not backed by Federal guarantees. Thus, both i t s loans and i t s guarantees w i l l siphone p r i v a t e c a p i t a l away f r o m conservation projects w h i c h m i g h t have been able to obtain p r i v a t e financing i n the absense of E I A operations. The choice of projects to receive financial assistance, and the f o r m of assistance, ought to be based upon reasonable forecasts of the degree to w h i c h each project w i l l advance the goal of independence per d o l l a r of assistance accorded it. W e believe the b i l l should contain specific c r i t e r i a f o r e v a l u a t i n g the relat i v e merits of claims f o r financial assistance w T hether the i n i t i a t i v e s are w i t h i n either the conservation or supply category. A n example of the k i n d o f approach we are suggesting is the method f o r e v a l u a t i n g conservation techniques developed by the Office of Energy Conservation and E n v i r o n m e n t , Fede r a l Energy A d m i n i s t r a t i o n . Stated broadly, t h i s approach divides the d o l l a r investment required to obtain increased energy efficiency i n a p a r t i c u l a r application by the b a r r e l of o i l equivalent w h i c h w o u l d be saved. Thus, i t results i n a d o l l a r figure per equivalent b a r r e l of o i l w h i c h represents the r e a l value of the i n i t i a t i v e . Using t h i s technique, conservation i n i t i a t i v e s can be r e a d i l y compared w i t h each other and w i t h supply-increasing options. W e believe t h a t many i n i t i a t i v e s i n the direction of conservation h o l d the promise of moving the country f a r t h e r down the road t o w a r d energy independence per dollar spent t h a n do most supply increasing options. Also, any c r i t e r i a established by the legislation should recognize and p r e f e r projects w i t h energy gains w h i c h have a m u l t i p l i e r effect i n a w i d e r economic sector. F o r example, an energy savings i n the m a n u f a c t u r e of a p a r t i c u l a r paper product w h i c h causes i t to become economically more a t t r a c t i v e t h a n some energy intensive plastic w i l l m u l t i p l y the o r i g i n a l saving i f there is subs t i t u t i o n of the paper f o r the plastic over an entire sector of use. I n addition, the b i l l is u n d e r l a i d by some assumptions r e g a r d i n g n a t i o n a l policy w h i c h are by no means settled. I t s predilection t o w a r d nuclear power generation is the most obvious example. A n o t h e r is seen i n i t s willingness t o 135 give the Government a large quasi-commercial interest i n energy supplies w h i c h w o u l d be i n competition w i t h imported crude oil. Since the b i l l does n o t i n g to l i m i t i m p o r t s directly, the u n d e r l y i n g assumption appears to be t h a t w o r l d crude prices w i l l stay h i g h enough to insure the p r o f i t a b i l i t y of the E I A ' s investments i n a l t e r n a t i v e domestic supplies. Thus, the Government w o u l d have a financial interest i n keeping w o r l d crude prices a r t i f i c i a l l y h i g h when, i n the opinion of many, the interest of the U n i t e d States w o u l d be best served by a n opposite policy. A f u r t h e r concern is t h a t the b i l l w o u l d create a Government corporation to undertake its stated purposes. Our Office has consistently taken the position t h a t the public interest is best served when congressional control over activities is exercised t h r o u g h annual reviews and affirmative action on planned programs and financing requirements w h i c h attend the appropriation processes. W e believe t h a t departures f r o m t h i s standard should be p e r m i t t e d only on a clear showing t h a t an a c t i v i t y cannot be successfully operated i n the public interest w i t h i n t h a t f r a m e w o r k . I n this regard, we note t h a t the Energy Research and Development Administ r a t i o n ( E R D A ) is not mentioned i n the bill, although E R D A already has extensive responsibilities to plan, program and assist f u n d i n g of demonstration energy projects and technologies. I n view of t h i s p o t e n t i a l duplication between E R D A and the proposed Energy Independence A u t h o r i t y , we believe t h a t S. 2532 should specifically address i t s intended effects on E R D A . F i n a l l y , we are generally concerned t h a t the b i l l seems to t r e a t a number of established, s t a t u t o r y policies as obstacles to be overridden or avoided i n pursuit of i t s goals. One provision w o u l d exclude E I A f r o m the definition of "agency" w i t h i n the meaning of the A d m i n i s t r a t i v e Procedures A c t which, as one consequence, exempts i t entirely f r o m the provisions of the Freedom of I n f o r m a t i o n Act. Another provision w o u l d exempt E I A f r o m a l l Federal laws r e l a t i n g to public contracts and public buildings and works. I n addition, the requirements f o r filing environmental impact statements pursuant to the N a t i o n a l E n v i r o n m e n t a l Policy A c t are not clear. R E C E N T GAO S T U D I E S I w i l l complete m y testimony today by briefly describing recent and on-going GAO w o r k . D u r i n g the past year we have been extensively involved i n the Government's role i n energy development and related methods of financing. Last October we completed an evaluation of the A d m i n i s t r a t i o n ' s proposed Government assistance to p r i v a t e u r a n i u m enrichment groups and a related proposal submitted to E R D A by a p r i v a t e organization—the U r a n i u m Enrichment Associates ( R E D - 7 6 - 3 6 , October 31, 1975). L a s t month, we commented on the A d m i n i s t r a t i o n ' s proposed synthetic f u e l commercialization program (RED-76-82, M a r c h 19, 1976). Copies of the f u l l reports are available f o r Committee use. U R A N I U M E N R I C H M E N T REPORT A l l existing u r a n i u m enrichment technologies i n the U n i t e d States are owned by E R D A . Sine 1971 the Executive B r a n c h has encouraged private industry development i n any expansion of u r a n i u m enrichment capacity. D u r i n g June 1975, the President proposed legislation w h i c h w o u l d authorize E R D A to provide various forms of Government assistance and assurances to p r i v a t e firms t h a t w i s h to build, own, and operate enrichment plants. E R D A and p r i v a t e firms have determined t h a t some f o r m of Government assistance and assurances is needed i n view of several m a j o r uncertainties: The technology is classified, licensing uncertainties exist, the processes had never before been used i n a commercial environment, and large c a p i t a l requirements and long payback periods are required. I n evaluating the issues t h a t emerged f r o m these uncertainties we considered the f o l l o w i n g questions. W h a t are the advantages and disadvantages of having p r i v a t e i n d u s t r y involvement i n terms of cost, competition, and other factors? Should technology proven to be successful i n Government plants be used or should the development of other promising, but untried, technologies be expedited? W h a t type of competitive environment w o u l d exist to create a reasonable price w i t h p r i v a t e involvement? W h a t Government guarantees w i l l be needed to involve p r i v a t e enterprise and w h a t w i l l be the related budgetary impact? Our analysis showed t h a t a basic difference exists between a decision on p r o v i d i n g the next increment and f u r t h e r increments of u r a n i u m enrichment 136 capacity. The next increment of capacity w i l l be the last-of-kind using e x i s t i n g technology and, i n our view, could best be b u i l t by adding onto the e x i s t i n g Government enrichment plants. A d d i t i o n a l f u t u r e capacity w i l l use advanced technologies and, given the uncertainties, w i l l need Government assistance and assurances. S Y N T H E T I C F U E L S REPORT Our M a r c h 1976 report discussed an A d m i n i s t r a t i o n proposal t o authorize E R D A to provide up to $6 b i l l i o n i n loan guarantees f o r , among other things, commercial demonstration f a c i l i t i e s f o r the production of synthetic fuels. T o encourage i n d u s t r y to participate i n synthetic fuels commercial demonstration programs the A d m i n i s t r a t i o n recommended Government incentives consisting of loan guarantees, price supports, and construction grants. Because of t i m e constraints we d i d not evaluate the pros and cons of the various forms of Federal assistance considered by the A d m i n i s t r a t i o n i n a r r i v i n g a t i t s recommendations. W e d i d note, however, t h a t i m p o r t a n t policy and j u d g m e n t a l questions were involved i n a r r i v i n g at the recommendations. A d i f ferent emphasis on certain considerations such as impact on the budget, degree to w h i c h an alternative preserves and enhances competition, a b i l i t y to achieve p r o g r a m goals, and extent of Federal involvement i n management of operations—could conceivably lead to a different choice of a l t e r n a t i v e f o r m s of assistance. W e stated our view t h a t the Congress should consider a w a i t i n g f u r t h e r studies w h i c h E R D A expects to complete i n J u l y 1976 before approving any legistion. The studies should provide better i n f o r m a t i o n on the scope and magnitude of Federal assistance needed to c a r r y out the programs, i n c l u d i n g better i n f o r m a t i o n on the type and number of plants needed. O N - G O I N G GAO W O R K F i n a l l y , GAO is u n d e r t a k i n g f u r t h e r w o r k w h i c h w i l l deal w i t h a l t e r n a t i v e methods of financial support f o r synthetic fuels. I t w i l l address the tradeoffs involved i n choosing among such alternatives a n d i n allocating l i m i t e d Federal dollars to synthetic f u e l projects, as opposed to other competing energy p r o j ects. T o the extent possible, we w i l l address some of the pros and cons of implementing financial support programs on a piecemeal basis as opposed to a comprehensive unbrella approach. F o r purposes of i l l u s t r a t i o n , l e t me describe some examples of tradeoffs w h i c h we believe should be considered. Questions should be raised regarding the d e s i r a b i l i t y of subsidizing h i g h cost synthetic f u e l output w h e n the price of domestic o i l is regulated at a n average price, c u r r e n t l y $7.66 a barrel. I n a t y p i c a l o i l reservoir, only something on the order of one-third of the t o t a l o i l i n the ground is recovered before abandonment because there is a lack of economic incentive f o r f u r t h e r secondary a n d t e r t i a r y recovery. To indicate the p o t e n t i a l here, a recent study prepared f o r the Federal Energy A d m i n i s t r a t i o n stated t h a t an increase i n crude o i l prices could increase recoverable reserves of crude o i l by billions of barrels by extending w e l l l i f e and by enabling increased use of secondary and t e r t i a r y recovery operations. T h i s indicates a d d i t i o n a l potential f o r o i l and gas recovery i f secondary and t e r t i a r y operations and technological research were given Government support. A t the h i g h price levels discussed f o r synthetic f u e l production such recovery techniques may be a more a t t r a c t i v e option than, say, synthetic f u e l development. Another question w h i c h should be looked at is the question of i n c r e m e n t a l versus average p r i c i n g of synthetics. R o l l i n g i n the price of synthetics could make them appear more cost competitive t h a n they actually are. On the other hand, incremental p r i c i n g requires payment of the t r u e product cost and, therefore, has a different impact i n final consumption patterns. I n c r e m e n t a l p r i c i n g w o u l d also require synthetic fuels to compete w i t h other alternatives to imported oil, such as energy conservation and solar energy, where rolled i n p r i c i n g is impossible or possible only on a more l i m i t e d scale. Consideration should be also given to optional uses of the f u e l produced by synthetic f u e l plants. F o r example, the A d m i n i s t r a t i o n is now considering where o i l f o r the recently authorized strategic petroleum reserve is going to come f r o m , how much i t w i l l cost, and whether, i n fact, the o i l can be obtained at all. The possibility could be considered of using the o u t p u t f r o m a synthetic fuels p r o g r a m — p a r t i c u l a r l y i f costs and Government involvement are extensive. 137 A s y o u can see, M r . C h a i r m a n , there are m a n y serious m a t t e r s r e q u i r i n g closer e x a m i n a t i o n . W e hope o u r c o n t i n u i n g study of these issues a n d tradeoffs can p r o v i d e some u s e f u l insights. W e hope to complete o u r s t u d y e a r l y t h i s summer, i n the same general t i m e f r a m e i n w h i c h E R D A plans t o complete i t s f o l l o w - u p studies on s y n t h e t i c fuels. T h a n k you, M r . C h a i r m a n . Attachment I A S a m p l e r of L e g i s l a t i v e I n i t i a t i v e s Bill number S. 875 Title or purpose T o a u t h o r i z e H U D t o m a k e d i r e c t l o w - i n t e r e s t loans to assist homeowners a n d b u i l d e r s i n p u r c h a s i n g a n d ins t a l l i n g solar h e a t i n g equipment. S. 973 T o amend I n t e r n a l Revenue Code t o p r o v i d e incentives f o r efficient use of gasoline and increased use of coal and t o encourage development of s y n t h e t i c f u e l s a n d solar energy. S. 2066 T o assure F e d e r a l support ( t h r o u g h E R D A ) of a j o i n t Gove r n m e n t a n d i n d u s t r y p r o g r a m capable of p r o d u c i n g a t least 1 m i l l i o n ( e q u i v a l e n t ) b a r r e l s of o i l per day by 1985 a n d t o p r o v i d e l o a n guarantees f o r c o n s t r u c t i o n a n d o p e r a t i o n of plants. S. 2087 T o amend S m a l l Business A c t t o establish a d i r e c t l o w i n t e r e s t l o a n p r o g r a m to assist homeowners a n d b u i l d e r s i n p u r c h a s i n g a n d i n s t a l l i n g s o l a r h e a t i n g equipment. S. 2109 T o amend I n t e r n a l Revenue Code t o p r o v i d e deductions f o r expenses f o r t r e a t m e n t processes t o convert coal t o l o w p o l l u t a n t s y n t h e t i c fuels. S. 2532 T o establish an Energy Independence A u t h o r i t y , a Governm e n t c o r p o r a t i o n t o p r o v i d e f i n a n c i n g a n d economic assistance f o r development of domestic energy sources, conservation of energy, a n d a t t a i n m e n t of energy independence. S. 2869 S i m i l a r i n purpose to S. 2066. S. 3007 T o p r o v i d e assistance t o states f o r e x t r a o r d i n a r y fiscal i m p a c t s r e s u l t i n g f r o m development of F e d e r a l energy resources ( t h r o u g h D e p a r t m e n t o f t h e I n t e r i o r ) . H . R . 917 S i m i l a r i n purpose to S. 2109. I I . R . 3217 I d e n t i c a l to H . R . 917. H . R . 3849 S i m i l a r i n purpose to S. 875. H . R . 4619 S i m i l a r i n purpose to S. 875. I I . R . 6598 T o a u t h o r i z e E R D A t o acquire sites, coal a n d o i l shale reserves, a n d to construct s y n f u e l p l a n t s f o r lease t o p r i v a t e enterprise and f o r subsequent sale of such plants. H . R . 8524 S i m i l a r i n purpose to S. 2087. I I . R . 8704, 8705, 8920, a n d 9621 a r e i d e n t i c a l to I I . R . 8524. H . R . 9723 T o a u t h o r i z e E R D A to p r o v i d e l o a n guarantees f o r synt h e t i c f u e l conversion. I I . R . 9749 I d e n t i c a l t o H . R . 9723. H . R . 9906 A s p a r t of a N a t i o n a l Coal Policy, provides f o r 1-year a m o r t i z a t i o n of t h e cost of s y n t h e t i c fuels f a c i l i t i e s a n d authorizes F e d e r a l purchases o f fuels produced f r o m coal. H . R . 10108 T o p r o v i d e t a x incentives f o r the expansion o f electric power f a c i l i t i e s other t h a n petroleum-fueled. I I . R . 10559 T o amend the F e d e r a l Nonnuclear E n e r g y Research a n d Development A c t of 1974 t o i n c l u d e l o a n guarantees f o r t h e c o n s t r u c t i o n of d e m o n s t r a t i o n s y n t h e t i c f u e l plants. I I . R . 11612 T o p r o m o t e t h r o u g h E R D A establishment o f e x p e r i m e n t a l projects u t i l i z i n g synthetic fuels. I I . R . 17792 S i m i l a r i n purpose t o S. 3007. I I . R . 11916 T o amend t h e F e d e r a l N o n n u c l e a r E n e r g y Research a n d Development A c t of 1974 to establish a p r o g r a m of l o a n guarantees f o r c o m m e r c i a l d e m o n s t r a t i o n f a c i l i t i e s f o r s y n t h e t i c fuels and energy conversion technologies. I I . R . 12112 T o p r o v i d e a d d i t i o n a l assistance t o E R D A t o advance nonnuclear energy by s u p p o r t i n g c o m m e r c i a l d e m o n s t r a t i o n p r o g r a m s f o r synfuels a n d other desirable energy f o r m s . 138 Appendix I I G A O C O M M E N T S O N S . 2 5 3 2 — 9 4 T H CONGRESS The b i l l w o u l d establish the Energy Independence A u t h o r i t y ( E I A ) , a Government Corporation w i t h a u t h o r i t y to provide financial assistance f o r those sectors of the economy w h i c h are i m p o r t a n t to the a t t a i n m e n t of energy independence f o r the U n i t e d States, and w o u l d change Federal Government operations so as to assist i n the expediting of regulatory procedures w h i c h affect energy development. The m a i n purposes of the b i l l , as stated i n section 102, are to encourage the development of domestic energy sources or the conservation of energy, a n d to hasten the commercial operation of new energy technologies, w i t h a goal of energy independence by 1985. Section 302 provides that, to the extent practicable, the f o r m of the encouragement w i l l be E I A loans or loan guarantees to p r i v a t e business concerns. However, the E I A is p e r m i t t e d to invest d i r e c t l y i n energy-related enterprises and to guarantee prices. Only grants-in-aid are specifically precluded. (Sec. 301) The b i l l authorizes an appropriation of $25 b i l l i o n to the T r e a s u r y f o r t h e purchase of E I A capital stock. (Sec. 401) I n addition, the E I A is authorized to b o r r o w and i n c u r obligations t o t a l l i n g $75 billion. (Sec. 4 0 2 ( a ) ) The aggregate amount of $100 b i l l i o n is fixed as the upper l i m i t of the E I A ' s actual and potential l i a b i l i t y stemming f r o m direct investment, loans, and guarantees of loans and prices. (Sec. 307) Our central concern w i t h t h i s b i l l lies i n its lack of balance. The goal of energy independence can be f u r t h e r e d by increases i n domestic supply, by reductions i n domestic consumption, or a combination of both. T h i s allows a larger f r a c t o n of our t o t a l energy use to be satisled out of indigenous supplies. T h i s b i l l exhibits a clear preference f o r i n i t i a t i v e s of the supply-increasi n g v a r i e t y and pays l i t t l e a t t e n t i o n to energy conservation. I t states t h a t conservation is among its purposes (sec. 1 0 2 ( b ) ) , but its basic supply o r i e n t a t i o n is evident f r o m the kinds of projects f o r w h i c h E I A financial assistance w o u l d be available. I n the l i s t i n g of eligible projects under subsection 3 0 3 ( b ) , only the first i t e m mentions conservation and t h a t category of energy projects is l i m i t e d to those t h a t "are not i n widespread domestic commercial use." T h i s last proviso w o u l d appear to preclude, f o r erample, assistance to a u l t i l i t y - a d ministered residential i n s u l t a t i o n project, since home i n s u l a t i o n is widespread. No equivalent condition is gains w h i c h m u l t i p l y themselves i n a w i d e r economic sector. For example, an energy saving i n the m a n u f a c t u r e of a particul a r paper product w h i c h causes i t to become economically more a t t r a c t i v e t h a n some energy intensive plastic w i l l m u l t i p l y the o r i g i n a l saving, i f there is subs t i t u t i o n of the paper f o r the plastic. A second p r i m a r y concern is t h a t the b i l l w o u l d create a Government corporation to undertake i t s stated purposes. Our Office has consistently taken the position t h a t the public interest is best served when congressional control over activities is exercised t h r o u g h annual reviews and affirmative action on planned programs and financing requirements w h i c h attend the a p p r o p r i a t i o n processes, and t h r o u g h the application of statutes and regulations w h i c h usually govern the operations of Government agencies. W e believe t h a t departures f r o m the standard should be p e r m i t t e d only on a clear showing t h a t an a c t i v i t y w h i c h is susceptible of operation t h r o u g h a new regular Government agency or t h r o u g h an expansion of s i m i l a r programs i n existing Government agencies cannot be successfully operated i n the public interest w i t h i n t h a t framework. I n this regard, we note t h a t the Energy Research and Development Administ r a t i o n ( E R D A ) is not mentioned i n the b i l l , although E R D A already has extensive responsibilities to plan, program, and assist f u n d i n g of demonstration energy projects and technologies under sections 4 t h r o u g h 7 of the Federal Nonnuclear Energy Research and Development A c t of 1974, approved December 31, 1974, Pub. L . No. 93-577, 88 Stat. 1878, 1880, 42 U.S.C.A. §§ 5903-5906 (Pamphlet No. 1 Feb. 1975). T h e authorized f o r m s of Federal assistance therein i n c l u d e : (1) j o i n t Federal-industry experimental, demonstration, or commercial corporations; (2) Federal purchases or guaranteed price of the products of demonstration p l a n t s ; and (3) Federal loans to non-Federal entities conducting demonstrations of new technologies. I n addition, the report 139 entitled "Recommendations f o r a Synthetic Fuels Commercialization Program," submitted by the Synfuels Interagency Task Force to the President's Energy Resources Council i n June 1975, w o u l d place E R D A i n the role of promoting commercial synthetic f u e l plants. Moreover, we note t h a t H.R. 10559, 94th Congress, w h i c h w o u l d authorize loan guarantees f o r the construction and operat i o n of commercial demonstration f a c i l i t i e s f o r the conversion of domestic coal and o i l shale i n t o synthetic fuels and f o r the construction and operation of f a c i l i t i e s generating energy f r o m renewable sources, w o u l d be administered by E R D A . I n view of this potential duplication between E R D A and the attached to the supply-increasing projects listed, such as those designed to stimulate coal or nuclear power generation. We believe t h a t many i n i t i a t i v e s i n the direction of conservation hold the promise of moving the country f a r t h e r down the road t o w a r d energy independence per dollar spent t h a n do most supply increasing options. Still, we recognize the m e r i t of p u t t i n g momentum behind u t i l i z a t i o n of domestic energy supplies, especially f o r the longer term. Accordingly, w e believe a b i l l w i t h the ambition of a t t a i n i n g energy independence ought, at least, to be even handed i n its treatment and offer as express and unrestricted financial assistance to conservation efforts as i t does to supply efforts. I n this connection we note t h a t the b i l l is not n e u t r a l on conservation options. A c t u a l l y , i t w o u l d hamper conservation efforts rather t h a n simply f a i l to promote them. T h i s is true because the b i l l w o u l d result i n allocation, not creation, of capital. The E I A ' s loan funds would, i n large part, be raised i n the p r i v a t e capital market. I t s guarantees w o u l d make projects i t assists financially more a t t r a c t i v e to p r i v a t e capital t h a n conservation projects not backed by Federal guarantees. Thus, both i t s loan and its guarantees w i l l siphon private capital away f r o m those conservation projects w h i c h m i g h t have been able to obtain p r i v a t e financing i n the absence of E I A operations. The choice of projects to receive financial assistance, and the f o r m of assistance, ought to be based upon reasonable forecasts of the degree to w h i c h each project w i l l advance the goal of independence per dollar of assistance accorded i t . W e believe the b i l l should contain specific c r i t e r i a f o r evaluating the relat i v e merits of claims f o r financial assistance whether the i n i t i a t i v e s are w i t h i n either the conservation or supply category. A n example of the k i n d of approach we are suggesting is the method f o r evaluating conservation techniques developed by the Office of Energy Conservation and Environment, Federal Energy A d m i n i s t r a t i o n . Stated broadly, this approach divides the dollar investment required to obtain increased energy efficiency i n a p a r t i c u l a r application by the b a r r e l equivalents w h i c h w o u l d be saved thereby, a r r i v i n g at a dollar per b a r r e l figure w h i c h represents the real value of the i n i t i a t i v e . Such figures f o r different conservation techniques can be readily compared w i t h each other and w i t h cost figures f o r supply-increasing options. I t is also i m p o r t a n t f o r the c r i t e r i a established by the b i l l to recognize and prefer those projects w i t h energy proposed Energy Independence A u t h o r i t y , we believe t h a t S. 2532 should specifically address its intended effects on E R D A . Nevertheless, i f a corporation is considered best suited as the mechanism f o r achieving the purposes of the b i l l , we suggest t h a t the corporation be made subject to the provisions of the Government Corporation Control Act, 31 U.S.C. § 841 et seq. (1970). Subsection 804(e) of the b i l l presently exempts E I A f r o m coverage by the Government Corporation Control Act. We are p a r t i c u l a r l y concerned t h a t E I A w o u l d not be subject to the budgetary review process contemplated by sections 102, 103, and 104 of the Government Corporation Control Act, 31 U.S.C. §§ 847-849 (1970). The b i l l is underlaid by some assumptions regarding n a t i o n a l policy w h i c h are by no means settled. I t s predilection t o w a r d nuclear power generation is the most obvious example. Another is seen i n i t s willingness to give the Government a large quasi-commercial interest i n energy supplies w h i c h would be i n competition w i t h imported crude oil. Since the b i l l does nothing to l i m i t imports directly, the u n d e r l y i n g assumption appears to be t h a t w o r l d crude prices w i l l stay h i g h enough to insure the p r o f i t a b i l i t y of the E I A ' s investments i n alternative domestic supplies. Thus, the Government would have a financial interest i n keeping w o r l d crude prices up when, i n the opinion of many, the interest of the U n i t e d States w o u l d be best served by an opposite policy. 71-787—76 10 140 I n addition, we question the amount of the financial assistance this b i l l envisions. Depending on the extent to w h i c h conservation options are made eligible f o r assistance and on the treatment of supply options, the overall assistance could reasonably be smaller or considerably larger. Comprehensive cost and economic analyses are called f o r on t h i s m a t t e r . N o t w i t h s t a n d i n g these problems, the b i l l does e x h i b i t an i m p o r t a n t recognit i o n t h a t unmodified m a r k e t forces w i l l be insufficient to achieve the goal of energy independence, however defined. Therefore, i n commenting f u r t h e r we accept the basic premises of the b i l l and make some suggestions w i t h respect to p a r t i c u l a r provisions. As is indicated i n subsection 1 0 1 ( d ) , an objective of the b i l l is to provide " a d d i t i o n a l " c a p i t a l f o r energy projects, and i t w o u l d not be i n the n a t i o n a l interest f o r energy projects to be financed by the Federal Government i f they otherwise m i g h t receive p r i v a t e financing. However, the b i l l is vague i n i t s requirements and does not adequately insure t h a t the projects eligible f o r assistance w r ould not otherwise be b u i l t w i t h p r i v a t e financing. The specific financial e l i g i b i l i t y c r i t e r i o n established by subsection 303(a) is t h a t the p r o j ect " w o u l d not receive sufficient financing upon commercially reasonable terms f r o m other sources to make the project commercially feasible." Subsection 303(b) describes five types of eligible projects. Subsection 303(b) (1) l i m i t s assistance to those energy technologies or processes not i n widespread commerc i a l use, and subsection 304(b) f u r t h e r l i m i t s e l i g i b i l i t y to projects t h a t are beyond the research and development phase. Some clarification w o u l d be helpf u l i n the l a t t e r t w o subsections to better define "widespread commercial use" and better delineate when "research and development" ends and "commerciali z a t i o n " begins. I n addition, i t is apparent f r o m subsection 303(b) t h a t electric u t i l i t i e s could receive significant amounts of assistance, since t w o of the five categories of eligible projects apply almost exclusively to utilities. W e suggest t h a t sect i o n 303 be revised to l i m i t Federal assistance to electric u t i l i t i e s i n only those specific instances where a u t i l i t y w o u l d propose to employ a promising, innovat i v e energy technology or process not c u r r e n t l y i n widespread commercial use, but could not, w i t h o u t Federal assistance, j u s t i f y the a d d i t i o n a l cost or increased risk. The Federal Government w o u l d thus assume the r i s k f r o m specific u t i l i t i e s employing unproven energy processes or technologies. H o p e f u l l y these new technologies w i l l become proven as experience is gained i n t h e i r application and widespread commercialization w i l l occur, resulting i n more effective use of the Nation's energy resources and reduced f o r e i g n dependence. Subsection 304(c) requires t h a t before any State or locally regulated firm (such as an electric or n a t u r a l gas u t i l i t y ) could receive financial support, the regulatory body w o u l d be required to c e r t i f y the need f o r the project and sign an agreement stating t h a t i t w o u l d allow, w i t h o u t public hearings, q u a r t e r l y u t i l i t y r a t e increases adequate to m a i n t a i n a revenue requirement as determined by the A u t h o r i t y . T h i s subsection appears to require State regulatory commissions to abdicate p a r t of t h e i r responsibility of determining the revenue requirements of the u t i l i t i e s they regulate. Section 307 l i m i t s the A u t h o r i t y ' s t o t a l financial assistance to the sum of its authorized borrowing. A more p r a c t i c a l l i m i t w o u l d be one based on p a i d - i n capital, actual borrowings, and accumulated earnings or deficits. Section 308 states t h a t the E I A may not provide any financial assistance or make any f u r t h e r commitments f o r financial assistance i f , a f t e r audit, i t is required under generally accepted accounting principles to establish reserves. W e believe t h a t the words " a f t e r a u d i t " on page 19, l i n e 19, should be deleted since generally accepted accounting principles w o u l d dictate establishment of the types of reserves mentioned here. I n view of the f o r m u l a f o r automatic reduction of authorized b o r r o w i n g and authorized c a p i t a l stock as contained i n subsection 311(a) and the l i m i t a t i o n on the amount of financial assistance contained i n section 307, the reserves required by section 308 must be based on the outstanding capital stock and the net gains realized upon dispositions, w h i c h have not been previously applied to r e t i r e m e n t of the E I A ' s obligations and c a p i t a l stock. Accordingly, section 308, lines 1 to 7 on page 20 of the b i l l , should r e a d : " c a p i t a l stock outstanding, ( i i ) i t s earned surplus, and ( i i i ) net gains realized upon dispositions described i n section 311 ( w h i c h have not been previously applied to retirement of the A u t h o r i t y ' s obligations and c a p i t a l stock), a l l of w h i c h shall be determined i n accordance w i t h generally accepted accounting principles." 141 Use of the phrase " i n consideration f o r the extension of financial assistance" i n subsection 311(a) raises the question whether the securities or assets acquired are (1) payment f o r extending financial assistance (such as points p a i d f o r mortgage loans), (2) collateral f o r loans made a n d / o r guaranteed by E I A , (3) investment (bonds, notes, etc.) by E I A , or (4) any combination of the above. I f the assets are acquired as collateral, E I A w o u l d obtain ownership only i n the event of default, and its r i g h t to sell them o u t r i g h t may be l i m i t e d accordingly. The provision i n section 401 (page 24, lines 21-25, and continued on page 25, lines 1 and 2) is not clear as to whether interest on deferred dividends is to be computed on the basis of compounded interest or simple interest (using the interest rate i n effect at the beginning of each y e a r ) . Subsection 501(b) states t h a t "Directors of the A u t h o r i t y , whether serving f u l l time or p a r t time, shall be compensated at an annual or d a i l y rate to be determined by the President." F u r t h e r , subsection 502(a) states t h a t " T h e President shall fix the compensation of the C h a i r m a n of the Board." These provisions w o u l d affect a t o t a l of six positions. We do not f a v o r the setting of salaries i n this manner and are not aware of any existing provision i n l a w g r a n t i n g the President a u t h o r i t y to fix pay w i t h o u t any restrictions. Generally, l i m i t s are placed on executive branch a u t h o r i t y to fix pay w h i c h preserves i n t e r n a l alignment relative to the highest General Schedule grade or executive level positions. We w o u l d suggest the addition of specific language regarding compensation to be p a i d officers or employees; f o r example, " a t a rate not to exceed level 1 of the executive schedule." Section 503 makes the provisions of chapter 11 of t i t l e 18, U n i t e d States Code, concerning conflicts of interest, applicable to the directors and a l l officers and employees of the A u t h o r i t y . The B o a r d of Directors are also authorized to promulgate regulations thereunder. We believe greater protection against conflicts of interest w o u l d be provided i f the b i l l were amended to include the following prohibitions: " T h e directors, officers, and employees of the A u t h o r i t y , and members of t h e i r immediate f a m i l y , shall not o w n any interest i n any business concern to w h i c h financial assistance is provided under this act." We also believe t h a t the B o a r d of Directors should be required to promulgate conflict of interest regulations, rather than be merely authorized to do so. Subsection 505(c) of the b i l l authorizes the General Accounting Office to conduct audits of the accounts of the E I A . I n l i e u of the language contained therein w h i c h is applicable to GAO, we would suggest the f o l l o w i n g : " T h e Comptroller General shall audit the programs, activities, and financial operations of the A u t h o r i t y f o r any period d u r i n g w h i c h Federal funds are available to finance any p o r t i o n of its operations and shall report to the Congress at such times and to such extent as he deems necessary to keep the Congress i n f o r m e d on the status of such programs, activities, and operations, and to make recommendations f o r achieving greater economy, efficiency and effectiveness. The a u d i t shall be made under such rules and regulations as he may prescribe. " F o r the purpose of such audits, the Comptroller General, or any of his duly authorized representatives, shall have access to and the r i g h t to examine a l l books, accounts, records, reports, files, and a l l other papers, things or property belonging to or i n use by A u t h o r i t y . " I n conclusion, we are generally concerned t h a t the b i l l seems to t r e a t a number of established, s t a t u t o r y policies as obstacles to be overridden or avoided i n p u r s u i t of its goals. As a general matter, we believe i t is wiser f o r new legislation to consider existing policies on t h e i r own merits and either m o d i f y them as required by new circumstances or f o l l o w them i f they remain valid. Examples of such troublesome provisions a r e : (1) the provision i n subsection 804(b) w h i c h excludes E I A f r o m the definition of "agency" w i t h i n the meaning of the A d m i n i s t r a t i v e Procedure Act, 5 U.S.C. § 501 (1970), which, as one consequence, exempts E I A entirely f r o m the provisions of the Freedom of I n f o r m a t i o n Act, 5 U.S.C. § 502 (1970) ; and (2) the provision i n subsection 804(c) exempting E I A f r o m a l l Federal lawTs r e l a t i n g to public contracts and public buildings and works. I n addition, the impact of subsection 804(a) ( i i ) , r e l a t i n g to the filing of environmental impact statements pursuant to subsection 102(2) (C) of the N a t i o n a l E n v i r o n m e n t a l Policy A c t of 1969, as amended, 42 U.S.C. § 4332(2) (C) (1970), is not clear. 142 T h e CHAIRMAN. T h a n k y o u , M r . Canfield, f o r a r e m a r k a b l y t h o u g h t f u l a n d h e l p f u l analysis o f t h i s b i l l . I t is a v e r y c r i t i c a l analysis. Y o u c r i t i c i z e i t f o r a w h o l e series o f reasons. Y o u p o i n t o u t s o m e t h i n g t h a t I h a d n ' t c a u g h t before, t h a t t h e l e g i s l a t i o n does take t h i s o u t o f t h e F r e e d o m o f I n f o r m a t i o n A c t , ignores E R D A , slights conservation, p r o v i d e s n o cost-benefit as w e l l as b e i n g o u t o f t h e b u d g e t w h i c h wTas s o m e t h i n g we have been concerned about. Y o u say t h a t t h i s b i l l lacks any cost-benefit c r i t e r i a f o r e v a l u a t i n g c o m p e t i n g plans f o r f i n a n c i a l assistance. Y o u p o i n t o u t i t e x h i b i t s a clear preference f o r s u p p l y - i n c r e a s i n g projects as opposed t o conservation. H o w about t h e basic a r g u m e n t V i c e P r e s i d e n t R o c k e f e l l e r made f o r t h i s l e g i s l a t i o n , w h i c h is t h a t o u r n a t i o n a l security is dependent o n o u r becoming self-sufficient i n energy ? I f y o u were t o w r i t e y o u r cost-benefit c r i t e r i a i n t o l a w , h o w w o u l d t h a t affect t h e choice o f projects f u n d e d ? F o r instance, w o u l d E I A f u n d any synthetic fuels p r o j e c t s i f i t used t h e c r i t e r i a w h i c h y o u suggest ? M r . CANFIELD. I d o n ' t k n o w w h e t h e r synthetic f u e l s w o u l d be as c o m p e t i t i v e i n t h e abstract as conservation options i n a l o t o f instances. I t h i n k t h e E I A c o u l d s t i l l decide t o finance s y n t h e t i c f u e l p l a n t s , b u t I t h i n k t h e p o i n t is t h a t there are m a n y ways i n w h i c h t h i s n a t i o n can become self sufficient i n energy. O n e w a y is t o become m o r e efficient i n energy a n d p u t i n t o practice a n u m b e r o f conservation technologies w h i c h we a l r e a d y k n o w h o w t o do, b u t f o r w h i c h there is no financial i n f r a s t r u c t u r e . So we are concerned t h a t these k i n d s o f t h i n g s get a f a i r shake. W e are t a l k i n g here about balance, r a t h e r t h a n s a y i n g let's have a conservation b i l l , a n d n o t have a s u p p l y - i n c r e a s i n g b i l l . I t h i n k t h i s n a t i o n needs both. W e p r o b a b l y w i l l , i n f a c t , need synthetic fuels. S y n t h e t i c fuels have a l o t o f problems, n o t t h e least o f w h i c h is the tremendous loss i n t h e r m o d y n a m i c efficiency w h e n y o u convert s o m e t h i n g w h i c h y o u c o u l d otherwise b u r n u n d e r a b o i l e r , l i k e coal, t o s o m e t h i n g w h i c h y o u w o u l d use otherwise. A l l I am a r g u i n g is t h a t we need t o allowT conservation o p p o r t u n i ties t o compete i n t h i s arena. T h e p r i c e range o n t h e d o l l a r value o f synthetic fuels c o m i n g o u t o f t h e p i p e l i n e is r e m a r k a b l y w i d e . I t r u n s a l l t h e wTay f r o m as l o w as $12 o r $14 t o as h i g h as $30 a barrel. A l o t o f t h a t $30 a b a r r e l f u e l is n o t g o i n g t o be c o m p e t i t i v e i f y o u p u t a cost-benefit r a t i o i n , a n d a l l o w the u t i l i t y c o m p a n y t o come i n a n d compete f o r t h e f u n d i n g o f projects such as p u t t i n g t i m e - o f - d a y m e t e r i n g on i t s r e s i d e n t i a l a n d c o m m e r c i a l customers, o r y o u c o u l d a l l o w t h e m t o finance l o w - i n t e r e s t o r interest-free loans t o r e s i d e n t i a l users f o r p u t t i n g i n i n s u l a t i o n i n t h e i r wTalls a n d ceilings a n d s t o r m doors and w i n d o w s . T h e CHAIRMAN. H a s t h e G A O f o u n d t h a t conservation efforts are less expensive b y a n d l a r g e t h a n s u p p l y - i n c r e a s i n g efforts? H a v e y o u m a d e a n y studies i n t h a t r e g a r d ? D o y o u have any figures o r facts ? 143 M r . CANFIELD. W e d o n ' t have t h e analysis completed. T h e n e x t s t u d y w e do w i l l look a t some o f t h e tradeoffs a n d options. T h e F E A has done a n u m b e r o f studies i n t h e i r Office o f C o n s e r v a t i o n a n d E n v i r o n m e n t , w h i c h has used t h e l i t t l e g i m m i c k o f t h e cost o f o i l per b a r r e l equivalency. T h e CHAIRMAN. M r . Z a r b testified yesterday, he is t h e head o f t h e F E A , a n d he testified a l o n g w i t h V i c e P r e s i d e n t Rockefeller. H e i n d i c a t e d the o n l y s i g n i f i c a n t s a v i n g t h a t was realistic i n conservat i o n , he f e l t , w o u l d p r o v i d e f o r perhaps a 5 percent r e d u c t i o n i n the rate o f increase i n c o n s u m p t i o n . I n other w o r d s , instead o f t h e rate o f increase g o i n g u p 3 a n d a f r a c t i o n percent, i t w o u l d go u p s l i g h t l y less t h a n t h a t . H e spoke w i t h considerable force on w h a t he f e l t was a lack o f realism a n d f e e l i n g t h a t we could accomplish this. H e has been p l e a d i n g f o r t a k i n g p r i c e c o n t r o l s off oils, something a l o t o f us, i n c l u d i n g me, have been resisting because o f the effect i t w o u l d have on the economy. I n f a c t , I t h i n k one o f t h e b i g reasons f o r u n e m p l o y m e n t a n d i n f l a t i o n is because t h e prices have gone u p so r a p i d l y i n t h e past, a n d t h i s c o u l d a b o r t o u r present b e g i n n i n g recovery. I ) o y o u have any p r e l i m i n a r y j u d g m e n t t h a t w o u l d dispute t h a t n o t i o n t h a t t h e savings i n conservation are extremely, realistic savings are l i m i t e d ? M r . CANFIELD. Yes, M r . C h a i r m a n . I t h i n k t h a t , w i t h a l l due respect, M r . Zarb's figures are p r o b a b l y an o r d e r o f m a g n i t u d e too low. P r i o r t o c o m i n g t o t h e General A c c o u n t i n g Office, I was t h e d e p u t y d i r e c t o r o f t h e energy p o l i c y p r o j e c t f o r t h e F o r d F o u n d a t i o n . T h a t $4i/£ m i l l i o n , 3-year e f f o r t y i e l d e d detailed analysis o f conservation o p p o r t u n i t i e s . I n toto, w e argued t h a t u s i n g e x i s t i n g technologies, e x i s t i n g efficiencies w h i c h are economic, g i v e n a l i t t l e financial boost here a n d there, t h e same k i n d we w a n t t o do f o r gasification a n d l i q u e f a c t i o n , et cetera, t h a t t h e savings t o t h i s N a t i o n f r o m conservation o p p o r t u n i t i e s are o n t h e o r d e r o f 30 t o 50 percent o f c u r r e n t c o n s u m p t i o n patterns. T h a t is a h e a v i l y documented project T h e CHAIRMAN. I f y o u are g o i n g t o do t h a t , d o n ' t y o u have t o take t h e cruel, t h o u g h step o f l e t t i n g t h e p r i c e o f o i l a n d gas go u p even h i g h e r , w h i c h , as I say, has a v e r y perverse, n o t o n l y perverse economic effect, b u t a v e r y u n j u s t effect? I f , f o r example, wThen y o u p u l l e d u p t o t h e filling s t a t i o n , instead o f p a y i n g 60 cents a g a l l o n , y o u h a d t o p a y $1 a g a l l o n o r $1.25 a g a l l o n , people w o u l d conserve a n d d r i v e less, t h e y w o u l d insist o n cars t h a t g i v e t h e m m o r e miles per gallon. B u t t h e effect o n the economy could be catastrophic, a n d t h e effect o n economic justice w o u l d be v e r y serious. M r . CANFIELD. T h a t is one w a y y o u can do i t . Y o u d o n ' t have t o do i t t h a t w a y . T h e CHAIRMAN. W h a t is t h e other w a y ? M r . CANFIELD. YOU can legislative e x p l i c i t requirements and criteria. 144 T h e CHAIRMAN. W e have been t r y i n g t o do t h a t , as y o u k n o w , a n d w e have done i t t o some extent. M r . CANFIELD. T h e E n e r g y P o l i c y a n d C o n s e r v a t i o n A c t is a step i n t h e r i g h t d i r e c t i o n . W e have done t h a t t o some extent n o w w i t h a u t o m o b i l e gasoline mileage. W e c o u l d do a l o t more. I n c e n t i v e s , guarantees, loans, et cetera, c o u l d be made available t o t h e p u b l i c t o i n s u l a t e t h e i r homes o r incentives t o b u y smaller cars. These k i n d s o f activities do n o t r e q u i r e t h e p r i c e o f gasoline t o go t o a $1.25 a g a l l o n i n order t o achieve conservation efforts. W e are t a l k i n g o n l y about conservation efforts w h i c h are economic a l l y a t t r a c t i v e t o t h e people. I a m a r g u i n g i n essence i f conservat i o n efforts w i l l n o t be c o m p e t i t i v e w i t h synthetic fuels, f o r example, o r o i l shale, t h e n d o n ' t do them. D o t h e synthetic f u e l s a n d do t h e o i l shale. B u t i f t h e y are economically c o m p e t i t i v e , do t h e conservation. T h e CHAIRMAN. I t is a w f u l l y h a r d t o get i t t h r o u g h , t h i s c o m m i t tee has j u s t r e p o r t e d and g o t t e n t h r o u g h t h e Senate, w e h a d a t o u g h f i g h t over i t , a b i l l t h a t w o u l d mandate conservation i n home h e a t i n g . W e are h a v i n g a r o u g h t i m e w i t h t h e House. W e are g o i n g t o go t o conference w i t h the House, b u t i t is g o i n g t o be e x t r e m e l y d i f f i c u l t f o r us t o get even t h a t k i n d o f conservation l e g i s l a t i o n adopted. V e r y difficult. E v e r y w h e r e y o u t u r n a n d look, there is resistance t o t h i s k i n d o f t h i n g , a l t h o u g h I t h i n k y o u are r i g h t . W h a t , i n y o u r v i e w , w T ould be the best w a y t o amend t h i s b i l l t o achieve a better balance between s u p p l y and conservation? M r . CAXFIELD. I t h i n k essentially b y w r i t i n g i n some e x p l i c i t legi s l a t i v e c r i t e r i a w h i c h w o u l d d e m a n d t h a t energy o p t i o n s be comp a r e d based on the d o l l a r value o f the o i l equivalent, o r y o u c o u l d use B r i t i s h t h e r m a l u n i t s o r some other sort o f c o m m o n s t a n d a r d : b u t w r i t i n g i n t h a t those t h i n g s w h i c h are most efficient i n terms o f dollars, n o t j u s t i n energy, w o u l d be t h e ones w h i c h w o u l d be pref e r r e d a n d f u n d e d b y such legislation. T h i s w o u l d a l l o w conservation t o also compete. A l s o , i n a l l those sections o f the b i l l where we describe t h e sectors w h i c h w o u l d be financed, a n d i t goes p r o d u c t i o n , d i s t r i b u t i o n , transmission, et cetera, i n each o f those sectors i f y o u a d d the w o r d " c o n s e r v a t i o n , " i t w o u l d b e g i n t o g i v e t h e b i l l some balance as w e l l . T h e CHAIRMAN. S h o u l d we make a conventional conservation techn o l o g y e l i g i b l e f o r assistance, do y o u t h i n k , o r confine s u p p l y t o new technology ? M r . CANFIELD. I t h i n k unless we m a k e conventional technologies available f o r assistance, we w o n ' t get t h e m developed. T h e f o l l o w i n g example is r a t h e r c o n v e n t i o n a l i n E u r o p e a n d France. E l e c t r i c i t y D e F r a n c e has a t w o - p a r t r a t e s t r u c t u r e f o r its electrical use. So a f t e r 10 o'clock, w h y , people i n l a r g e b u i l d i n g s heat rocks i n t h e i r basem e n t a n d b l o w a i r over t h e m d u r i n g t h e d a y t i m e because t h e y can flatten t h e i r peak loads t h a t w a y . T h e r e is no financial i n f r a s t r u c t u r e i n t h e U n i t e d States t o supp o r t t h i s k i n d o f rate structure. I can assure y o u i f y o u were b u i l d i n g an office b u i l d i n g i n W a s h i n g t o n . D . C . a n d w e n t t o one o f o u r c i t y ' s banks a n d asked f o r a l o a n t o b l o w a i r over h o t rocks, t h e y 145 w o u l d n o t g i v e i t t o you. So I t h i n k we can b e g i n t o do t h i n g s w h i c h l o o k l i k e c o n v e n t i o n a l w i s d o m , b u t i n t h a t conventional w i s d o m are savings available o f 30 or 40 percent. T h e CHAIRMAN. Senator Stevenson ? Senator STEVENSON. M r . Canfield, I agree w i t h t h e C h a i r m a n . I t h i n k y o u are p u t t i n g y o u r finger on m a n y o f t h e most serious defects i n t h i s b i l l . T h a t is n o t to say t h a t t h e n o t i o n o f a l l o c a t i n g o r assuring t h e a l l o c a t i o n o f c a p i t a l t o a h i g h n a t i o n a l p r i o r i t y is i t s e l f inefficient, I d o n ' t t h i n k y o u are s a y i n g t h a t . M r . CANFIELD. I a m n o t s a y i n g t h a t . Senator STEVENSON. L e t me ask y o u a f e w questions about y o u r criticisms, n o t t o be c r i t i c a l o f y o u r criticisms, b u t to t r y t o refine t h e m a l i t t l e w i t h a v i e w t o p e r f e c t i n g t h i s proposal, i f t h a t is possible. T o begin w i t h , I agree w i t h y o u about conservation, a n d t h a t we s h o u l d require a l l projects, i n c l u d i n g conservation, t o be v a l u e d a n d compared according t o t h e i r p r o d u c t i v i t y . B u t i t seems there are other factors at w o r k i n t h e case o f conserv a t i o n . T h e conservation o p p o r t u n i t i e s occur at every stage i n the p r o d u c t i o n , d i s t r i b u t i o n , t r a n s p o r t a t i o n o f every c o m m o d i t y , every service, every h u m a n b e i n g i n t h e L i n k e d States, w h i c h creates capit a l d e l i v e r y difficulties i n the case of conservation t h a t aren't present i n the case o f s u p p l y projects. N o w , accepting t h e general p r o p o s i t i o n t h a t conservation is more p r o d u c t i v e t h a n s u p p l y , h o w w o u l d y o u propose t o deliver the capit a l to a l l o f these conservation o p p o r t u n i t i e s w h i c h exist i n o u r economy? I s t h a t n o t a f a c t o r t h a t somehow has t o be addressed, first i n p r e p a r i n g l e g i s l a t i o n a n d second, i n d e t e r m i n i n g o f investment priority ? M r . CANFIELD. W e l l , i n the first place, y o u are r i g h t , t h a t the conservation o p p o r t u n i t i e s occur over a m u c h broader area, a m u c h more diverse n u m b e r o f o p p o r t u n i t i e s . T h e r e f o r e , f i g u r i n g out the i n f r a s t r u c t u r e necessary t o take advantage o f a l l t h e conservation o p p o r t u n i t i e s is more difficult. W e do, however, have i n s t i t u t i o n s i n t h e society w h i c h can capture some o f t h e b i g g e r conservation t h i n g s . I t h i n k t h a t w h i l e i t w o u l d be u s e f u l t o go a f t e r t h e electric toothbrushes, i t r e a l l y i s n ' t w h a t wTe are a f t e r . T h e r e are f o u r o r five b i g t h i n g s we are a f t e r i n conservation w h i c h y o u c o u l d attack u s i n g e x i s t i n g i n s t i t u t i o n s . Specifically, we have a massive series o f i n s t i t u t i o n s called p u b l i c u t i l i t i e s w h i c h are d o i n g c e r t a i n t h i n g s w h i c h do n o t encourage the conservation o f electrical energy. N o w , u s i n g t h a t i n f r a s t r u c t u r e t o w o r k w i t h homeowners, we c o u l d begin to capture a l o t o f t h e o p p o r t u n i t i e s i n i n s u l a t i o n , i n peak l o a d p r i c i n g , i n questions o f load a n d demand c o n t r o l , beginn i n g t o use heat p u m p s i n residential a n d c o m m e r c i a l applications, t h r o u g h perhaps, f o r example, l o a n guarantees w T hich c o u l d be b i l l e d as p a r t o f t h e actual u t i l i t y b i l l . A n o t h e r area where we c o u l d capture m a j o r savings is t h r o u g h t h e automobile. W e have m a n d a t e d w i t h t h e E n e r g y P o l i c y and Conservation A c t standards o f p e r f o r m a n c e on gasoline mileage on the average f o r t h e A m e r i c a n automobile. I f y o u w a n t e d t o pursue 146 t h a t even f u r t h e r and a l i t t l e harder, there w o u l d be ways b y w h i c h t a x writeoffs, rebates, et cetera, w o u l d be available f o r p u r c h a s i n g smaller cars. I f y o u w o u l d then go i n each segment, l i k e commercial b u i l d i n g , f o r example, heat efficiencies and transfers, y o u c o u l d begin t o find out certain segments o f society where an a p p l i c a t i o n w o u l d be a p p l i cable b r o a d l y . T h a t was the second c r i t e r i a we recommended i n t h i s testimony t h a t the b i l l be amended to include. T h a t is, the legislation should p r e f e r applications w h i c h have broad i m p l i c a t i o n s and n o t n a r r o w ones. I d o n ' t t h i n k i t s h o u l d p r e f e r , f o r example, the b u i l d i n g o f a single nuclear p o w e r p l a n t i n a State i n the M i d w e s t j u s t because t h a t p a r t i c u l a r u t i l i t y c o u l d n ' t get financing f o r t h a t p l a n t . B u t i f i t were t a l k i n g i n terms o f developi n g new technology to capture waste heat, f o r example, the steam t h a t goes u p a f t e r y o u generate electricity, then t h a t k i n d o f t h i n g could be then applicable t o other plants n a t i o n w i d e w h i c h w o u l d be the t y p e o f project t h a t should be preferred. Senator STEVENSON. A r e y o u suggesting then t h a t the s m a l l businesses, the f a r m s , the poor should be excluded f r o m the direct benefits o f t h i s proposal because t o d i s t r i b u t e t h e m b r o a d l y is, however large the energy savings w o u l d be, impracticable ? M r . CANFIELD. I don't t h i n k i t is impracticable. I t h i n k there are ways by w h i c h we could p r o v i d e the opportunities t h r o u g h low-cost or no-interest loans to insulate poor people's homes. Senator STEVENSON. B u t w h a t is the mechanism? A r e y o u suggesting a bank t y p e model, r e l y i n g on the commercial banks t o make the loans t h r o u g h participations, or gurantees f r o m t h i s a u t h o r i t y or what? M r . CANFIELD. A loan f u n d could be set u p i n the hands o f u t i l i ties w h i c h w o u l d make f u n d s available based on an assessment o f the necessity f o r the i n s u l a t i o n i n a given home, a n d i t could be made available t h r o u g h the u t i l i t i e s t o the homeowner o r t o the a p a r t m e n t owner, and t h e n b i l l e d t o t h a t apartment owner or homeowner over the period o f a m o r t i z a t i o n b y t h e u t i l i t y . T h a t a v a i l a b i l i t y o f f u n d s could be i n the f o r m o f a r e v o l v i n g f u n d w h i c h w T ould have income c o m i n g back i n t o i t as the i n s u l a t i o n was repaid. T a x writeoffs are another way. B u t t a x writeoffs oftentimes are n o t enough incentive f o r somebody w h o doesn't have the cash t o go out and do i t . I t h i n k i f we can be i m a g i n a t i v e enough t o figure o u t h o w t o b u i l d $300 m i l l i o n systhetic f u e l plants, we o u g h t t o be i m a g i n a t i v e enough t o figure out how to get the money out t o do conservation type work. Senator STEVENSON. W e l l , we o u g h t t o be, a n d t h a t is w h a t I w a n t t o get at r i g h t now. M r . CANFIELD. B u t I w o u l d t r y t o use these i n s t i t u t i o n s we already have t h a t exist, l i k e the u t i l i t i e s , et cetera. Senator STEVENSON. T h e n t o pursue t h i s basically sound suggestion, w o u l d n ' t such a f o r m u l a as y o u suggest attach the highest investment p r i o r i t y t o development o f o i l i n B r a z i l , Mozambique, elsewhere i n the w o r l d , where i t costs $2 a b a r r e l as opposed t o y o u r h y p o t h e t i c a l $15-$30 a b a r r e l f o r synthetic fuel, or w o u l d y o u exclude diversification o f o u r f o r e i g n o i l sources b y e x c l u d i n g development o f f o r e i g n energy sources ? 147 M r . CANFIELD. W e l l , I guess i t is a d i f f i c u l t one, a n d I haven't t h o u g h t i t t h r o u g h . I w o u l d argue i n essence t h a t i f y o u w a n t t o develop basic domestic capacity a n d reduce the reliance o n i m p o r t e d fuels, t h a t y o u w o u l d exclude those t h i n g s . I f there is i n f a c t $2 o i l i n Venezuela, i t is c o m p e t i t i v e r i g h t n o w a n d doesn't need domestic f i n a n c i a l assistance. Senator STEVENSON. I d o n ' t t h i n k t h a t ' s r i g h t . T h e r e are a l o t o f other noneconomic factors at w o r k i n c l u d i n g p o l i t i c a l factors w h i c h make i t v e r y d i f f i c u l t f o r t h e m u l t i n a t i o n a l s t o even get i n t o some countries. M r . CANFIELD. O h , yes. Senator STEVENSON. A n d there are l i m i t s t o t h e a v a i l a b i l i t y o f technology, c a p i t a l , m a n p o w e r , a n d so on, outside t h e m u l t i n a t i o n a l s . I d o n ' t k n o w i f y o u overheard the t e s t i m o n y yesterday. U n d e r the most o p t i m i s t i c assumptions, i n c l u d i n g an a l l - o u t domestic effort, t h e U n i t e d States w i l l r e m a i n h e a v i l y dependent on f o r e i g n sources. I n another sense I a m s a y i n g w h a t do we mean b y independence; s h o u l d n ' t a n y r a t i o n a l d e f i n i t i o n o f independence i n c l u d e an end t o the " d r a i n A m e r i c a f i r s t " syndrome, face the f a c t w^e are g o i n g t o be dependent a n d t r y t o make t h a t f o r e i g n dependency manageable, i n c l u d i n g t h r o u g h a d i v e r s i f i c a t i o n o f f o r e i g n sources, w h i c h i f t h e y do begin t o produce, w i l l begin t o m i n i m i z e O P E C influence, p u t pressure on t h e O P E C price, w h i c h a l o n g w i t h s u p p l y is a b i g p a r t o f the p r o b l e m we face ? M r . CANFIELD. I a m o f the impression t h a t whatever else we do i n terms o f d i v e r s i f y i n g energy s u p p l y , we have got an a w f u l lot t o do here at home t o i m p r o v e o u r efficiencies. W e d i d i n f a c t address o u r selves t o h o w we m i g h t allocate o u r domestic c a p i t a l t o i n t e r n a l domestic projects t o i m p r o v e o u r "energy independence," however 3tou define t h a t . I k n o w y o u d o n ' t define i t at 60 percent dependent u p o n f o r e i g n sources, et cetera. I f we got ourselves d o w n t o the range where we were s t i l l i m p o r t i n g about 20 percent, say, o f o u r energy f r o m f o r e i g n sources, t h e n I c o u l d say at t h a t p o i n t we m i g h t w a n t t o t a l k about F e d e r a l subsidies i n terms t h a t y o u are describing. B u t u n t i l we can get o u r o w n house i n o r d e r , I guess I w o u l d argue t h a t these o p p o r t u n i t i e s a p p l y t o domestic s u p p l y increasing a n d conservation options, essentially w h a t we were addressing here. B u t we haven't studied t h a t i n detail. Senator STEVENSON. L e t ' s give t h a t some more t h o u g h t . Y e s t e r d a y M r . Z a r b a n d the V i c e President t o o k the same posit i o n , b u t a f t e r r a i s i n g w i t h t h e m the question o f h o w we finance the d e l i v e r y o f gas f r o m A l a s k a , i n c l u d i n g t h e p o s s i b i l i t y o f b r i n g i n g d o w n C a n a d i a n resources, gas a n d o i l , w i t h t h e v i e w n o t o n l y t o t r a n s p o r t i n g A m e r i c a n gas t o A m e r i c a across Canada, b u t also t o increasing C a n a d i a n supplies a n d t h e i r exports o f o i l a n d gas t o t h e U n i t e d States, t h e y said, " W e l l , we d o n ' t need t o exclude financing o f pipelines t o f o r e i g n countries." D o you? M r . CANFIELD. I d i d n ' t mean t o include i t . I h a d n ' t t h o u g h t about i t . T h e honest answer is we d i d n ' t mean t o i n c l u d e i t . W e were t a l k i n g about a l l o f these domestic o p p o r t u n i t i e s w h e n we evaluated t h i s , a n d I t h i n k we o u g h t t o go back a n d reassess i t . I must say that 148 Senator STEVENSON. E v e n t h e proponents o f t h a t p a r t i c u l a r p r o j ect concede t h a t there is n o t sufficient financing available i n t h e p r i vate markets. T h a t one p r o j e c t is a $10 b i l l i o n project. M r . CANFIELD. T h a t ' s r i g h t . W e are d o i n g some a d d i t i o n a l a n a l y sis, i n c i d e n t a l l y , o f t h a t f o r t h e Senate Commerce a n d I n t e r i o r C o m m i t t e e s — b u t we haven't completed t h a t w o r k . Senator STEVENSON. I t h i n k any f u r t h e r t h o u g h t s o n those questions w o u l d be v e r y h e l p f u l t o us. J u s t one more. T h e a d m i n i s t r a t i o n proposal, as I u n d e r s t a n d i t , is i n t e n d e d t o make financing available t o t h e p r i v a t e sector t o t h e exclusion o f a n y agency i n t h e p u b l i c sector, w h i c h is one question. I s t h a t wise ? A n d , t w o , should we make financing available f o r p r o j e c t s w h i c h have a m i x e d purpose ? F o r example, consider a n advanced m u n i c i p a l waste t r e a t m e n t f a c i l i t y : first o f a l l , i t is i n t h e p u b l i c sector; secondly, i t is p r o d u c i n g a source o f e n e r g y ; t h i r d , i t is r e c o v e r i n g other resources, steel, a l u m i n i m , as w e l l as d i s p o s i n g o f s o l i d wastes. Such f a c i l i t i e s , u s i n g technology already i n existence, can economically accomplish m u l t i p l e purposes, o n l y one o f w h i c h is t h e p r o d u c t i o n o f energy. T h e y are n o t b e i n g p u t i n place across t h e c o u n t r y f o r l a c k o f c a p i t a l . S h o u l d c a p i t a l be made available t h r o u g h t h i s mechanism t o t h e p u b l i c as w e l l as t o the p r i v a t e sector, f o r such m i x e d projects? A i r . CANFIELD. B o t h o f those are m a j o r questions i n t h i s s t u d y w e n o w have u n d e r w a y , p a r t i c u l a r l y t h e p u b l i c — p r i v a t e one. A n d t h e o p t i o n s t h a t are available, other t h a n p r i v a t i z a t i o n o p t i o n s , t h a t is, g o v e r n m e n t financing, g o v e r n m e n t s u p p o r t , g o v e r n m e n t c o r p o r a tions, et cetera, t h a t is t h e analysis we are j u s t n o w g e t t i n g u n d e r w a y . T h a t is w h a t we d i d n ' t have t i m e t o do i n t h e s t u d y w e issued i n March. L e t me say s i m p l y at t h i s p o i n t t h a t those v e r y questions are p r e cisely w h a t we are addressing. T h e question o f m i x e d purpose p r o j ects, i n o r d e r t o be consistent w i t h t h e s t a n d a r d I was a r g u i n g f o r e a r l i e r , c o u l d be e l i g i b l e f o r f u n d i n g i f t h e energy efficiency o f t h a t p r o j e c t were better t h a n other alternatives. Senator STEVENSON. Yes, b u t i n m y example, t h e energy p r o d u c t i o n m i g h t be v e r y l o w . B u t i f y o u t o o k a n o v e r a l l l o o k at i t , a n d i n c l u d e d t h e value, a l u m i n u m , steel, a n d so on, t h e v a l u e o f t h a t m u n i c i p a l i t y disposing o f waste, i t m i g h t be t h e most p r o d u c t i v e o n a cost-benefit basis. M r . CANFIELD. I agree. Y o u m i g h t — I guess I w o u l d a r g u e f o r t a k i n g a special look at those k i n d s o f t h i n g s , p a r t i c u l a r l y as i t goes t o m u n i c i p a l waste recovery. I d o n ' t t h i n k I w o u l d necessarily w a n t t o t h r o w i t i n t o t h i s k i n d o f legislation. B u t t h e l e g i s l a t i o n y o u are describing, where t h e net i m p a c t is positive, is s o m e t h i n g t h e count r y o u g h t t o be l o o k i n g at v e r y h a r d . I w o u l d n o t argue t h a t i t s h o u l d be p a r t o f t h i s p a r t i c u l a r legislat i o n . W e can take a f u r t h e r l o o k at t h a t , i f y o u w o u l d l i k e , as p a r t of this study. Senator STEVENSON. W o u l d y o u ? I t h i n k i t w o u l d be v e r y h e l p f u l . I d o n ' t t h i n k we w a n t t o set u p a new financing agency f o r every k i n d o f p r o j e c t t h a t comes d o w n t h e pike. 149 M r . CANFIELD. W e w i l l e x p l i c i t l y l o o k at t h a t . Senator STEVENSON. YOU m i g h t look at t h e role o f t h e banks. T h e E x i m b a n k already has made some f i n a n c i n g available t o f o r e i g n countries f o r the development o f energy a n d energy research, most n o t a b l y nuclear reactors. B u t n o t v e r y l o n g ago, w h e n t h e a d m i n i s t r a t i o n was p r o p o s i n g t o make + 6 E x i m b a n k a m a j o r vehicle f o r the f i n a n c i n g o f energy f o r the Societ U n i o n , we raised serious concern. W h a t w o u l d the role o f + 6 E x i m b a n k vis-a-vis t h i s agency be i f the l a t t e r were created a n d gets i n t o development abroad ? T h a t is a l l I have t i m e f o r at the moment. M r . CANFIELD. M r . C h a i r m a n , one figure y o u m i g h t f i n d interesti n g , r e f e r r i n g t o t h e earlier question o f c a p i t a l a v a i l a b i l i t y , et cetera, was analyzed as p a r t o f the F o r d F o u n d a t i o n r e p o r t . W e analyzed w h a t these conservation options w o u l d cost t o be implemented, i f we i m p l e m e n t e d t h e m s t a r t i n g i n 1975 t h r o u g h t h e year 2000. W e compared t h a t w i t h w h a t i t w o u l d cost t o s u p p l y t h e h i g h e r demand o f a s u p p l y - o r i e n t e d scenario. T h e figures are m i n d b o g g l i n g i n either case, b u t t h e s u p p l y increasing scenario estimate, based on 1973 dollars, was $1,750 b i l l i o n . T h e figure f o r t h e conservation options was $1,450 b i l l i o n ; thus, a savings," available f o r use i n other sectors o f t h e economy o f $300 b i l l i o n b y g o i n g the conservation route. A l o t o f people t e n d t o t h i n k conservation costs more, b u t t h e analysis we d i d t h e n indicates i t costs considerably less. T h e CHAIRMAN. L e t me ask y o u about one other area t h a t hasn't been discussed. T h o a d m i n i s t r a t i o n proposes t o establish t h i s colossal a u t h o r i t y w i t h $100 b i l l i o n outside the budget. Y o u expressed some reservations i n y o u r statement about c r e a t i n g a p p r o p r i a t i o n s n o t subject t o t h e a p p r o p r i a t i o n s process. W h a t do y o u t h i n k w i l l be t h e consequences o f k e e p i n g t h i s E I A off the budget? M r . CANFIELD. DO y o u mean " W h y w o u l d t h e y w a n t t o do i t off the b u d g e t ? " T h e CHAIRMAN. NO ; w h a t w o u l d be the consequences o f i t ? F o r example, does p u t t i n g t h i s agency o r a n y agency off budget h a m p e r G A O ' s a b i l i t y t o a u d i t i t s activities a n d m a k e recommendations t o Congress ? M r . CANFIELD. I t h i n k y o u w o u l d w r i t e i n the l e g i s l a t i o n a l l the necessary requisites t o a l l o w us t o do t h e k i n d o f a u d i t i n g t h a t we t r a d i t i o n a l l y do. W e are more concerned about w h a t i t w o u l d do t o you, t o the Senate a n d the a b i l i t y o f t h e Senate a n d t h e House t o oversee t h e activities. I t has t o make q u a r t e r l y r e p o r t s a n d a n a n n u a l r e p o r t , et cetera; b u t y o u j u s t d o n ' t have t h e k i n d o f c o n t r o l over operations o f t h a t n a t u r e T h e CHAIRMAN. W h a t bothers me, i f we h a d a c a p i t a l budget w h i c h I have f a v o r e d f o r a l o n g , l o n g t i m e , t h a t w o u l d be one t h i n g . W e d o n ' t have i t , n u m b e r one. N u m b e r t w o , t h i s isn't s i m p l y a l o a n p r o g r a m . I t is a stock investment p r o g r a m , i t is a p r i c e - s u p p o r t p r o g r a m , a p r o g r a m t h a t w i l l result i n t h e e x p e n d i t u r e o f a l o t o f resources. I d o n ' t see w h y we s h o u l d n ' t have a l l these p r o g r a m s compete i n t h e budget. I f y o u leave i t out o f t h e budget, y o u d o n ' t do t h a t . 150 H o w about the size of this a u t h o r i t y ? I s $100 b i l l i o n more t h a n is necessary ? Should i t be bigger ? Should i t be smaller ? M r . CANFIELD. I have no idea. W e have struggled w i t h t h a t ourselves f o r several months since the proposal first came out. W e wrote a d e l i g h t f u l sentence i n our comments which, i n essence, says i t could be bigger or l i t t l e r . I t was a real waffle. I t was about the best we could do. T h e CHAIRMAN. I t seems the least the Congress can do is determine how much i t ought to be. Should i t be 10, 50,100, 200? M r . CANFIELD. I t is f a r less t h a n the t o t a l amount needed. B u t i f you t h i n k of i t i n terms of getting leverage and g e t t i n g certain processes m o v i n g and developing the first steps of an infrastructure T h e CHAIRMAN. W e need more capital, but this isn't t o provide a l l the capital y o u need. T h i s is presumably to b r i n g on those energyproducing and saving activities t h a t couldn't be brought on t h r o u g h the free market. M r . CANFIELD. W e can look i n t o i t and t r y t o estimate. W h e n y o u start a d d i n g up a l l of the actvity you are t a l k i n g about, people blithely t h r o w around figures of T h e CHAIRMAN. Whatever you give us w i l l be very h e l p f u l . One other question: O n balance, do you support the b i l l or not ? Does the G A O take a position ? M r . CANFIELD. The G A O has not taken a specific position on the b i l l . W e are not against this type of legislation. W e t h i n k t h a t this t y p e of legislation, modified as we talked about i t , is better t h a n no legislation i n the area. W e t h i n k financial assistance f o r these kinds of things is necessary, i n c l u d i n g f o r the supply increases, so we are not against the b i l l . W e t h i n k t h a t the b i l l , a modified b i l l , w o u l d be useful. The CHAIRMAN. Senator Stevenson ? Senator STEVENSON. T h a n k you, M r . Chairman. Just one f u r t h e r thought, which, i f i t hasn't already been addressed, perhaps i t should be. Instead of p u t t i n g a l l the risks to the taxpayers as this measure proposes, and a l l the opportunities f o r profit on the industries, have you given any consideration t o equity p a r t i c i p a t i o n by this entity i n the projects i t finances ? I f not, shouldn't that also be considered ? M r . CANFIELD. W e have not. W e w i l l add t h a t t o the section of our study on financial options. Senator STEVENSON. T h a n k you. T h e CHAIRMAN. I t is m y understanding t h a t this does provide 25 percent which w i l l be or can be equity. M r . CANFIELD. That's r i g h t . I f you have additional suggestions t h a t you w o u l d like to make to us of items to consider i n this second study, i t is just getting started, and we would be happy t o receive them. M r . Sprague's office w i l l receive those suggestions. T h e CHAIRMAN. T h a n k you very much. Senator STEVENSON. M r . Chairman, I am not sure I heard w h a t you said. I t h i n k the financing of the energy authority can be p a r t l y 151 through equity, but I was not suggesting that. I was suggesting that consideration be given to E I A ' s financing. The CHAIRMAN. T h a t is provided, too. There are 2, number one, energy authority is 25 percent equity. Number two, they are allowed to buy equity securities to make loans. A t least that was the way we have looked at it. I have had the staff go over i t pretty carefully. I am pretty sure that is true. A l l right. Thank vou very much, M r . Canfield, f o r a fine presentation. I t is one of tne best the G A O has given us and that is a fine agency. Our next witness is M r . Andrew J. Biemiller, director of Department of Legislation, A F L - C I O . STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION, AFL-CIO; ACCOMPANIED BY FRANK POLLARA AND RAY DENNISON M r . BIEMILLER. Good morning. The CHAIRMAN. M r . Biemiller, you have a brief, concise, to the point statement. Go r i g h t ahead. M r . BIEMILLER. Thank you, M r . Chairman. I n addition to our statement, I would like to submit f o r the record a copy of a speech by secretary-treasurer Lane K i r k l a n d of the A F L - C I O , a statement of the A F L - C I O executive council on the Energy Independence A u t h o r i t y , and a copy of our convention resol u t i o n dealing w i t h the whole question of energy. The CHAIRMAN. V e r y good. We are very happy to have that. [Copy of the speech follows:] TEXT OF A SPEECH B Y A F L - C I O SECRETARY-TREASURER L A N E K I R K L A N D I N D U S T R I A L U N I O N D E P A R T M E N T CONFERENCE ON E N E R G Y TO THE I t m a y be h a r d t o believe, b u t t w o years a n d five m o n t h s a f t e r t h e A r a b o i l embargo, A m e r i c a s t i l l does n o t have a n energy policy w o r t h y o f t h e name. T h e n a t i o n is n o w even m o r e dependent o n f o r e i g n sources of o i l t h a n i t was p r i o r t o the o i l embargo. R e s p o n s i b i l i t y f o r i n c r e d i b l e s i t u a t i o n rests w i t h t h e P r e s i d e n t a n d Congress alike. B o t h have placed p a r t i s a n p o l i t i c a l considerations above t h e n a t i o n a l interest. B o t h have d e t e r m i n e d t o m a k e p o l i t i c a l c a p i t a l o u t o f each others delinquency. Domestic p r o d u c t i o n of o i l has declined steadily over the l a s t several years. A t the same t i m e , A m e r i c a n dependence on f o r e i g n sources has been increasing. I m p o r t s o f p e t r o l e u m products h a v e been a v e r a g i n g over 7 m i l l i o n b a r r e l s of o i l per d a y — a b o u t 40 percent of the n a t i o n ' s o i l consumption—compared t o u n d e r (> m i l l i o n barrels before the embargo. Most of t h a t increase i n i m p o r t s has come f r o m A r a b countries f r o m w h o m t h e U n i t e d States i m p o r t s 1.7 m i l l i o n barrels d a i l y , n e a r l y double t h e 900,000 b a r r e l s p r i o r t o the embargo. T h e gasoline lines have disappeared, b u t t h e t h r e a t of a n A r a b o i l embargo hangs l i k e a n a x over the A m e r i c a n economy. A n o t h e r cutoff b y t h e A r a b count r i e s w o u l d h a v e a d e v a s t a t i n g effect. E v e n w i t h o u t a cutoff, the n a t i o n labors u n d e r the c o n t i n u i n g t h r e a t of f u r t h e r o i l p r i c e increases. T h e fivefold increase i n o i l prices since the A r a b o i l embargo w a s a m a j o r f a c t o r i n the double-digit i n f l a t i o n of last year a n d the severe recession t h a t s t i l l g r i p s the n a t i o n . A m e r i c a cannot c o n t i n u e t o l i v e under t h i s d u a l t h r e a t . A m e r i c a m u s t m a k e clear t h a t i t w i l l n o t tolerate o i l b l a c k m a i l . T h i s is not a w e a k n a t i o n . I t has t h e 152 economic strength to s t r i k e back against nations threatening America w i t h an oil embargo. Blackmailers must not be allowed t o threaten the economy of the Free W o r l d w i t h i m p u n i t y . Embargoes should be met w i t h economic countermeasures. No item, i n c l u d i n g m i l i t a r y equipment as w e l l as a g r i c u l t u r a l a n d i n d u s t r i a l commodities, should be shipped to such countries. T h e i r assets i n t h i s country should be frozen. A l l technical assistance should be w i t h d r a w n . T h e U n i t e d States government should t r e a t an o i l embargo as economic w a r f a r e a n d r e t a l i a t e w i t h a l l the economic weapons at i t s command. I f t h i s n a t i o n is t o achieve energy independence i t is essential t h a t stringent and mandatory conservation measures be adopted. Every gallon of o i l saved and every 1,000 cubic feet of n a t u r a l gas saved means t h a t much more oil and n a t u r a l gas f o r economic g r o w t h and j o b creation. As we understand conservation, i t does not mean a change i n l i f e style. I t does not mean a n abandonment of the q u a l i t y of American life. Consumers i n Denm a r k , Switzerland and West G e r m a n y — a l l countries t h a t have l i v i n g standards comparable to the U n i t e d States—use less t h a n one-half as much energy per person as American consumers. Energy consumption per person i n the U n i t e d States is the equivalent of 2,520 gallons of o i l compared w i t h 1,092 gallons i n D e n m a r k , 714 gallons i n Switzerland, and 1,092 gallons i n West Germany. Conservation does not mean t h a t Americans must stop d r i v i n g t h e i r cars. I t means d r i v i n g cars t h a t w i l l get 28 miles per gallon of gas instead of 14 miles per gallon. Conservation does not mean cold, d r a f t y , uncomfortable houses. I t means w a r m , comfortable, f u l l y insulated and energy efficient homes t h a t consume mini m u m quantities of energy. N o r does conservation mean no growth. W e hold no b r i e f f o r those who are pushing conversation as a p a r t of a no-growth philosophy. G r o w t h i n the economy and conservation of energy can—and must—go hand i n hand. The F o r d Foundation, i n i t s report on energy, states t h a t the " U n i t e d States can grow and prosper and have plenty of jobs and s t i l l conserve energy." However, conservation alone w i l l not solve the energy crisis. I t j u s t cannot be done. W h i l e conservation measures are indispensable i n the effort t o achieve energy independence, i t is j u s t as indispensable to increase the nation's supplies of energy. No single source of energy represents the u l t i m a t e fuel. A l l sources of energy must be developed. However, i t is clear t h a t even w i t h the most intensive exp l o r a t i o n and development efforts, domestic sources of o i l and gas are declining. I t is urgent t h a t steps be taken tu convert i n d u s t r i a l and power plants t h a t now use gas and o i l to alternative sources of energy. A t the same time newly-constructed i n d u s t r i a l and power plants should be required to operate on fuels other t h a n o i l or gas. Of the alternative fuels, coal and nuclear are the ones w h i c h the n a t i o n a l must rely on i n the immediate f u t u r e . America must also direct its efforts to such sources of energy as solar, geothermal, shale oil, coal liquefaction and gasification. Development of these energy sources w i l l neither be cheap or occur overnight. Nuclear energy is the target of a well-organized d r i v e to ban its use. The basis of t h a t campaign is t h a t nuclear energy is not safe. We do not agree w i t h t h a t assessment. I n the more t h a n 20 years t h a t nuclear energy has been i n use there has been not one death due to r a d i a t i o n effects. The record of safety i n the nuclear i n d u s t r y is among the best i n i n d u s t r y . The occupational safety record of the nuclear i n d u s t r y stands out when compared w i t h competing energy industries. I n a government survey of the mining, processing and transportation of coal and nuclear energy, there were ten times more deaths i n coal and almost ten times more workdays lost. I n this century, more t h a n 100,000 miners have lost t h e i r lives digging coal out of the ground. T h a t same government survey showed a better occupational safety record f o r the nuclear compared w i t h the o i l industry. There were 60 percent more deaths i n the o i l i n d u s t r y and almost twice as many workdays lost. I n addition, transportation of o i l across t h e ocean and offshore o i l d r i l l i n g pose a t h r e a t to the environment and marine life. I n recent years the wreckage of the T o r r e y Canyon i n the English Channel and the A r r o w off the coast of Nova Scotia, as w e l l as the o i l spill at Santa Barbara, a l l d i d great damage. The point is not t h a t we should stop shipping o i l i n tankers or discontinue offshore d r i l l i n g , 153 b u t t h a t other sources of energy have t h e i r risks, a n d there is no w h o l l y safe and environmentally pure alternative. B u t the safety record of the nuclear i n d u s t r y is no guarantee f o r the f u t u r e . T h a t is w h y w e i n s i s t t h a t safety standards m u s t be the most s t r i n g e n t , the most u n c o m p r o m i s i n g f o r any i n d u s r y . T h e r e can never be a t o t a l guarantee against accidents. W e i n t h e l a b o r movement have been i n the f o r e f r o n t of the b a t t l e to establish t h e most r i g i d safety a n d h e a l t h standards to protect the w o r k e r s of A m e r i c a . A n d w e serve notice t o t h e nuclear i n d u s t r y , t h a t we i n t e n d to see to i t t h a t t h e most r i g i d safety r e g u l a t i o n s continue to be applied t o the nuclear energy i n d u s t r y so t h a t t h e p o s s i b i l i t y of accidents w i l l be minimzed. A m e r c a n cannot a f f o r d t o m a r k t i m e i n g r a p p l i n g w i t h the energy problem. I n order to p r o t e c t o u r n a t i o n a l i n t e r e s t a n d promote the economic h e a l t h and p r o s p e r i t y of t h i s c o u n t r y , i m m e d i a t e steps m u s t be t a k e n t o assure the c o u n t r y a n adequate supply o f energy w i t h o u t dependence on insecure f o r e i g n sources. I t is f o r t h a t reason t h a t the A F L - C I O s t r o n g l y supports the concept of a 100 b i l l i o n d o l l a r E n e g r y Independence A u t h o r i t y as proposed by Vice-President Rockefeller. A s w e see i t , t h a t A u t h o r i t y w o u l d help establish energy independence f o r the U n i t e d States t h r o u g h d i r e c t loans, l o a n guarantees, a n d other f i n a n c i a l assistance to p r i v a t e i n d u s t r y a n d public bodies. That Authority would: 1. P r o v i d e f i n a n c i a l assistance f o r the whole g a m u t of energy technologies, i n c l u d i n g the c o n s t r u c t i o n of new plants. 2. P r o v i d e f i n a n c i a l assistance t o convert power p l a n t s t h a t use o i l or gas to a l t e r n a t i v e sources of energy. 3. P r o v i d e f i n a n c i a l assistance t o projects to conserve energy usage i n c l u d i n g c o n s t r u c t i o n of energy efficient b u i l d i n g s a n d r e t r o - f i t t i n g old ones. 4. Engage d i r e c t l y i n t h e p r o d u c t i o n a n d d i s t r i b u t i o n of energy whenever the n a t i o n a l i n t e r e s t calls f o r i t a n d p r i v a t e i n d u s t r y is u n w i l l n g or unable to do so. A m e r i c a cannot s t a n d i d l y by l e a v i n g i t s well-being i n the hands of undependable, irresponsible f o r e i g n sources. A n o t h e r o i l embargo m a y never come or i t m a y come n e x t week o r n e x t m o n t h or n e x t year. O i l prices m a y r e m a i n stable or t h e y m a y s k y r o c k e t three, f o u r or five times the present level due to actions b y t h e A r a b countries. E i t h e r a n o t h e r o i l embargo o r s k y r o c k e t i n g o i l price w i l l h a v e a d e v a s t a t i n g effect on t h e A m e r i c a n as w e l l as t h e w o r l d economy. W e believe A m e r i c a can a n d m u s t a n d w i l l make the h a r d decisions f o r the future. W e m u s t not be coerced b y N e a n d e r t h a l s o r blackmailers. A n d w e i n s i s t t h a t o u r government t a k e t h e l e a d i n developing a n energy policy w o r t h y of the name—a policy w h i c h w i l l i n s u r e energy independence a n d a h e a l t h y A m e r i c a f o r t h e generations t o come. M r . BIEMILLER. T h a n k y o u . W e have t r i e d t o f o l l o w your instructions and have a brief summary, and I am accompanied by M r . F r a n k Pollara, who is an assistant to President Meany and secretary of our standing committee on energy, and M r . Ray Dennison, one of our legislative agents, who sort of monitors this committee a bit, as you w i l l recall. M r . Chairman, the A F L - C I O urges the establishment of an Energy Independence A u t h o r i t y , capitalized at $100 billion, t o help establish energy independence f o r the U n i t e d States t h r o u g h direct loans, loan guarantees, price guarantees and other financial assistance to private industry and public bodies unable to secure private capital. The U n i t e d States is increasingly dependent on the importation of o i l f r o m insecure foreign sources. A s long as t h a t dependence continues, so l o n g w i l l there be an energy problem. F o r the first time i n history, foreign o i l imports recently exceeded domestic production. I t is this situation that makes the Nation today even more vulnerable t h a n i n 1973 to an A r a b o i l embargo. Because gasoline lines have disappeared, the nation should not delude itself i n t o believing t h a t the energy crisis is over. America 154 must not w a i t f o r another o i l embargo before coming to g r i p s w i t h this problem. There is no simple solution. There is no instant panacea. Rather, w h a t is required is a massive commitment to explore and develop a l l avenues o± approach t h a t w o u l d lead t o energy conservation and increases i n domestic supplies. A s a first step, i t is essential t h a t the nation embark on a stringent and mandatory conservation program. Such a p r o g r a m w o u l d call f o r the production of energy-efficient automobiles, the construction and r e t r o - f i t t i n g of buildings of m a x i m u m energy efficiency the development of mass transit systems, the production o f gas and electric appliances t h a t use considerably less quantities of energy t h a n our current appliances, and other energy conservation measures. T h e k i n d of conservation t h a t we are t a l k i n g about does not mean an abandonment o f the American way of life. Conservation, as we understand i t , goes hand-in-hand w i t h economic g r o w t h , f u l l employment, and a prosperous economy. Conservation measures are indispensable. B u t by themselves, they w i l l not solve the energy crisis. I t is j u s t as essential to increase the Nation's supply of energy. There is no one source o f energy t h a t represents the u l t i m a t e solut i o n t o the Nation's energy deficiency. T h e choice is not between coal or nuclear or solar power. A l l sources of energy—coal, nuclear, oil, gas, solar, geothermal, shale oil, coal liquefaction and gasification— must be promoted. Nevertheless, i t should be understood t h a t f o r the near t e r m coal and nuclear power represent the nation's best hope. However, i t is clear t h a t even w i t h the most intensive exploration and development efforts, domestic sources of o i l and gas—the standbys of the past—are declining. Therefore, we w o u l d urge t h a t newly constructed i n d u s t r i a l and power plants be required t o operate on fuels other than o i l or gas and t h a t steps be taken t o convert plants now using gas and o i l to alternative sources of energy. W e are persuaded t h a t private industry, l e f t to itself, cannot and w i l l not resolve the energy crisis. I t is urgent t h a t the government directly involve itself i n this matter so v i t a l to the national interest. America cannot afford to m a r k time. The k i n d of authority t h a t we envision w o u l d : (1) Provide financial assistance f o r the whole gamut of energy technologies, i n c l u d i n g the construction of new plants. (2) Provide financial assistance t o convert power plants t h a t use o i l or gas to alternative sources of energy. (3) Provide financial assistance to projects to conserve energy usage, i n c l u d i n g construction of energy efficient buildings and retrof i t t i n g old ones. (4) Engage directly i n the production and d i s t r i b u t i o n of energy whenever the national interest calls f o r i t and p r i v a t e i n d u s t r y is u n w i l l i n g or unable t o do so. T h e CHAIRMAN. T h a n k you very much, M r . Biemiller. M r . Biemiller, is there any opposition t o this position i n the A F L C I O ? I s i t p r e t t y much unanimous, general consensus? M r . BIEMILLER. T o the best of m y knowledge, i t is a general consensus. I t certainly is among the members of the executive council 155 who, as I say, adopted a resolution t h a t I am submitting f o r the record. The C H A I R M A N . N O other unions have taken a contrary position to the A F L - C I O ? M r . BIEMILLER. None t h a t I am aware of, and I am sure we would have heard about i t i f they had. The C H A I R M A N . Y O U say, " W e are persuaded t h a t private industry, l e f t to itself, cannot and w i l l not resolve the energy crisis." Now, a study published earlier this year by Bankers T r u s t using assumptions t h a t seemed f a i r l y logical—at least they were the same assumptions as Vice President Rockefeller and F r a n k Zarb used— came to the conclusion t h a t over $900 b i l l i o n w o u l d be needed to achieve energy independence by 1985, and t h a t private capital markets could provide t h a t and would provide that. Furthermore, a study by Dusenbury and Bosworth, t w o very competent economists, as you know, came t o the same conclusion. They said i t would be close, but, i n their view, there would be enough funds i n the private sector to finance this operation i n the market place. W h a t is your response to that ? M r . BIEMILLER. I t h i n k i t is quite possible t h a t the funds could be raised, but we haven't shown any willingness on the p a r t on industry to proceed i n the direction that we t h i n k they ought t o be proceeding. W e know that, f o r example, on the gasification of coal, they are waiti n g f o r the type of assistance that is contemplated by the Energy Independence A u t h o r i t y . T h i s w o u l d be a price situation. Y o u were correctly p o i n t i n g out i n the previous colloquy t h a t the Energy Independence A u t h o r i t y w o u l d provide various kinds of financing and also price sustenance money. I do not t h i n k that you are going to get private industry i n this country t o do the j o b that, i n our opinion, needs to be done, unless i t is spurred on by the Government. The CHAIRMAN. Yesterday, we had testimony by B a r r y Commoner, a very eminent environmentalist, and a h i g h l y competent man, who argued t h a t this would be counterproductive, because i t w o u l d tend to encourage technologies t h a t are inefficient, b r i n g i n higher-priced fuel. H e argued i t w o u l d raise the price of fuel and that the disposition of this k i n d of an authority would be t o f u n d coal and shale and would ignore solar energy, which he feels is by f a r the most promising but doesn't have a vested interest push. W h a t w o u l d be your response to t h a t criticism ? M r . BIEMILLER. I don't see w h y solar energy w o u l d be ignored by an Energy Independence A u t h o r i t y . W e have made i t quite clear that we t h i n k a l l approaches to increasing our energy supply should be developed and utilized. The immediate prospects, though, f o r solar energy, i n our opinion, are not great. W e t h i n k that solar energy can be developed; i t is going to take some experimentation beyond the current state of t h a t technology. A s you know, there are numerous small projects underway, but there are no b i g projects underway at the moment i n the solar energy field. Just as, unfortunately, there are not i n coal gasification or anyt h i n g else. 71-787—-76 11 156 The C H A I R M A N . Y O U say very l i t t l e i n y o u r statement—of course, i t is a concise statement. I understand w h y you had t o be careful about g e t t i n g i n t o fields t h a t y o u d i d n t feel were absolutely essent i a l . B u t you say very l i t t l e about jobs, the effect o f t h i s on jobs. T h e Vice President argues t h a t this would increase the number o f jobs by 1.2 or 1.3 m i l l i o n , a figure w h i c h d i d n ' t seem t o me very logical. W e d i d n ' t challenge h i m on i t , because there were so m a n y other things t o discuss. B u t one o f your central concerns is jobs. Y o u and y o u r organization have f o u g h t very h a r d t o reduce unemployment, provide more w o r k . W h a t , i n y o u r view, would be the effect o f this on employment i n the country ? M r . BIEMILLER. W e t h i n k i t is absolutely essential i f we are t o m a i n t a i n any k i n d of a f u l l employment economy i n this country. I don't have to remind you or anyone else w h o serves on this committee t h a t we are below the t r o u g h o f a l l postwar depressions at the moment. I n our opinion, current unemployment is actually over 10 m i l l i o n and not the figure t h a t the Government is using. W e cannot get those jobs w i t h o u t sufficient energy, and t h i s is w h a t our concern is. T h e CHAIRMAN. B u t as f a r as the direct effect is concerned, many facilities w o u l d be located i n remote areas, Canadian permafrost, Colorado mountains. Y o u feel the p r i n c i p a l effect of this i n b r i n g i n g employment i n the center cities, f o r example, w o u l d be i n m a k i n g energy more abundant and at a more reasonable price ? M r . BIEMILLER. There w o u l d be, of course, some jobs created i n the construction of plants and energy lines and the like. A n d i n a shale project, f o r example. B u t the m a i n t h i n g is, we want a source of energy available. W e see real problems. Y o u are aware, I am sure, t h a t the consumption o f energy, w h i l e i n the last couple of years hasn't been j u m p i n g , was j u m p i n g at tremendous strides i n this country. W e t h i n k i f we are going to make use of the 25 percent of current indust r i a l facilities t h a t are not utilized at all, t h a t we are g o i n g to have t o have more energy i n this country. T h e CHAIRMAN. I t is good to see you come down as h a r d as you d i d on conservation, too. T h a t was most constructive and h e l p f u l . Senator Stevenson? Senator STEVENSON. M r . B i e m i l l e r , does the A F L - C I O support this b i l l , or is i t the concept of assuring adequate capital f o r the conservation and production of energy t h a t the A F L - C I O supports? M r . BIEMILLER. The concept, and we t h i n k the b i l l is a f r a m e w o r k w i t h some of the suggestions we have made. One o f them, I believe, is a suggestion t h a t you have been w o r k i n g on f o r some time, Senator, and t h a t is to get a T V A - t y p e demonstration g o i n g i n the area. W e w o u l d feel very strongly t h a t t h a t t y p e of t h i n g should be added t o the b i l l . Senator STEVENSON. W e l l , they w o u l d complement themselves, this could become a p a r t i a l mean& of financing. T h e corporation I propose, t h a t corporation could become the best vehicle f o r the diver- 157 sification of foreign sources which, as you know, is also very important. B u t I do not t h i n k M r . Commoner, either, was quarreling w i t h the concept. H e was quarreling w i t h the priorities which he feared this particular b i l l , the E I A , would produce. B u t the b i l l , w i t h i n this framework, can be rewritten. The E I A could be given some guidelines and some productivity standards to produce different priorities. The Chairman asked i f there was opposition; I am not aware of much opposition, either by labor or others, to the concept of assuring adequate capital to develop new conservation efforts and energy sources. Thank you, M r . Chairman. The CHAIRMAN. Thank you very, very much, M r . Biemiller. I t was a helpful presentation. M r . BIEMILLER. Thank you, M r . Chairman. The CHAIRMAN. O u r final four witnesses I am going to ask to come f o r t h together as a panel. M r . Russell Cameron, chairman of the board, Cameron Engineers, Denver, Colo. M r . John Simpson, chairman of the Atomic I n d u s t r i a l Forum, Pittsburgh, Pa. M r . Joe Browder, Environmental Policy Center, Washington, D.C. M r . Joseph Curry, Consumer Power, Jacksonville, Fla. STATEMENT OF RUSSELL J. CAMERON, CHAIRMAN OF THE BOARD, CAMERON ENGINEERS, DENVER, COLO. M r . CAMERON. Good morning. The C H A I R M A N . Y O U gentlemen come to us w i t h extraordinary backgrounds i n the energy area. W e are happy to have you here to give us advice on what would be an enormously b i g commitment by the Congress. M r . Cameron, w i l l you begin ? M r . CAMERON. T h a n k you, M r . Chairman. I regret that, due to a mixup i n communications, I didn't receive information and background data on the E I A u n t i l too late to prepare w r i t t e n testimony. B u t I w i l l be glad to submit testimony f o r your record. The CHAIRMAN. V e r y good. Incidentally, I should have said we would appreciate i t i f the four of you gentlemen could confine your remarks as much as possible to 5 or 7 minutes, something like t h a t ; abbreviate your testimony i f you can, so we w i l l have some time f o r questions. Go r i g h t ahead, sir. M r . CAMERON. I might take a couple of words, i f you don't mind, since Cameron Engineers is not a household word, to tell you that our f i r m is one of the pioneers i n synthetic fuels technology. W e have been advisers to both industry and government f o r the past 20-odd years. I have participated myself i n synthetic fuels development through service at the U.S. Bureau of Mines oil shale project at Rifle, Colo, since the late 1940's and got involved i n energy matters here i n Washington i n 1974, when I came i n as a special adviser to M r . Simon and 158 M r . S a w h i l l , i n considering the concept o f Project Independence and helping t o establish the framework w i t h i n the F E O f o r such a program. Synthetic fuels is the area t o w h i c h I w o u l d l i k e t o direct y o u r attention. O u r definition of "synthetic fuels" is o i l and gas produced f r o m coal, o i l shale, o i l sands, and recently f r o m organic wastes. W i t h o u t getting i n t o a l o t o f history, I t h i n k i t m i g h t be useful t o note t h a t we are not t a l k i n g about new technology t o produce synthetic fuels i n so much as we are t a l k i n g about modern engineering methods f o r producing these materials. The t e r m "coal o i l " w h i c h y o u heard back as a boy was a synthetic f u e l produced f r o m the distillat i o n of coal. T h a t has gone back f o r at least 200 or 300 years. Y o u are f a m i l i a r , of course, w i t h the German synthetic f u e l industry of W o r l d W a r I I , i n w h i c h coal was used t o provide about 100,000 barrels a day of liquids—gasoline, diesel fuel, aviation fuels and lubricants f o r their war machine. H e r e i n the U n i t e d States d u r i n g and f o l l o w i n g the w a r , we had a synthetic l i q u i d fuels p r o g r a m that was sponsored by Senator O ' M a hony of W y o m i n g . T h e Bureau of Mines took the German technology, tested and demonstrated i t here, and by 1955, had shown t h a t we could use our coal, our technology w i t h the basic German-developed chemistry—as w e l l as o i l shale technologies used elsewhere throughout the w o r l d — a n d make usable fuels f r o m our domestic coals and o i l shales. Today, South A f r i c a has a modern coal-based synthetic fuels industry. South A f r i c a started its w o r k i n 1955, b u i l d i n g a small commercial plant. Just this past year, a contract was awarded to a m a j o r U . S. engineering company f o r a $1 b i l l i o n expansion o f t h a t project. So we have as background f o r synthetic fuels production the technologies t h a t have been developed over the last 30 or 40 years, based on modern engineering practices. Research i n the U n i t e d States, both by private industry and by government, also has provided us adequate technical background to proceed now t o pioneer commercial plants. W e have the same sort of story f o r o i l shale as w i t h coal. Scottish oil shale industry existed p r i o r t o the t i m e o i l was discovered i n Pennsylvania, and the foundations of chemical engineering practice were actually developed i n Scotland d u r i n g the late 19th century i n processing o i l shale and producing f r o m i t usable lubricants, waxes, and i l l u m i n a t i n g oils. A t that time gasoline was not an i m p o r t a n t product. Today, the U.S.S.R. has a modern o i l shale i n d u s t r y p r o d u c i n g the equivalent of 100,000 barrels a day of energy i n the f o r m of liquids, gases, and electric power. M a i n l a n d China has a large o i l shale industry, perhaps one of the largest i n d u s t r i a l complexes i n the w o r l d , m i n i n g coal and o i l shale to provide most of the f u e l f o r the industries of Manchuria. B r a z i l has a modern o i l shale plant. M y company designed the p l a n t w h i c h has been i n operation f o r several years. W e have had a long period of research i n this country on o i l shale, and, as I indicated earlier, are ready to go w i t h commercial production. I t h i n k i t is also very i m p o r t a n t i n the considering legislation such as the E I A t h a t we recognize t h a t the U n i t e d States is not poor i n 159 the resources to provide f o r energy self-sufficiency. Coal as a resource certainly can provide raw material f o r the equivalent of some millions of barrels per day of synthetic gas and synthetic oil, once wq have established the basis f o r a commercial i n d u s t r y . O i l shale resources, you have heard the numbers, get into the hundreds of billions of barrels. The number most often quoted is 600 b i l l i o n barrels w h i c h is somewhat larger than a l l of the o i l reserves known throughout the w o r l d today. B u t this is a conservative number, because once we establish a technology, once we get into second and t h i r d generations of the application of this technology, we w i l l use lower and lower-grade resources. So i n o i l shale we have the most p l e n t i f u l potential o i l resource on the face of the earth i n the reserves of Colorado, U t a h , and W y o m i n g , adding up to a t r i l l i o n barrels or more. Garbage can provide a significant p a r t of the gas and the indust r i a l fuel requirements of many localities where i t can be efficiently gathered and processed. A study we made of the city of Denver indicated t h a t by the year 1990 10 t o 20 percent of Denver's gas could be produced f r o m the gasification of the municipal waste gathered i n the area. Now to economics. Synfuels are high-cost energy sources. T h i s has been indicated by the other witnesses, I am sure, and I w i l l be glad to provide more detailed information. O i l f r o m coal is i n the $20 to $25 a barrel range. Synthetic gas f r o m coal is $3 to $4 per m i l l i o n B t u . O i l shale is somewhat lower, perhaps f r o m $12 to $20 a barrel, depending on how h i g h l y refined i t is and where i t is produced. Energy f r o m garbage is i n the same $3 or $4 range as gas f r o m coal. T h e h i g h investment is one of the p r i n c i p a l deterrents t o synthetic fuels development. I n f l a t i o n has doubled costs d u r i n g the past 5 years f o r industrial equipment so that at today's cost, 1976 costs, a $1 b i l l i o n investment is required f o r a p l a n t to produce the equivalent of 50,000 barrels of o i l per day, whether i t be gas f r o m coal or oil f r o m o i l shale. T h i s really brings i n t o focus the role f o r Government i n the i n i t i a t i o n of a synthetic fuels industry—a sharing of the risks of the pioneer plants i n order t o provide the basis f o r significant f u t u r e production of synfuels when our o i l and gas supplies become even more critical. There are 34 commercial synthetic fuels projects i n some f o r m of planning or development by industry i n the U n i t e d States today. There are 75 R. & D . projects, most of which are industrially operated, many of them i n d u s t r i a l l y financed. There has been no lack of interest or activity by industry to get us to where wTe are today, which is at the threshold of commercial applications. B u t w i t h price controls over oil, w i t h the large front-end capital requirements that continue to be increased by inflation, w i t h the possibility that foreign o i l prices m i g h t influence domestic o i l prices i f the O P E C cortel were broken, industry has not been able to go ahead w i t h this first wave of commercial plants. I w o u l d therefore agree w i t h the concept of the E I A , t h a t some f o r m of government risk-sharing is required. I would l i m i t i t , how- 160 ever, to the first group of pioneer plants, so that we can actually determine the real costs, determine the real environmental problems that have to be solved, and to provide the industrial base f o r expandi n g synthetic fuels i n a competitive energy economy, as we move into the next decade. I t is quite clear that industry cannot get the money f r o m the financial community to go into these huge projects w i t h o u t some f o r m of backup f r o m the Government. I strongly favor the legislat i o n what was passed by the Senate last year, rejected by the House, but is now again before the House, f o r a limited synthetic fuels program, i n order to provide thie head start to obtain the knowledge we need to determine where synthetic fuels fits into our energy picture, as we move into the last p a r t of the century. Thank you. The CHAIRMAN. Thank you very much, M r . Cameron. M r . Simpson ? STATEMENT OF JOHN W. SIMPSON, CHAIRMAN, ATOMIC INDUSTRIAL FORUM, PITTSBURGH, PA. M r . SIMPSON. M r . Chairman and members of the committee, m y name is John W . Simpson. I am chairman of the atomic industrial f o r u m and director-officer and chairman of the energy committee of the Westinghouse Electric Corp. I appreciate the opportunity to appear before you today as chairman of the forum. The f o l l o w i n g views of S. 2532, the Energy Independence A u t h o r i t y A c t , are consistent w i t h those I forwarded to the President last November on behalf of the executive committee of the forum's board of directors. As you may know, the f o r u m is a not-for-profit trade association comprised of over 600 organizational members i n the U n i t e d States and 25 other countries. Our members share a common interest i n the development and application of atomic energy f o r peaceful purposes. Our membership is very diverse, and includes, among others, utilities, manufacturers, engineer-constructors, service companies, m i n i n g and m i l l i n g companies, universities, labor unions, professional firms, financial institutions, and governmental organizations. A s the name " f o r u m " implies, one of our major roles is to i d e n t i f y relevant technical, legal, and policy issues and provide a mechanism f o r determining the views of our members. W e then seek to convey these views to appropriate decisionmakers i n ways such as this testimony before your committee. The forum's executive committee f u l l y supports the goal of energy independence and believes that the proposed Energy Independence A u t h o r i t y could be a key milestone toward that goal. The concept of U.S. energy independence remains timely and extremely important. Energy independence would remove a great vulnerability of the U n i t e d States' present foreign policy and would improve the national security. I t would strengthen the U n i t e d States economically by reducing our dependence upon high-priced foreign energy sources i n order to meet the future demand f o r electric power. Even i f f u l l energy independence is not achieved, a close approach to t h a t goal would undeniably ameliorate some of our most pressing national problems. 161 W e believe, therefore, t h a t i t is imperative f o r the U n i t e d States to accelerate development of its domestic sources of electrical energysupply and, concomitantly, reduce our national dependence on foreign energy sources. Electric power today provides 25 percent of U.S. energy requirements and i n the f u t u r e is expected t o supply proportionately more—50 percent—by the year 2000. I n view of our l i m i t e d and ever decreasing domestic natural gas and petroleum supplies, i t is evident t h a t only domestic coal and uranium f o r nuclear energy can contribute i m p o r t a n t l y t o augmenting the U n i t e d States' electrical capacity i n the next t w o decades. One of the major problems now stalling this g r o w t h is the availability of investment capital t o b u i l d the necessary and very costly electrical generating plants and supp o r t i n g facilities. T o be sure, other problems also exist. I n s o f a r as nuclear power is concerned, its safety and general desirability are under active challenge by vocal opponents before both the Federal and State levels of government. W e are confident, however, t h a t these concerns w i l l u l t i mately, and we hope speedily, be resolved i n f a v o r of accelerated nuclear development. The problem then w i l l be similar t o what i t is n o w : Can utilities who wish to exploit the nuclear option, i n p a r t because of long-term economic benefits, get over the short-term economic hurdles? The E n e r g y Independence A u t h o r i t y may be able to play a v i t a l role i n h e l p i n g to finance the leadtime capital intensive facilities, i n c l u d i n g f u e l cycle facilities f o r such supportive activities as fuel enrichment and reprocessing, so t h a t the nuclear option may remain viable. The administration's statement accompanying the release of S. 2532 last year noted t h a t capital requirements f o r energy independence w i l l total about $600 b i l l i o n over the next 10 years. A l t h o u g h no inf o r m a t i o n has been provided on the allocation of this sum, recent industry studies show that the u t i l i t y industry alone w i l l require $200 b i l l i o n i n external financing d u r i n g the same period, assuming moderate g r o w t h i n demand f o r electrical energy. T h i s w i l l thus approximate one-third of a l l U.S. investment projected d u r i n g this period. Accordingly, the utilities' financial needs w i l l be met only i f investor funds can be attracted i n large amounts. T r a d i t i o n a l l y , investors have been attracted to the u t i l i t y industry because of the relative security and adequate r e t u r n on funds placed therein. W h i l e g r o w t h i n the u t i l i t y assets standing behind each invested dollar—book value—was only moderate compared t o that i n many other industries, i t was nevertheless sufficient t o help attract investment. I n the immediate past, this situation worsened significantly as a result of drastic increases i n fuel costs propelled by the O P E C cartel. A t the same time, the effect of inflationary forces and sharply higher interest rates was also felt, so t h a t regulatory bodies f o u n d i t p o l i t i cally difficult to raise electric rates r a p i d l y enough t o provide an adequate rate of r e t u r n on invested capital. T h i s led to a serious deterioration of earnings. The financial r a t i n g of many utilities were downgraded d u r i n g this period, m a k i n g i t much more costly to raise capital via long-term debt, the most common source o f funds. F u r thermore, utilities frequently f o u n d i t necessary t o dilute their stock by offering new equity shares at market prices w e l l below book value. 162 I n addition, increased operating costs, soaring construction costs, delays i n licensing, and a decreased rate o f power g r o w t h greatly reduced internal cash flow. T h i s f u r t h e r aggravated the current financial difficulties o f the utilities. Over the next decade, industry may be unable to acquire sufficient new funds t o finance its f u t u r e needs f r o m t r a d i t i o n a l sources. Measures l i k e the Energy Independence A u t h o r i t y w h i c h substitute f o r the t r a d i t i o n a l method of s t i m u l a t i n g investment i n the u t i l i t y industry, w h i l e certainly inadequate f o r the l o n g r u n , may be h e l p f u l and acceptable i f they are structured so as not t o b r i n g any unneeded permanent involvement of the Government into our basic free market system. F a r preferable, however, w o u l d be enactment o f specific measures w h i c h would ensure t h a t regulatory bodies w o u l d act p r o m p l y and allow utilities t o earn a f a i r rate on invested capital. T h i s w o u l d provide a more direct and potentially less disruptive resol u t i o n o f t h e current u t i l i t y dilemma. T u r n i n g f r o m electrical generation per se t o nuclear f u e l cycle supp o r t facilities such as u r a n i u m enrichment and processing plants, we w o u l d agree t h a t this area may be i n need of the type of assistance envisioned by the act. S. 2532 w o u l d assist i n accelerating energy independence by financially a i d i n g energy-related concepts w h i c h are not l i k e l y to be undertaken by private industry, because they have not been commercially developed and may be considered economically high-risk endeavors or are of such large size that industry w o u l d not proceed alone. Such areas in the energy field have t r a d i t i o n a l l y not been f u l l y served by private investment capital, and some of these may be extremely i m p o r t a n t to a satisfactory national energy program, thus r e q u i r i n g some f o r m of Government participation. These areas t y p i cally involve development of h i g h l y capital intensive or h i g h - r i s k technologies w h i c h private industry alone cannot, or is u n w i l l i n g to, undertake, f o r example: Programs i n v o l v i n g high-risk investment where satisfactory r e t u r n may not exist f o r the i n d i v i d u a l participant, b u t which may, overall, be beneficial to the N a t i o n ; programs of a h i g h l y capital intensive nature i n v o l v i n g first-of-a-kind demonstration programs, such as conversion to solid f o r m and storage of h i g h level radioactive wastes discharged f r o m nuclear f u e l reprocessing plants; and as the adm i n i s t r a t i o n has already recognized i n its proposed Nuclear F u e l Assurance A c t , programs o f a h i g h l y capital nature w h i c h p r i v a t e industry w i l l only enter given certain assurances and Federal policy decisions. A n y Government supplemental program i n these areas must, to be effective, be designed so t h a t as each project approaches a higher degree of commercialization i t w i l l involve a lesser degree of governmental involvement and a higher degree of p a r t i c i p a t i o n f r o m the private sector. W i t h this essential p r i n c i p l e i n mind, the act's potent i a l t o assist i n this critical area is encouraging. F i n a l l y , I w o u l d l i k e to mention briefly and commend t w o of the act's salient details. The provisions directing the Federal E n e r g y A d m i n i s t r a t i o n to accelerate the licensing and regulatory processes could indeed go a l o n g way t o w a r d accelerating the use of nuclear 163 power. The act constitutes i n this regard a constructive step i n an area where political and jurisdictional disputes threaten to t h w a r t true progress towards energy development. These interagency relationships deserve and w i l l continue to deserve close congressional scrutiny. W e strongly urge, however, that a shorter time period than 18 months be set f o r issuing licenses after the proposed certification is approved. Such a period, notwithstanding legitimate difficulties, would be more consistent w i t h the national emergency which is addressed here. Second, we strongly endorse the provision that financial assistance which may be made available to business concerns regulated by State or local regulatory bodies should be contingent upon an assurance of quarterly rate adjustments which, i n the judgment of the A u t h o r i t y , w i l l provide restoration of the business concern's credit r a t i n g to a level capable of obtaining conventional capital at favorable interest rates without additional financial assistance f r o m the A u t h o r i t y . Concurrently, we urge Federal leadership i n enacting additional legislation to allow utilities a rate of return on their investments, including funds invested i n construction work i n progress, that w i l l permit them to compete i n the money market and thereby maximize the financing of our nation's expanded energy resources without further government assistance. I n conclusion, we believe that the approach represented by S. 2532, i f properly molded and implemented, could make a substantial contribution to nuclear development and energy independence, and thus merits broad industry support. However, other Federal efforts, particularly those t o : (1) place u t i l i t y rates of return on a sound economic f o o t i n g ; (2) insure private nuclear enrichment capabilities through the scheme of the Nuclear Fuel Assurance A c t ; and (3) accelerate governmental activity i n the high-level waste management portion of the fuel cycle; must proceed vigorously, i n parallel, i f significant results are to be obtained. Thank you again f o r the opportunity to present this statement. The CHAIRMAN. Thank you very much, M r . Simpson. M r . Browder? STATEMENT OF JOE B. BROWDER, ENVIRONMENTAL CENTER, WASHINGTON, D.C. POLICY M r . BROWDER. T h a n k y o u , s i r . F i r s t I want to let you know that this statement also represents the position of the Sierra Club, which has asked me to represent its views here today, too. The CHAIRMAN. Very good. M r . BROWDER. A n d i n order to put M r . Simpson's statement i n a broader context, one of the documents that I gave you, sir, is a memo f r o m a consultant to the Westinghouse Corp., M r . Patrick Caddell, outlining f o r Westinghouse the public relations campaign suggested to the Atomic Industrial Forum f o r discrediting all those interests who might have questions about the safety and efficiency of nuclear power, or questions about any other energy industry, or criticisms of the industry's influence on national policy. 164 T w o of the other documents there, are one prepared by one of our staff members, f o r the Council on E n v i r o n m e n t a l Q u a l i t y , about the need f o r energy facilities i n the U n i t e d States, and another about water demands i n the U p p e r Missouri Basin, w h i c h reflects directly on some of the interests of T h e O i l Shale Corp. and others represented by Cameron Engineers. I won't go t h r o u g h this whole statement, but I w o u l d j u s t l i k e to emphasize a couple of points. F i r s t , i t is our belief t h a t the Energy Independence A u t h o r i t y is an attempt to satisfy t w o interests t h a t combine the worst elements of both. One is the least productive sector of the energy i n d u s t r y and the other is the pork-barrel sector of our Federal Government. Because we don't w a n t t o be—appear t o be partisan about this, I w a n t to say t h a t President F o r d is reflecting a viewpoint t h a t is also shared by a great many Democrats. There is almost no difference between the intent or consequences of President Ford's b i l l or Senator H e n r y Jackson's N a t i o n a l E n e r g y Production B o a r d A c t . President Ford's b i l l looks l i k e i t was d r a f t e d by a bond counsel, and S. 740 looks more l i k e the Emergency W a r Powers style of legislation f r o m w h i c h i t evolved. They both accomplish essentially the same thing. B o t h M r . F o r d and M r . Jackson are now w o r k i n g on w h a t they agree is the first step t o w a r d the achievement of the broader legislation, t h a t is, subsidies f o r the commercial production of synthetic fuels, the legislation the first witness on this panel mentioned favorably. I n our view, the Energy Independence A u t h o r i t y and Senator Jackson's b i l l w o u l d force the U n i t e d States to make radical changes i n its political and economic sj'stem. They both w o u l d b l u r the distinctions between private and public capital. They w o u l d centralize the decisionmaking about the geographic d i s t r i b u t i o n of capital. They w o u l d weaken the political a u t h o r i t y of the Congress and State and local governments, and f u r t h e r concentrate p o l i t i c a l and economic power i n the executive branch of the Federal Government. These policies are offered t o us w i t h the promise of more jobs, and freedom f r o m O P E C countries, but we t h i n k t h a t they w o u l d do more to increase the economic and p o l i t i c a l strength of the O P E C countries t h a n a n y t h i n g the oil-exporting countries could do f o r themselves. Here at home these programs w o u l d d i v e r t capital away f r o m genuinely productive energy programs and leave us w i t h even less money f o r housing, manufacturing, health care, education, national defense or the other needs of our economy. T h e specific energy programs that benefit most f r o m the structure of this legislation are an emphasis on expanding coal production i n the Rocky Mountains and N o r t h e r n Great Plains instead of the M i d west and Appalachia. T h a t w o u l d cause a massive s h i f t i n capital, public works spending, tax revenues and job opportunities away f r o m the present i n d u s t r i a l regions of our country i n the Midwestern and Eastern States t o the now largely agricultural regions of the Central Rockies and N o r t h ern Great Plains. 165 A similar s h i f t w o u l d result f r o m subsidizing the commercial production of synthetic fuels, and the creation of a subsidized synthetic fuels industry w o u l d lead t o f u r t h e r increases i n the price o f a l l energy. I n our view, the worst feature of this b i l l is its p r o g r a m f o r subsid i z i n g the electric power industry, t h a t w o u l d just reinforce business as usual i n the industry that is the least efficient, most capital-intensive i n the country, at a time when the industry's p l a n n i n g calls f o r a quadrupling of per capita electric power consumption i n the U n i t e d States w i t h i n the next 25 years. The desire to give and take p o r k barrel always produces a w i l l i n g ness t o distort the econouic and social consequences of Federal programs. B u t i f we look at the most conservative estimates, the ones coming f r o m the Treasury Department, f o r example, more t h a n a t h i r d of a l l capital invested i n this country i n the next 10 years is going t o be f o r energy development. W e t h i n k t h a t while there is a real need t o p u t usable energy into our society, i f we let energy be treated politically or economically like an S S T k i n d o f pork-barrel program, then t h a t sort o f t h i n g , I t h i n k , w i l l b a n k r u p t us. I would l i k e to give two political examples, and we could go into much technical detail about the environmental impacts of o i l shale production or coal gasification as you want, but these t w o political examples are, I t h i n k , really significant. One is w h a t happened last year on the House side at the science and technology hearings on the synthetic fuels commercialization subsidy b i l l , when Governor L a m m of Colorado testified t h a t he wanted to be a partner of Federal Energy A d m i n i s t r a t o r F r a n k Zarb's i n subsid i z i n g a commercial o i l shale industry f o r Colorado. T h a t statement of Governor Lamm's was a shock to a l o t of people who had supported h i m and worked w i t h h i m before his election. A f t e r the hearings, a couple of us expressed our shock t h a t he would want to be a partner of F r a n k Zarb's, and he said, " I have to be either his partner or his slave." A n d he meant i t . T h a t is the attitude that is being stimulated by the Federal Energy Administration's reinforcing the background music f r o m the indust r y , t h a t the crisis w;e face is so intense t h a t t r a d i t i o n a l economic, traditional political responsibilities, relationships, just have t o go out the window. I n our view, at least, any sort of a rational review of resource availability, the cost of processing, energy demand, and the a b i l i t y of existing jurisdictions t o handle problems l i k e s i t i n g and licensing of production facilities would not j u s t i f y the kinds of radical changes being proposed, either i n the National Energy Production B o a r d A c t legislation t h a t some of the Democrats favor or i n President Ford's legislation. The other example really should be a perfect demonstration of how priorities can be distorted d u r i n g the development of the sort of hysterical " w e have t o solve the crisis" atmosphere. A t the time when the New Y o r k C i t y fiscal crisis was at its most visible peak, when President F o r d was acting l i k e New Y o r k was t y p i c a l o f the b i g cities t h a t had t o be punished because they had been s i n f u l and wastef u l , that they don't deserve Federal assistance, even i n the f o r m o f 166 guarantees f o r their debt, so they can m a i n t a i n basic services—at t h a t same time the W h i t e House was d r a f t i n g legislation as a p a r t of this synfuel subsidy b i l l t o give Federal guarantees f o r the munici p a l bonds of cities t h a t haven't been designed, their locations haven't even been decided on yet, they haven't even been incorporated—so t h a t the Federal Government could help subsidize the company towns t h a t Would s p r i n g up i f the o i l shale plants got their subsidies so t h a t they could produce f u e l t h a t is so expensive t h a t no one b u t the Federal Government could afford to buy i t . There is almost an absurdity about, i n our view, at least, the economics and the politics of this issue. A n o t h e r point t h a t I t h i n k you ought to pay particular attention to. I don't see how the committee could even take this E n e r g y Independence A u t h o r i t y legislation seriously. A l l i t is, is boilerplate special purpose authority legislation. I t could have been l i f t e d f r o m the P o r t A u t h o r i t y of New Y o r k , a transit a u t h o r i t y i n M i a m i , a housing a u t h o r i t y anywhere. I t is j u s t difficult to see how the application of a system of c o n t r o l l i n g revenues and political power t h a t has failed so demonstrably i n so many areas is now supposed to come up and solve one of the most i m p o r t a n t problems t h a t the country faces. F i n a l l y , I w o u l d l i k e to t a l k about the general c r e d i b i l i t y of the F o r d administration i n the assumptions t h a t i t puts before the committee t h a t j u s t i f y this k i n d of legislation. W e believe t h a t the W h i t e House, i n c l u d i n g the F o r d W h i t e House, has lied consistently about its programs, its real energy policies. Those distortions and lies about what the administration really wants as opposed t o what i t says i n energy policy predate the era of embargo, b u t became most flamboyant d u r i n g the days of the embargo and immediately after. I d i d n ' t have enough copies of i t i n time to distribute a l o t of them, but I can give you one copy of one of the administration's p l a n n i n g papers f o r Project Independence. I t is called " E n e r g y Independence A n Overview". I t was distributed a few weeks after Secretary Kissinger distributed, at the W o r l d E n e r g y Conference i n 1974, the U.S. public position about energy independence. D u r i n g t h a t t i m e the W h i t e House was t a l k i n g about how we weren't going to let those nasty Arabs influence our policies, and how we were going to become energy self sufficient. B u t w i t h i n a few weeks this paper circulated. I t redefines energy independence as m a x i m u m secure imports, talks about setting up m i l i t a r y and economic relationships w i t h the Saudis before t h a t had been made public at all, and made i t quite clear t h a t the intent of the administration was to increase the amount of o i l t h a t we i m p o r t f r o m those countries. Now w i t h regard to the wisdom of w h a t level of imports is good f o r our economy and can be achieved at a price, political or otherwise, that is not too much t o pay, I t h i n k i t is i m p o r t a n t to consider the basic dishonesty of the administration i n p u t t i n g f o r t h a b i g public relations campaign, Project Independence, that appeals t o the most patriotic impulses of a l l elements of our society, asks them to make 167 sacrifices including real economic sacrifices; i n the name of this i m p l i cation t h a t we are going to be free of the foreigners, w h i l e at the same time the administration, f r o m the very beginning, has based its energy policy on the increased i m p o r t of foreign fuels. The W h i t e House has continued to manipulate data about energy resources. Just i n the last few weeks the administration ordered the U C G S to stop g i v i n g i n f o r m a t i o n to the Congress about coal resources on the public lands, because the U S G S i n f o r m a t i o n contradicted what President F o r d had said about the impact of the President's veto of strip m i n i n g legislation. The data given to j u s t i f y the administration's energy facilities siting legislation, the vast numbers of energy facilities t h a t can't be sited w i t h o u t Federal intervention i n the process, was false. I would just hope t h a t you w o u l d a l l take a look, a really close look, at the basic justifications f o r this k i n d of legislation before you get into debates about section A and section B , or how t o accomplish the purposes of this legislation, because i n our view, at least, the whole t h i n g isn't w o r t h a n y t h i n g at all. [ M a t e r i a l received f r o m M r . Browder and statement f r o m the Sierra Club f o l l o w : ] STATEMENT OF J O E B . BROWDER The Energy Independence A u t h o r i t y is an attempt to satisfy t w o interests i n a way t h a t combines the worst elements of both. One is the least productive sector of the energy industry. T h e other is the p o r k b a r r e l sector of the Federal government. W e don't t h i n k t h a t our economy, our environment, or our political system can w i t h s t a n d the distortions required to achieve the objectives of t h i s legislation. To be f a i r , i t should be noted t h a t President F o r d is reflecting a viewpoint t h a t is also widely held w i t h i n the Democratic P a r t y . There is almost no difference between the i n t e n t or the consequences of President Ford's b i l l and Senator H e n r y Jackson's N a t i o n a l Energy Production Board Act. President Ford's b i l l looks l i k e i t was d r a f t e d by a bond counsel, and Senator Jackson's looks more l i k e a w a r t i m e emergency powers proclamation, but their substance is the same. A n d the President and Senator Jackson are w o r k i n g together now on the Jackson b i l l t h a t the W h i t e House says is the first step of the Energy Independence A u t h o r i t y program, federal subsidies f o r the commercial production of synthetic fuels. So our comments should not be interpreted as partisan. T h i s legislation rests on an assumption t h a t combines helplessness and hyst e r i a — t h a t our 200-year-old p o l i t i c a l system no longer works. The discovery of o i l and the development of the o i l industry has certainly put a s t r a i n on that system. B u t there is no basis i n fact f o r the assumption t h a t a t r a n s i t i o n f r o m o i l to other energy sources requires a t r a n s f o r m a t i o n i n the k i n d of government we have, unless you assume t h a t the government must f u n c t i o n to assure t h a t the o i l industry survives the t r a n s i t i o n and controls the energy sources of the f u t u r e . The Energy Independence A u t h o r i t y and Senator Jackson's b i l l would force the U n i t e d States to make the most profound changes i n our country's economic and p o l i t i c a l structure since the development of i n d u s t r i a l society. They would b l u r the distinctions between p r i v a t e and public capital, centralize the decision-making about the geographic d i s t r i b u t i o n of capital, weaken the polit i c a l a u t h o r i t y of the Congress and of State and local governments, and f u r t h e r concentrate p o l i t i c a l and economic power i n the Executive Branch of the Federal government. The energy policies t h a t w o u l d be advanced by such changes are those now being pushed by the F o r d A d m i n i s t r a t i o n and by Senator Jackson and others 71-797 O - 76 168 i n the Congress whose views about energy are biased by t h e i r interest i n development of resources under the j u r i s d i c t i o n of the I n t e r i o r Committees. They propose the development of our lowest-grade and most remote resources, and the subsidy of the most costly and least productive conversion technologies, at the highest possible rate of overall energy consumption, at the highest possible price. These policies are offered to us w i t h the promise of more jobs and freedom f r o m the OPEC countries. B u t the F o r d and Jackson energy programs w o u l d do more to increase the economic and p o l i t i c a l strength of the OPEC countries t h a n a n y t h i n g the A r a b or other oil-exporting countries could do themselves. A n d here at home, these programs would d i v e r t c a p i t a l away f r o m the production of needed energy and leave us w i t h even less money f o r housing, manufacturing, health care, education, defense, and other needs. To be specific: the emphasis on expanding coal production i n the Rocky Mountains and N o r t h e r n Great Plains instead of i n the Midwest and Appalachia w o u l d cause a massive s h i f t of capital, public w o r k s spending, t a x revenues, and jobs, away f r o m the eastern and midwestern i n d u s t r i a l regions to the agric u l t u r a l regions of the west. A s i m i l a r s h i f t w o u l d result f r o m subsidizing the commercial production of synthetic fuels—and creation of a synthetic f u e l indust r y w i l l lead to f u r t h e r increases i n the price of a l l other fuels. W o r s t of all, subsidies to the electric power i n d u s t r y would reinforce business-as-usual plann i n g i n the least efficient, most c a p i t a l intensive i n d u s t r y i n the U n i t e d States, at a time when t h a t p l a n n i n g includes a quadrupling of per capita electric power consumption i n the U.S. i n the next twenty-five years. I t is understandable t h a t some people i n Congress are m a k i n g mixed-up proposals, because they are getting contradictory signals. O i l and coal companies, h a r d w a r e suppliers, and u t i l i t i e s now call themselves the energy i n d u s t r y . T h i s combination of interests demanding the quasi-public a u t h o r i t y generally given only to regulated monopolies, w h i l e also demanding the freedom f r o m regulat i o n generally given only to competitive enterprises, is creating pressure f o r r a d i c a l changes i n governmental a u t h o r i t y and i n c i v i l r i g h t s and p r i v a t e property rights. P r i v a t e oil, mining, and processing companies are now t r y i n g to apply the scarcity and public interest principles to the e x t r a c t i o n of resources t h a t are abundant and to the construction of f a c i l i t i e s t h a t are sited and developed f o r competitive reasons. Considering the o i l i n d u s t r y ' s disregard f o r the r i g h t s of ranchers and f a r m e r s i n the west, the coal i n d u s t r y ' s continued use of the broad f o r m deed i n Appalachia, and the competitive n a t u r e of the supposedly public interest routes of the Trans-Alaska Pipeline, the A r c t i c gas pipeline, and the coal slurry pipeline, i t is almost ludicrous f o r the o i l i n d u s t r y to t a l k about the sanctity of p r i v a t e property and p r i v a t e enterprise. The environmental, consumer, and resource management problems g r o w i n g out of this debate are obvious. B u t the first t w o problems I mentioned, those of the unproductive industries and those of p o l i t i c a l figures who see a l l public policy questions as opportunities f o r d i s t r i b u t i n g federal money, are producing w h a t we t h i n k is a crisis f o r our economic and p o l i t i c a l system. The desire to give and take porkbarrel has always produced a willingness to d i s t o r t the economic and social consequences of government programs. B u t i f we accept the most conservative estimates, t h a t more t h a n a t h i r d of a l l c a p i t a l invested i n the U n i t e d States i n the next ten years w i l l be f o r energy production, and i f we believe t h a t there is a genuine need to put usable energy i n t o our society, then we simply can't let energy be treated as a p o r k b a r r e l issue. The same k i n d of t h i n k i n g t h a t wanted to distort our t r a n s p o r t a t i o n p r i o r i t i e s by subsidizing the SST w i l l b a n k r u p t us i f applied to energy. I ' d like you to consider t w o specific examples of the p o l i t i c a l consequences of these energy policies. The F o r d A d m i n i s t r a t i o n considers Senator Jackson's synthetic f u e l subsidy program to be the first step t o w a r d adoption of the Energy Independence A u t h o r i t y . President F o r d and Senator Jackson both say t h a t synthetic fuels should be the f o u n d a t i o n of America's program f o r energy independence. A t more t h a n a b i l l i o n dollars a plant, w i t h the plants producing f u e l so expensive t h a t no one could possibly afford to buy i t , the opportunities f o r subsidy are almost endless. Some people consider t h a t k i n d of p o r k b a r r e l to be a victimless crime. B u t please t h i n k about a comment made last year by D i c k Lamm, the Governor of Colorado, a f t e r a hearing by the House Committee on Science and Technol- 169 ogy. Some of us had told the Governor t h a t we were disappointed t h a t he had declared himself to be a w i l l i n g partner of Federal Energy A d m i n i s t r a t o r F r a n k Zarb i n subsidizing the development of an o i l shale industry i n Colorado. A n d D i c k said to us, t a l k i n g about Zarb, " I have to be either his partner or his slave." A t t h a t same time, President F o r d was t e l l i n g the country t h a t New Y o r k had to be punished f o r i t s wasteful ways, and t h a t the Federal government could not possibly guarantee New Y o r k City bonds, t h a t the city was j u s t going to have to suffer. B u t w h i l e the President was t e l l i n g New Y o r k to cut back on services, the W h i t e House was w o r k i n g out a program to give Federal loan guarantees to back up the m u n i c i p a l bonds of cities i n Colorado t h a t haven't been built, t h a t haven't even been located or incorporated yet. Because President F o r d wants to help Governor L a m m and the o i l shale companies pay f o r the new company towns t h a t w i l l spring up i f the o i l shale companies are subsidized to produce the f u e l t h a t is too expensive f o r anyone but the Federal government to buy. I t is probably true t h a t such a biasing of our economy could not be achieved w i t h o u t a transfer of p o l i t i c a l power to some k i n d of Energy Czar. B u t there is certainly n o t h i n g new or creative about the proposed Energy Independence A u t h o r i t y . The A u t h o r i t y , w i t h e x t r a o r d i n a r y powers and almost no political or fiscal accountability, is wrapped i n boiler-plate language t h a t is characteristic of special-purpose authorities. I t could be a port a u t h o r i t y i n New York, a t r a n s i t a u t h o r i t y i n M i a m i , or a housing a u t h o r i t y i n almost any city i n our country. The transfer of revenues and responsibility to such authorities has not done much to solve the problems of our cities. I t is intellectually and politically bankrupt of President F o r d and Senator Jackson t o believe t h a t t h i s approach should be applied to our country's energy problems. I n case the Committee m i g h t be told t h a t the proponents of these special energy authorities or corporations have not meant to recommend such a radical concentration of economic, land use planning, and p o l i t i c a l a u t h o r i t y i n the Federal executive branch, I hope you can investigate enough to understand t h a t quite the contrary is true. Senator Jackson's N a t i o n a l Energy Production Boards have evolved f r o m his interest i n Federal control over the development of energy production centers, d a t i n g back to 1972. The N a t i o n a l Energy Production Boards w o u l d w o r k to i d e n t i f y "any significant delays i n domestic energy exploration and production programs which are exclusively the result of regulatory delay or procedural impediments at the Federal, State, or local level." Expedited Energy Projects approved by the Boards could, unless Congress objects, be exempt f r o m compliance w i t h the regulatory procedures of any Federal agency. Almost identical language is found i n the Project Independence planning documents of the N i x o n and F o r d Administrations. A review of A d m i n i s t r a tion documents shows a consistent high-priority effort, complying w i t h recommendations f r o m the Office of Management and Budget and the Federal Energy A d m i n i s t r a t i o n , to overcome w h a t the A d m i n i s t r a t i o n believes to be the regulatory obstacles to increased production. A document entitled "Presidential Objectives," circulated by F E A i n the spring of 1974, outlined nine F E A "Presidential" objectives f o r fiscal 1975. Objective I X is described as " E x p a n d the domestic production of m a j o r f u e l sources." Among the " M a j o r A c t i v i t i e s " listed as needed to achieve expanded production i s : "Assist i n the accelerated development of domestic energy resources through m i t i g a t i o n of the effects of and removing unnecessary impediments imposed by Federal, state, and local regulations." We believe t h a t the Energy Independence A u t h o r i t y can best be understood by looking at the intellectual f r a m e w o r k t h a t has shaped the F o r d Administration's positions on energy production. The A d m i n i s t r a t i o n ' s beliefs, goals, and plans have been formed and executed i n secret, w i t h o u t regard f o r the public positions taken by the W h i t e House. The W h i t e House continues to engage i n a massive public relations effort to cover up the A d m i n i s t r a t i o n ' s actual energy policies. The A d m i n i s t r a t i o n has been deceitful about its energy programs, l y i n g to Congress and to the public, f r o m the time of the A r a b embargo u p to the present. For example, t w o years ago, a f e w weeks after Secretary Kissinger had publicly circulated the first outline of the A d m i n i s t r a t i o n ' s plans f o r Project Independence, and w h i l e the W h i t e House was denouncing the Arabs and proclaim- 170 i n g t h a t the U n i t e d States w o u l d soon become self-sufficient i n energy, the W h i t e House secretly circulated another document among the A d m i n i s t r a t i o n ' s top economic and energy officials. T h i s document, called " E n e r g y Independence, a n Overview," redefined energy independence as m a x i m u m secure i m p o r t s a n d discussed plans f o r closer m i l i t a r y and economic ties t o the A r a b countries. Events since t h a t t i m e w o u l d indicate t h a t the F o r d A d m i n i s t r a t i o n has continued to f o l l o w the o r i g i n a l N i x o n A d m i n i s t r a t i o n energy program, i n c l u d i n g the recommendation f o r accumulation of more economic p l a n n i n g and resource management power w i t h i n the Executive Branch. The W h i t e House has so manipulated data about energy resources a n d energy demand t h a t we don't t h i n k i t is possible t o believe the assumptions p u t f o r w a r d by the A d m i n i s t r a t i o n i n defense of the Energy Independence A u t h o r i t y . W i t h i n the last f e w weeks, the A d m i n i s t r a t i o n has ordered the U.S. Geological Survey to stop g i v i n g Congress i n f o r m a t i o n about coal resources on the public lands, because data f r o m the U.S.G.S. contradicted President Ford's claims about the impact of s t r i p m i n i n g legislation on coal production. President Ford's federal energy f a c i l i t y s i t i n g legislation, another component of the Energy Independence A u t h o r i t y program, was introduced w i t h a c l a i m t h a t State governments are simply incapable of h a n d l i n g the hundreds of backlogged plans f o r construction of energy facilities. A review of t h a t c l a i m shows i t to be j u s t as false as the President's statements about coal production. A n d i n regard to another of the principle objectives of the Energy Independence A u t h o r i t y , the need to provide subsidized financing f o r the electric u t i l i t y i n d u s t r y , the A d m i n i s t r a t i o n is on even shakier ground. A t t h i s point, I ' d l i k e t o refer t o a memo prepared by M a r c Messing, one of our staff w h o specializes i n energy f a c i l i t y s i t i n g and energy demand studies. " I n comparing the costs of large-scale powerplants (800-1200MWe) a n d small scale u n i t s (below 500MWe) i t is i m p o r t a n t to consider the reserve capacities associated w i t h each. Obviously i f you add a single large u n i t to any system, r a t h e r t h a n a couple of small units, you stand more of a chance of shortage i f the powerplant fails. T h a t argument is i m p o r t a n t , but is compounded by the f a c t t h a t large powerplants have generally proven less reliable t h a n small powerplants. The electric u t i l i t y i n d u s t r y has r e l u c t a n t l y a d m i t t e d t h i s f a c t ( E l e c t r i c a l World, November 1975), but is presently a r g u i n g t h a t t h i s is only because the plants are immature, t h a t they eventually w i l l prove as reliable as t h e i r smaller counterparts. " I n the meantime, t h i s h i s t o r i c a l data has forced the u t i l i t i e s to p l a n e x t r a reserve capacity (above m a x i m u m peak demands) to compensate f o r t h e unrel i a b i l i t y of large new plants. As the F P C stated i n June 1974, 'the t r e n d t o w a r d larger generating u n i t sizes, and the relatively poor a v a i l a b i l i t y records of records of many large units, operate to increase reserve m a r g i n requirements over t h a t w h i c h is needed when smaller, m a t u r e u n i t s predominate on a system.' A s a result, the F P C noted t h a t the u t i l i t y reserve capacity planned f o r the next decade tended t o w a r d 'the upper end of the 15 t o 25 percent band c u r r e n t l y observed.' " I f we take F E A ' s projected capacity figures f o r 1985, i t is easy to calculate the a d d i t i o n a l capacity involved. W i t h a projected t o t a l generating capacity of 922 GWe, i f we assume a 25% reserve m a r g i n is included, t h i s w o u l d involve 738 G W e of base capacity and 184 G W e of reserve: a 15% reserve capacity w o u l d leave 801 G W e of base w i t h 121 GWe of reserve. I f we assume a cost of $1 b i l l i o n per G W e ( 1 G W E = 1 0 0 0 M W e ) the a d d i t i o n a l c a p i t a l cost of the e x t r a 10% reserve capacity w o u l d be $63 b i l l i o n . " The c a p i t a l cost of constructing t h a t a d d i t i o n a l reserve capacity m i g h t seem l i k e an urgent n a t i o n a l p r i o r i t y to General Electric and Westinghouse, and t o u t i l i t y shareholders whose earnings have an inverse relationship to the u t i l i t y ' s efficiency. B u t i t is our feeling t h a t the financial s t r u c t u r e of t h e electric u t i l i t y i n d u s t r y is the most i m p o r t a n t and most destructive of a l l t h e pressures operating on the economics of the energy system i n the U n i t e d States, on a scale m u c h greater t h a n the pressures caused by the structure of t h e o i l indust r y . U n t i l some w a y is f o u n d t o r e w a r d u t i l i t y investors on the basis of the p r o d u c t i v i t y of the u t i l i t y , g r o w t h i n electric power capacity and production w i l l d r a i n money, energy, and jobs f r o m our economy, as w e l l as provide cont i n u e d incentive f o r the most w a s t e f u l and environmentally damaging resource management policies. W e w o u l d respectfully urge you to reject t h i s legislation. T h a n k you. 171 Environmental Policy Institute 200 Third Street, S.E. Washington, D.C. 20003 202 /544-8200 WATER FOR INDUSTRY I N THE UPPER MISSOURI RIVER BASIN A REPORT PREPARED FOR THE ENVIRONMENTAL POLICY I N S T I T U T E ENERGY INFORMATION PROJECT BY BOB ALVAREZ 3 A p r i l 1976 172 TABLE OF CONTENTS INTRODUCTION ONE WATER SITUATION TWO DEVELOPMENT IN MONTANA THREE DEVELOPMENT IN WYOMING FOUR DEVELOPMENT IN SEVEN SOUTH DAKOTA DEVELOPMENT IN NORTH DAKOTA EIGHT DEVELOPMENT IN NEBRASKA TEN INDIAN WATER RIGHTS ELEVEN LEGAL ISSUES THIRTEEN FEDERAL LAW SEVENTEEN RECENT FEDERAL ACTIONS EIGHTEEN WATER DIVERSION SCHEMES TWENTY UPPER MISSOURI BASIN MAP TWENTY- THREE END NOTES TWENTY-FOUR_ SUPPLEMENTARY REFERENCES TWENTY-EIGHT 173 INTRODUCTION This paper presents a g e n e r a l p i c t u r e o f the i n d u s t r i a l development plans being advanced by the F e d e r a l government, and p r i v a t e industry? and t h e i r r e l a t i o n to the use o f Upper M i s souri water. The m i n e r a l resources work group o f the N o r t h e r n Great P l a i n s Resource Program (Department of I n t e r i o r and S t a t e Planning Agencies) p r e d i c t s t h a t c o a l p r o d u c t i o n i n the Upper M i s s o u r i Basin w i l l increase r a p i d l y from l e s s than 20 m i l l i o n tons i n 1972 t o n e a r l y 90 m i l l i o n tons by 1 9 8 0 . 1 / Although c o a l p r e s e n t l y being mined i n t h i s r e g i o n i s being shipped t o e a s t e r n and mid-western markets, f u t u r e plans c a l l f o r l a r g e increases i n mine-mouth g e n e r a t i o n of power as w e l l as c o a l l i q u i f i c a t i o n and g a s i f i c a t i o n . What i s not mentioned i s t h a t o i l shale development, i r o n ore e x t r a c t i o n , s t e e l p r o d u c t i o n , uranium mining and m i l l i n g , not to mention nuclear power p l a n t s , and i n d u s t r i a l "parks" producing n i t r o g e n f e r t i l i z e r , methanol and s y n t h e t i c d i e s e l f u e l a r e a l s o p a r t o f the p i c t u r e . I n p a r t , these p r o j e c t s r e p r e s e n t a major i n d u s t r i a l r e o r g a n i z a t i o n o f the U n i t e d States based on western resources. The Upper M i s s o u r i Basin region s i t s atop the l a r g e s t chunk. These dramatic increases i n raw m a t e r i a l production w i l l depend on t h e i r r a t e of conversion i n t o e l e c t r i c i t y , f u e l , and f a b r i c a t e d m e t a l . I n t u r n , t h e i r conversion r a t e w i l l u l t i m a t e l y depend on water a v a i l a b i l i t y . For example, the type o f g a s i f i c a t i o n p l a n t being proposed by Panhandle Eastern near Douglas, Wyoming w i l l r e q u i r e about 7.5 m i l l i o n tons o f c o a l per year and w i l l gulp 2.8 m i l l i o n g a l l o n s o f non-recoverable w a t e r , and 21 m i l l i o n g a l l o n s o f reusable water f o r i t s c o o l i n g system yearly.— I n the Black H i l l s of South Dakota, P i t t s b u r g h Pac i f i c , a s u b s i d i a r y o f I n l a n d S t e e l , proposes t o s t r i p m i n e one m i l l i o n tons o f t a c o n i t e i r o n ore and convert i t t o i r o n ore or s t e e l i n Rapid C i t y . This p r o j e c t i s expected to gulp around 20,000 a c r e f e e t of water from the Madison ground water f o r m a t i o n i f mainstem M i s s o u r i water i s n ' t d i v e r t e d t o augment the scarce water supply i n t h a t a r e a . Water i s basic t o every n a t u r a l and man-made raw m a t e r i a l conversion process i n t o energy. The impact of i n d u s t r i a l water use i n the Upper M i s s o u r i R i v e r Basin, upon the e s t a b l i s h e d a g r i c u l t u r e economy of t h i s r e g i o n i s j i s t b e g i n ning to be discussed by the F e d e r a l government. This paper i s a s t a r t towards such an a n a l y s i s . 174 P a g e Twenty-four WATER SITUATION Water i s a scarce commodity i n the N o r t h e r n Great P l a i n s d e s p i t e the massive dams a l l along the Upper M i s s o u r i and i t s t r i b u taries. The average r a i n f a l l i n the NGP i s between 10-14 inches yearly. C y c l i c a l droughts lower r i v e r f l o w s on the average of once e v e r y t e n years and p o s s i b l y as o f t e n as one year i n f o u r i n the Yellowstone sub-basin o f the Upper M i s s o u r i . I n order t o meet energy requirements i n the next 30 y e a r s , the Bureau o f Recl a m a t i o n s t a t e s i n t h e i r Montana/Wyoming Aqueduct study t h a t 2 . 6 m i l l i o n a c r e f e e t w i l l be needed annually.-^/ This amount w i l l lower the Yellowstone R i v e r , a major t r i b u t a r y o f the Upper M i s s o u r i , by one t h i r d . Energy companies have a l r e a d y a p p l i e d f o r 3 . 3 million acrefeet.— I f past p r a c t i c e s a r e f o l l o w e d , t h i s water w i l l be t o t a l l y consumed i n order t o p r o t e c t the watershed from pollution. The Bureau of Reclamation d i v i d e s water up i n the f o l l o w i n g manner. The average y e a r l y flow of the Yellowstone i s 9 . 4 million acrefeet; i r r i g a t i o n r e q u i r e s 2.4 m i l l i o n a c r e f e e t ? energy development 2 . 6 m i l l i o n a c r e f e e t . T h i s leaves a h e a l t h y surplus on paper. But the Yellowstone, l i k e so many western r i v e r s , does not flow according to s t a t i s t i c a l averages. During the drought i n the s i x t i e s , i t averaged 4 . 4 m i l l i o n a c r e f e e t . During a low f l o w periocL the Yellowstone R i v e r can c a r r y as l i t t l e as 3 . 7 m i l l i o n a c r e f e e t . 1 / For a good share of a t l e a s t one year out of t e n ( p o s s i b l y as o f t e n as one year i n f o u r ) , the r i v e r f l o w i s so low t h a t even a c a r e f u l t i m i n g o f p r o j e c t e d w i t h d r a w a l s w i l l exceed i t s volume. " D i v e r s i o n s of t h i s s c a l e , " the N o r t h e r n P l a i n s Resource Council argues, "would c r i t i c a l l y t h r e a t e n the e f f i c i e n c i e s o f p r e s e n t pumping and d i v e r s i o n f a c i l i t i e s and would e l i m i n a t e any f u r t h e r development of i r r i g a t a b l e l a n d s . " Since the Yellowstone may not be a b l e to slake the t h i r s t o f c o a l development, the waters from the mainstem M i s s o u r i are to augment the water supply i n the Yellowstone. The Department of I n t e r i o r and the Corps of Engineers say t h a t 3 t o 5 m i l l i o n a c r e f e e t o f water can be withdrawn from the mainstem w i t h o u t any p r o b l e m . § / The present average annual flow of the M i s s o u r i R i v e r a t the Oahe Reservoir s i x m i l e s above P i e r r e , S.D. i s 1 8 , 5 2 5 , 0 0 0 a c r e f e e t . Z ' Since Oahe i s the l a s t suggested d i v e r s i o n p o i n t , t h a t f i g u r e can be considered the t o t a l amount o f water f o r a l l p r e s e n t and p o t e n t i a l uses. 175 P a g e Twenyt-o fur WATER SITUATION (Continued) Every major i n d u s t r i a l p r o j e c t w i l l r e q u i r e massive quantities of water. Commitments to e n e r g y - r e l a t e d i n d u s t r y i n the North C e n t r a l P l a i n s could s e r i o u s l y o v e r - a l l o c a t e the Yellowstone R i v e r and i t s t r i b u t a r i e s . I f water i s marketed on p u r e l y c o m p e t i t i v e terms, as appears to be the case, energy companies w i l l o u t b i d e x i s t i n g and p o t e n t i a l i r r i g a t o r s and p r e clude a g r i c u l t u r a l expansion i n the Yellowstone Basin and the mainstem M i s s o u r i . This would mean a complete change i n the s o c i a l , c u l t u r a l , and economic bases i n Montana, South Dakota, Wyoming, and Nebraska. P r i n c i p a l environmental and economic problems i n c l u d e dewatering o f stream courses, i n c r e a s i n g the cost o f water beyond an i r r i g a t o r ' s f i n a n c i a l c a p a b i l i t i e s , d i s r u p t i o n o f a q u i f e r s , thermal p o l l u t i o n , d e s t r u c t i o n of f i s h and w i l d l i f e , d i s r u p t i o n o f p r o d u c t i v e farm and range land and a i r q u a l i t y d e gradation. T h i s l a r g e scale t r a n s f e r o f water use w i l l s e r i o u s l y a l t e r the e s t a b l i s h e d a g r i c u l t u r a l economy of a r e g i o n which supplies the U . S . and the w o r l d w i t h small g r a i n s and l i v e s t o c k . DEVELOPMENT I N MONTANA Four new e l e c t r i c g e n e r a t i n g f a c i l i t i e s , two under c o n s t r u c t i o n and two under r e v i e w , a r e expected t o p r o v i d e 2,100 megawatts of e l e c t r i c i t y from the C o l s t r i p area of n o r t h e a s t e r n Montana A l l f o u r p l a n t s a r e to be c o a l f i r e d w i t h e v a p o r a t i v e coolincr u n i t s which w i l l consume about 38.400 a c r e f e e t o f water annually. B u r l i n g t o n Northern R a i l r o a d (BN) i s proposing to c o n s t r u c t and o p e r a t e a d i v e r s i o n o f 67,000 a c r e f e e t o f water f o r use i n a s y n t h e t i c f e r t i l i z e r , methanol, and s y n t h e t i c d i e s e l f a c i l i t y near C i r c l e , Montana, using c o a l from a BN mine.?-/ Montana was issued 46,000 a c r e f e e t i n s t a t e permits for, i n d u s t r y and 1, 250,000 a c r e f e e t have been a p p l i e d f o r as o f 1974 An a c r e f o o t i s the amount o f water which would cover an acre o f l a n d of water one f o o t deep. S t a t e o f f i c i a l s e s t i m a t e t h e r e are 42 b i l l i o n tons of c o a l a v a i l a b l e f o r s t r i p m i n i n g . i i ' Montana i s extremely concerned w i t h the p o t e n t i a l l e v e l s of development f o r energy and the impacts a s s o c i a t e d w i t h energy conversion and mining operations. T h e r e f o r e , the s t a t e has put a t i g h t clamp on the export a t i o n o f i t s water by c h a l l e n g i n g f e d e r a l water m a r k e t i n g i n the courts. The s t a t e wants t o v o i d 658,000 a c r e f e e t of c o n t r a c t s from the f e d e r a l government t o the energy companies. The Montana Moratorium Act of 1974 has eased the time o f d e c i s i o n f o r developments w i t h i n t h a t s t a t e . I t a l l o w s the Department o f N a t u r a l Resources and c o n s e r v a t i o n t o delay a c t i o n on any water r i g h t s a p p l i c a t i o n s over 14,000 a c r e f e e t w i t h i n the Yellowstone Basin f o r t h r e e y e a r s , unless the water i s f o r an energy conversion f a c i l i t y approved under the s t a t e U t i l i t y S i t i n g A c t . 176 Page DEVELOPMENT I N MONTANA Four (Continued) Montana has a l s o passed The Renewable Resource Development Act which i s designed t o increase a g r i c u l t u r a l water use through low i n t e r e s t loans t o farmers and ranchers f o r i r r i g a t i o n . I n the 1975 session the Montana S t a t e l e g i s l a t u r e passed a b i l l p l a c i n g the burden of proof on any a p p l i c a n t who seeks, a p e r m i t over 15 cubic f e e t per second to show t h a t p r i o r r i g h t s w i l l n o t be a d v e r s e l y impacted. Montana's o f f i c i a l p o s i t i o n i s t h a t c o a l be exported t o o t h e r p a r t s o f the country f o r conversion purposes. The Montana Department of N a t u r a l Resources f i n d s t h a t an a d d i t i o n a l 1 . 6 m i l l i o n a c r e f e e t K i l l be consumed by 2000 t o i r r i g a t e an a d d i t i o n a l 600,000 a c r e s C u r r e n t l y , the Yellowstone Basin has a t o t a l of 630,000 acres under i r r i g a t i o n , 20,000 acres have gone i n t o i r r i g a t i o n i n the past two years and 40,000 acres are expected to go i n t o i r r i g a t i o n i n the next twoJLl' The Montana Fish and W i l d l i f e Department has requested 7 m i l l i o n a c r e f e e t be reserved i n the r i v e r f o r these purposes i i . / The s t a t e would l i k e to r e c e i v e an o p t i o n t o market a block o f water from the F o r t Peck Reservoir r a t h e r than n e g o t i a t e every s i n g l e a p p l i c a t i o n w i t h an arrangement a l l o w i n g Montana up t o f i v e years t o e x e r c i s e an o p t i o n to s e l l any water from the block set a s i d e , w i t h no payments r e q u i r e d u n t i l the water i s sold.HL/ DEVELOPMENT IN WYOMING Wyoming s t a t e o f f i c i a l s c u r r e n t l y e s t i m a t e t h a t somet h i n g on the order of f i v e new major c o a l f i r e d e l e c t r i c a l genera t i n g p l a n t s , f i v e coal g a s i f i c a t i o n p l a n t s , three coal l i q u i f a c t i o n p l a n t s , an o i l shale conversion complex, and a t l e a s t t h r e e c o a l s l u r r y p i p e l i n e s w i l l be i n o p e r a t i o n by the year 2000 .16/ So f a r six companies, Peabody, Amax, Arco, C a r t e r , Sun O i l arid Kerr-McGee have executed c o n t r a c t s f o r water and are proposing c o a l conversion f a c i l i t i e s 2 J J Basin E l e c t r i c i s proposing and seeking permission from Wyoming t o c o n s t r u c t a 1,500 megawatt c o a l powered p l a n t a t L a r a mie S t a t i o n . Water f o r t h i s p r o j e c t w i l l probably come from the run o f f from the North P l a t t e R i v e r o f which Nebraska o f f i c i a l s e s t i m a t e runs about " t h r e e inches deep" on the average. 1 8 / A compact between Nebraska and Wyoming e x i s t s over the North P l a t t e and i f the water requirements f o r the Basin E l e c t r i c p r o j e c t t h r e a t e n Nebraska water a v a i l a b i l i t y , t h e r e may be a s u b s t a n t i a l f i g h t over t h i s . Related developments a l s o i n c l u d e proposed expansion of uranium mining and m i l l i n g i n Fremont county and b a u x i t e development i n Albany and Carbon county. 177 Page DEVELOPMENT I N WYOMING Five (Continued) Since the most e x t e n s i v e development o f c o a l w i l l o c cur i n Wyoming, water w i l l have to be exported from o t h e r a r e a s t o meet t h i s p r o j e c t e d development. As i t stands, the e n t i r e s t a t e c o a l r e s e r v e s ( 1 . 8 m i l l i o n acres) have been leased out to the energy c o m p a n i e s T h e s e companies have a l s o been purchasing water from the F e d e r a l government, the s t a t e of Wyoming and i n d i v i d u a l h o l d e r s o f water r i g h t s , as w e l l as i r r i g a t a b l e l a n d s , not b e a r i n g c o a l . Texaco has a c q u i r e d about 38,000 acres o f l a n d , 8,000 o f which i s i r r i a a t e d ; C a r t e r O i l holds 9,000 acres o f which 5,000 a r e i r r i g a t a b l e ; and M o b i l has 3,000 acres h a l f o f which are i r r i g a t a b l e . e S f i n the Spring of 3974 the S t a t e L e g i s l a t u r e decided to put a l i d on the water being sold to any e n t e r p r i s e i n the s t a t e by e n a c t i n g a Moratorium Act s i m i l a r to Montana's. However, as an amendment t o the A c t , Energy T r a n s p o r t a t i o n Systems, I n c . was sold 20,000 a c r e f e e t o f water from the Madison ground f o r m a t i o n , a f t e r a s u b s t a n t i a l lobbying e f f o r t which convinced the l e g i s l a t u r e t h a t they would be using b r a c k i s h water and t h a t the w i t h d r a w a l would not a f f e c t the water t a b l e . However, i t was l a t e r shown t h a t ETSI i s indeed p l a n n i n g t o take d r i n k i n g water i n Wyoming and South Dakota. I t was a l s o shown t h a t a serious q u e s t i o n of the w i t h drawal a t t h a t p o i n t of the formation dropping the water t a b l e e x i s t s . Mobil O i l has a p p l i c a t i o n s f o r 58 deep water w e l l s to tap the Madison Formation on the west side o f the Bighorn Mountains. Their annual w i t h d r a w a l of t h i s water would be over 390,000 a c r e f e e t exceeding the recharge along the Bighorn e s t i m a t e d a t about 100,000 a c r e f e e t . ^ i / The w i l l i n g n e s s o f the past Wyoming a d m i n i s t r a t i o n s , p a r t i c u l a r l y under Stanley Hathaway, t o g i v e these companies whatever they needed can best be described by t h r e e s i t u a t i o n s : (a) A study o f the Powder R i v e r , a t r i b u t a r y of the Y e l l o w s t o n e , made by the Harza E n g i n e e r i n g Co. f o r the s t a t e estimated t h a t about 102,900 a c r e f e e t o f water would be a v a i l a b l e from t h a t stream. As o f June o f 1975, 853,365 a c r e f e e t o f i n d u s t r i a l p e r m i t s had been issued amounting t o about 750 p e r c e n t over a p p r o p r i a t i o n of the Powder R i v e r . The Tongue, a l s o a t r i b u t a r y o f the Yellowstone, a c cording to s t a t e records has 96,400 a c r e f e e t a v a i l a b l e . As o f June of 1974, 369,000 a c r e f e e t had been issued i n i n d u s t r i a l permits mainly t o P a c i f i c Power and L i g h t who holds 363,000 a c r e f e e t . T h i s r e p r e s e n t s a 400 p e r c e n t over a p p r o p r i a t i o n . — ^ 178 Page DEVELOPMENT I N WYOMING Six (Continued) (b) The Hathaway a d m i n i s t r a t i o n secured a low i n t e r e s t loan from the S t a t e Farm Loap Board t o c o n s t r u c t a 49,000 capacity r e s e r v o i r . T h i s p r o j e c t was t o u t e d t o be an example o f i n d u s t r y / a g r i c u l t u r e cooperation. C a r t e r O i l (Exxon) would buy 25,000 a c r e f e e t a y e a r , paying an amount e q u a l t o t h e p r i n c i p a l and i n t e r e s t due on the l o a n p l u s one h a l f of the maintenance c o s t s . However, based on the f i g u r e s d e v e l o p ed by C a r t e r ' s own e n g i n e e r s , the amount o f water a v a i l a b l e t o the ranchers would be o n l y 9 , 5 0 0 a c r e f e e t and perhaps as l i t t l e as 1 , 5 0 0 a c r e f e e t a n n u a l l y d u r i n g low stream p e r i o d s . Based on Powder R i v e r Stream f l o w records f o r 1948-69 t h e r e would r a r e l y have been more than 32,000 a c r e f e e t f o r s t o r a g e . So C a r t e r O i l got a low i n t e r e s t l o a n from the S t a t e Farm Board and a guaranteed 25,000 a c r e f e e t , l e a v i n g ranchers w i t h what l i t t l e i s l e f t o v e r . 2 2 / (c) I n 1962, C a r t e r O i l , a p e r e n n i a l f a v o r i t e of the Hathaway a d m i n i s t r a t i o n , f i l e d a water r i g h t a p p l i c a t i o n f o r 208,000 a c r e f e e t from the Powder R i v e r . The S t a t e Engineers o f f i c e i s r e q u i r e d t o issue a p e r m i t unless t h e r e i s s u f f i c i e n t u n - a p p r o p r i a t e d w a t e r a v a i l able. As t h e law stood u n t i l two y e a r s ago, cons t r u c t i o n o f a p r o j e c t had t o begin w i t h i n a year of the g r a n t i n g o f a p e r m i t and must be completed w i t h i n f i v e years o f t h a t d a t e . The i n t e n t o f the s t a t u t e was t o discourage water r i g h t s s p e c u l a t i o n . Despite the s t a t u t e , the S t a t e E n g i n e e r , Floyd Bishop, a l l o w e d C a r t e r t o hold t h i s f i l i n g f o r more than 13 y e a r s w i t h o u t making a s t a r t o f c o n s t r u c t i o n . Although not much importance i s given t o over a l l o c a t i o n i n western water law u n t i l competing uses face each o t h e r i n c o u r t , i f C a r t e r were t o e x e r c i s e t h i s r i g h t f o r 208,000 a c r e f e e t , they coulcl e a s i l y overcome t h e farmer and rancher i n n o u r t . Z T The p r e s e n t a t t i t u d e o f the S t a t e Government i s t o encourage a d d i t i o n a l r e s e r v o i r c o n s t r u c t i o n by passing i n 1975 an a u t h o r i z e d $22 m i l l i o n d o l l a r s i n loans f o r "multi-purpose" r e s e r v o i r s . Although t h i s i s s i m i l a r t o Montana's l e g i s l a t i o n o f f e r i n g loans f o r farmers and r a n c h e r s , the multipurpose l a b e l a t t a c h e d t o the funding may be t o assure adequate storage c a p a c i t y f o r the obvious over a p p r o p r i a t i o n o f the Powder R i v e r Bas i n by i n d u s t r i a l u s e r s . 179 Page DEVELOPMENT I N WYOMING Seven (Continued) O v e r a l l water s u p p l i e s i n Wyoming are inadequate f o r i n d u s t r i a l development. Except f o r the southwestern p r o t i o n of Wyoming where the Green R i v e r (a t r i b u t a r y o f the Colorado) could be used f o r o i l s h a l e , a r e a s w i t h l a r g e c o a l reserves have r e l a t i v e l y small water s u p p l i e s . I f water from other basins cannot be exported t o the c o a l f i e l d s o f Wyoming, the development l e v e l of coal production i n the North C e n t r a l P l a i n s may be f a r below t h a t expected bythe proponents o f " P r o j e c t Independence ." DEVELOPMENT I N SOUTH DAKOTA Although South Dakota does not c o n t a i n l a r g e deposits o f c o a l , the Mainstem M i s s o u r i w i t h i t s massive r e s e r v o i r s , runs through the s t a t e . The augmentation o f the streams f l o w i n g over the c o a l f i e l d s o f Wyoming, w i l l have to r e l y on d i v e r s i o n from the M i s s o u r i i n South Dakota. Also, t a c o n i t e mining i n the Black H i l l s w i l l r e q u i r e water e i t h e r from the Madison ground Formation or the Mainstem M i s s o u r i . And the water proposed to be mined from the Madison formation f o r c o a l s l u r r y i n n e i g h b o r i n g Wyoming may a f f e c t the water supply of western South Dakota. Major energy developments being considered i n South Dakota i n c l u d e the f o l l o w i n g p l a n t s along the M i s s o u r i R i v e r : (1) A M i s s o u r i River Power P l a n t f o r H a r t l a n d E l e c t r i c Power D i s t r i c t (200 megawatts) i s expected t o be on l i n e by 1979. I t w i l l use f l o w through water from the Missouri River and c o a l probably £rQm e a s t ern Wyoming and southwestern North Dakota.££/ (2) A low BTU c o a l g a s i f i c a t i o n combined c y c l e power p l a n t proposed by Northern S t a t e Power i s also being considered.?5/ (3) M i s s o u r i River H y d r o e l e c t r i c p l a n t s i n c l u d e Oahe -595 megawatts, Big Bend-468 megawatts, F t . Randal1320 megawatts, and Gavins P o i n t - 1 0 0 megawatts. Also the Corps o f Engineers a r e studying proposals f o r 14 h y d r o e l e c t r i c u n i t s a t 4 dams i n South D a k o t a . — ' 180 Page DEVELOPMENT I N SOUTH DAKOTA Eight (Continued) According t o the P r o j e c t Independence Water f o r Energy B l u e p r i n t , 1 , 4 0 0 , 0 0 0 a c r e f e e t o f Mainstem Missouri water w i l l be needed t o augment the water s u p p l i e s i n the c o a l f i e l d s o f s o u t h western North Dakota, n o r t h e a s t e r n Wyoming, and southeastern Montana. Gulf M i n e r a l s has an a p p l i c a t i o n i n f o r 50,000 a c r e f e e t , and Energy Systems T r a n s p o r t a t i o n I n c . has an a p p l i c a t i o n i n f o r 100,000 a c r e f e e t from Qahe and 19,000 a c r e f e e t from Shade H i l l Dam i n South Dakota.—'' C o n s t r u c t i o n of coal conversion p l a n t s i n Wyoming w i l l have a s i g n i f i c a n t impact on the water r i g h t s i n South Dakota. Now t h a t Mainstem Missouri water i s earmarked by the F e d e r a l Government, t r a n s p o r t a t i o n of water out of South Dakota w i l l c r e a t e many problems since the s t a t e has no p o l i c y e s t a b l i s h e d f o r a l lowing o u t - o f - s t a t e t r a n s f e r s . Removal o f s i g n i f i c a n t q u a n t i t i e s o f water from the a g r i c u l t u r a l base could p l a y havoc w i t h the s t a t e economy. I t i s expected t h a t South Dakota w i l l have to f l o a t bonds t o pay f o r some o f the c o n s t r u c t i o n o f p i p e l i n e diversion f a c i l i t i e s . I f the r e t u r n from the revenues expected from the sale and t r a n s f e r o f the water from Oahe to G i l l e t t e do not match the investment over the expected l i f e t i m e o f the p r o j e c t (30 years) then South Dakota w i l l be i n t r o d u c e d to very s e r i o u s economic r i s k s . Although South Dakota has t o develop a s t a t e water p l a n as r e q u i r e d by s t a t e law, the M i s s o u r i R i v e r i s number 15 on the l i s t and i t i s not expected t o be completed f o r another 1 t o 5 y e a r s . Zli/The S t a t e L e g i s l a t u r e i n response to the ETSI proposal i n 1975 passed a law p r o h i b i t i n g any withdrawal from any r i v e r beyond 10,000 AF i n South Dakota w i t h o u t approval of the State Legislature. F i n a l l y * t h e South Dakota School of Mines has i n d i c a t e d that p a r t i c u l a t e s from coal conversion could s i g n i f i c a n t l y reduce r a i n f a l l i n the North C e n t r a l p l a i n s because they would draw p r e c i p i t a t i o n and take them down ^ci>pd t o be deposited elsewhere i n the form of p o l l u t e d r a i n f a l l . Z—/ DEVELOPMENT IN NORTH DAKOTA The development scenarios i n North Dakota v a r y from 42 g a s i f i c a t i o n p l a n t s and 31,000 megawatts of e l e c t r i c a l g e n e r a t i o n t o 14 g a s i f i c a t i o n p l a n t s and 4,920 megawatts. 3 _L/ So f a r , M i c h i gan/Wisconsin P i p e l i n e , a s u b s i d i a r y o f American N a t u r a l Gas C o . , proposes t o c o n s t r u c t a c o a l g a s i f i c a t i o n p l a n t i n Mercer County and has r e c e i v e d permission from the F e d e r a l government f o r a p e r m i t f o r 17,000 a c r e f e e t ; 2 2 / however, the s t a t e has not agreed w i t h this. North Dakota has a s s e r t e d t h a t the Bureau of Reclamation i s a holder of a s t a t e water p e r m i t but has no a u t h o r i t y t o d i v e r t 181 Page DEVELOPMENT I N NORTH DAKOTA Nine (Continued) water a l r e a d y committed p r i m a r i l y f o r i r r i g a t i o n f o r use.31/ industrial The North Dakota Water Conservation Commission has not y e t come f o r t h w i t h an o v e r a l l p l a n f o r development o f the s t a t e ' s water r e s o u r c e s . Farming and ranching groups are now seeking an i n j u n c t i o n a g a i n s t the a d d i t i o n a l issuance o f water p e r m i t s u n t i l a comprehensive p l a n f o r water development i s made by the S t a t e Water Commission. However, the Water Commission has stepped back as being the l e a d agency f o r r e c e i v i n g i n d u s t r i a l a p p l i c a t i o n s and has now requested t h a t i n d u s t r i a l a p p l i c a n t s f i r s t o b t a i n a c e r t i f i c a t e o f s i t e c p m p a t a b i l i t y from the North Dakota P u b l i c Service Commission.-zJ Basin E l e c t r i c Power Cooperatives i s r e q u e s t i n g water f o r an 800-megawatt g e n e r a t i n g p l a n t a t the ANG p l a n t s i t e i n Mercer County. 2!L/ P e o p l e ' s Gas Company has a p p l i e d f o r water t o supply four c o a l g a s i f i c a t i o n p l a n t s i n Dunn County. The amount i s e s t i m a t e d a t being 30,000 a c r e f e e t . North Dakota has undergone a s h i f t from promoting c o a l development to r e j e c t i n g i t i n some cases such as the West R i v e r Diversion Project. I n 1975, the North Dakota S t a t e L e g i s l a t u r e voted not to support t h i s p r o j e c t over the o b j e c t i o n s o f the North Dakota S t a t e Water Commission. This p r o j e c t was t o d i v e r t hundreds of thousands o f a c r e f e e t o f water from G a r r i s o n Dam down to the c o a l f i e l d s o f southwestern North Dakota. The g e n e r a l a t t i t u d e of the State o f North Dakota conc e r n i n g water r i g h t s i s t h a t the s t a t e should be a b l e to s e l l or r e f u s e to s e l l as much water as i t pleases beyond the j u r i s d i c t i o n of the F e d e r a l government. 182 P a g e Twenty-four DEVELOPMENT IN NEBRASKA Expected major energy development i n Nebraska i s as follows: (1) a c o a l f i r e d p l a n t i n Sutherland (2000 megawatts 38,000 AF of w a t e r ) , (2) a pumped storage h y d r o p l a n t near Lynch (1,000 t o 1 , 6 0 0 megawatts), (3) a c o a l f i r e d p l a n t a t Nebraska C i t y (575 megawatts), (4) a hydropower unit Kingsley Dam (43 megawatts), (5) a nuclear p l a n t a t F o r t Calhoun (1,150 megawatts 20,000 AF o f w a t e r ) , (6) a nuclear p l a n t a t s i t e of p r e s e n t Cooper P l a n t ( 1 , 0 0 0 megawatts), (7) a c o a l g a s i f i c a t i o n p l a n t , s i t e unknown, (250 m i l l i o n cubic f e e t per d a y ) . 2 6 / Nebraska has no s t a t u t o r y a u t h o r i t y over the Mainstem M i s s o u r i R i v e r to market w a t e r . The S t a t e could g a i n such a u t h o r i t y by a l t e r i n g i t s C o n s t i t u t i o n , c u r r e n t l y , however, i f the F e d e r a l government chooses t o market water from the Mainstem-Missouri, Nebraska has no l e g a l say so i n the matter w h a t s o e v e r . — ' The s t a t e water r i q h t s on o t h e r r i v e r s i n the s t a t e do show a d e f i n i t e p r e f e r e n c e f o r a g r i c u l t u r a l use. Nebraska i s perhaps the o n l y North C e n t r a l p l a i n State which has u t i l i z e d i t s i r r i g a t i o n pot e n t i a l to i t s f u l l e s t . I n order f o r i n d u s t r y t o g a i n a f o o t h o l d i n s t a t e water r i g h t s , i t w i l l have t o also purchase l a r g e t r a c t s o f i r r i g a t i b l e lands w i t h accompanying water r i g h t s . T h i s would take a g r e a t d e a l of a r a b l e land out o f food p r o d u c t i o n , since the water use would be t r a n s f e r r e d t o i n d u s t r y . Nebraska i n s i s t s t h a t d e c i s i o n s t o market water f o r ind u s t r i a l p u r p o s e s be done i n C o n g r e s s n o t a d m i n i s t r a t i v e l y . The s t a t e a l s o f e e l s t h a t no a s s u r a n c e i s g i v e n t h a t t h e amount c h a r g e d f o r w a t e r f o r i n d u s t r i a l p u r p o s e s w i l l be s u f f i c i e n t t o r e i m b u r s e the Basin Account f o r a l l revenue l o s t . Nebraska's f i n a l conc e r n i s t h e adequacy o f safeguards t o i n s ^ e l o n g range use o f w a t e r f o r a g r i c u l t u r e and h y d r o e l e c t r i c . - — ^ 183 Page Eleven INDIAN WATER RIGHTS I n d i a n water r i g h t s are based on the Winters D o c t r i n e construed by the Supreme Court i n 1908. The D o c t r i n e holds t h a t the I n d i a n t r i b e s have the r i g h t to as much water as i s necessary t o i r r i g a t e the t o t a l sum of t h e i r i r r i g a b l e lands and t h a t even though the r i g h t may have gone unexercised i t c a r r i e s a p r i o r i t y i n the time from the date the r e s e r v a t i o n was e s t a b l i s h e d . The Landmark water case, Arizona v. C a 1 i f o r n l a , r e - a f f i r m e d the p r i o r and paramount r i g h t s o f I n d i a n t r i b e s as w e l l as e x t e n d i n g the water use r i g h t s of I n d i a n s beyond a g r i c u l t u r a l uses. I n d i a n water r i g h t s are not F e d e r a l or p u b l i c r i g h t s . They a r e p r i v a t e p r o p e r t y r i g h t s f o r the b e n e f i c i a l use o f I n d i a n tribes. I n d i a n water r i g h t s as construed by the Winters D o c t r i n e , and C a l i f o r n i a v . Arizona cases, a r e not g r a n t s t o the I n d i a n s but are r i g h t s h e l d by t r e a t y and a b o r i g i n a l p r i o r i t y . I n terms o f the F e d e r a l government's r e s p o n s i b i l i t y , i t i s supposed t o a c t as the t r u s t e e o f these r i g h t s on b e h a l f o f the t r i b e s . I n o t h e r words, because o f t r e a t y and moral o b l i g a t i o n s the F e d e r a l government i s responsible f o r h e l p i n g to d e t e r mine, a d j u d i c a t e , p r o t e c t and develop I n d i a n water r i g h t s . However, the Bureau o f Reclamation has done e v e r y t h i n g p o s s i b l e t o subo r d i n a t e I n d i a n Water Rights to narrow l a r g e scale i n d u s t r i a l and a g r i c u l t u r a l users. I n June o f 1974, the BIA recommended to a l l t r i b e s t h a t they develop t h e i r own water codes. Then the BIA turned around and s a i d t h a t although water codes had been developed, the t r i b e s c o u l d n ' t submit them and t h a t the s i t u a t i o n needed f u r t h e r study. This r e v e r s a l on the p a r t of the BIA came as a r e s u l t o f the pressure brought on them by the I n t e r i o r S o l i c i t o r ' s O f f i c e , and the Bureau of Reclamation. The S t a t e s c o n t a i n i n g I n d i a n r e s e r v a t i o n s a r e even more s t r i d e n t i n s y s t e m a t i c a l l y denying I n d i a n water r i g h t s i n p r e ference t o n o n - I n d i a n uses. Over the past t e n y e a r s , I n d i a n t r i b e s have r a p i d l y developed s o p h i s t i c a t e d l e g a l s t r e n g t h and now pose a r e a l t h r e a t t o water r e l a t e d expansion. The N a t i o n a l Water Commission has s t a t e d t h a t unless I n d i a n water r i g h t s a r e s e t t l e d , many energy and a g r i c u l t u r e p r o j e c t s w i l l be p r e c l u d e d . Much o f t h i s r h e t o r i c from the Commission i s to push f o r a f i n a l s e t t l e m e n t where I n d i a n s w i l l have no r e a l say over the amount o f water they a r e e n t i t l e d t o and how.they should use i t . The t h r e e a f f i l i a t e d t r i b e s a t F o r t B e r t h o l d i n North Dakota are contemplating a c t i o n to determine and a d j u d i c a t e t h e i r water r i g h t s . According t o t h e i r a t t o r n e y they w i l l argue t h a t the M i s s o u r i i s over committed and t h a t honoring present I n d i a n water r i g h t s w i l l leave North Dakota short f o r i t s own u s e s . 1 5 / 71-7H7 () - 7(> 184 Page I N D I A N WATER RIGHTS Twelve (Continued) I n Montana, the Northern Cheyenne and Crow T r i b e s a r e e n t e r i n g i n t o separate s u i t s t o determine and a d j u d i c a t e t h e i r rights. Both t r i b e s a r e c l a i m i n g r i g h t s from the common bounda r y of the S t a t e o f Montana t o the headwaters o f the Tongue and Bighorn R i v e r s . M / T h e S t a t e o f Montana i s s t r u g g l i n g t o g e t the cases argued i n a f r i e n d l i e r s t a t e c o u r t and the F e d e r a l government i s t r y i n g t h e i r best t o discourage the t r i b e s from v e n t u r i n g on t h e i r own by f o r c i n g the Northern Cheyenne, f o r example, t o use t h e i r economic development funds f o r l i t i g a t i o n . The F o r t Peck T r i b e i s p r e s e n t l y conducting a water resource i n v e n t o r y w i t h the a s s i s t a n c e o f the Bureau o f I n d i a n Affairs. The i n v e n t o r y i n c l u d e s : I n d i a n Water Rights i n c l u d i n g n a t u r a l f l o w and storage? the r i g h t s o f I n d i a n t r i b e s t o market waters they have paramount c l a i m to which are i n the R e s e r v o i r s along the M i s s o u r i R i v e r ; the c u r r e n t F e d e r a l and s t a t e laws; i n t e r n a t i o n a l compacts; p u b l i c l a n d and s t a t e land water r e q u i r e ments. 4 1 / The Crow Creek Sioux T r i b e , who r e s i d e along the e a s t e r n s h o r e l i n e o f the Big Bend Reservoir i n South Dakota m a i n t a i n t h a t the Department of I n t e r i o r has been d i m i n i s h i n g t h e i r water r i g h t s and the a u t h o r i t y o f the t r i b a l c o u n c i l t o comprehensively r e g u l a t e water w i t h i n the e x t e r i o r boundaries o f t h e i r r e s e r v a t i o n . The t r i b e i s seeking the Department o f I n t e r i o r to honor the r i g h t s of the t r i b e to issue a l l water claims w i t h i n the e x t e r i o r bounda r i e s of t h e i r reservation? to e s t a b l i s h and c o l l e c t water u s e r ' s fees? to submit a l l water a p p l i c a t i o n s f o r s t a t e p e r u s a l ; but to have f i n a l a u t h o r i t y r e s t w i t h the t r i b e . F i n a l l y , the t r i b e requests t h a t i t be g i v e n f u l l membership to the M i s s o u r i R i v e r Basin Commission. The Crow Creek T r i b e a l s o wants to u t i l i z e M i s s o u r i River water to i r r i g a t e 30,000 acres o f t h e i r landA?_/ The t r i b e s i n South Dakota have also i n d i c a t e d t h a t they . too a r e p l a n n i n g l i t i g a t i o n to e x e r c i s e t h e i r r i g h t s on the M i s souri . Arapahoe and Shoshone T r i b e s o f the Wind R i v e r r e s e r v a t i o n i n Wyoming a r e a s s e r t i n g t h a t they cannot o b t a i n a f a i r and i m p a r t i a l d e t e r m i n a t i o n o f t h e i r water r i g h t s as long as the Secr e t a r y of I n t e r i o r simultaneously s e l l s l a r g e q u a n t i t i e s o f water t o l a r g e i n d u s t r i a l users. The t r i b e claims to have 198,54 2 acres a v a i l a b l e f o r i r r i g a t i o n . The Shoshones and Arapahoes are a l s o m a i n t a i n i n g t h a t pending f u r t h e r s e t t l e m e n t of the t r i b e s * r i g h t s , the Department should n e i t h e r s e l l or commit any f u r t h e r water unless they a r e to be made a p a r t y o f such c o n t r a c t s , p l a c i n g the c o n t r a c t s subo r d i n a t e t o t h e i r Winters r i g h t s e n t i t l e m e n t s 185 Page T w e n t y - f o u r LEGAL ISSUES The c r i t i c a l q u e s t i o n , "Who c o n t r o l s the water?" has not y e t been completely answered. The f o l l o w i n g c o u r t cases p e r t a i n to some of the l e g a l r a m i f i c a t i o n s of the water f o r energy questions. New Mexico v . U.S. This case was f i l e d i n New Mexico s t a t e c o u r t i n the s p r i n g o f 1975 by the S t a t e of New Mexico t o force d e t e r m i n a t i o n and a d j u d i c a t i o n o f I n d i a n water r i g h t s i n State Court. New Mexico i s arguing t h a t the Navajo t r i b e which has the o l d e s t t r e a t y date be g i v e n p r i o r r i g h t s over o t h e r t r i b e s using common w a t e r . This i n e f f e c t sets up the N a v a j o ' s as a water broker and p i t s one t r i b e a g a i n s t a n o t h e r . f Mary A i k i n v . U.S. This case i s p a r a l l e l t o New Mexico v . U . S . i n t h a t i t a r i s e s out o f the San Juan R i v e r Basin i n northwestern New Mexico and southwestern Colorado. The issue again i s p r i m a r i l y j u r i s d i c t i o n a l . Should F e d e r a l or S t a t e c o u r t s a d j u d i c a t e water disputes? The case i n v o l v e s 1 , 2 0 0 water users and the U.S. government, which claims j u r i s d i c t i o n over the r i v e r by v i r t u e o f i t s passage over F e d e r a l and I n d i a n lands i n c l u d i n g a n a t i o n a l p a r k , s e v e r a l n a t i o n a l monuments and an I n d i a n r e s e r vation . The Supreme Court has r u l e d on March 24, 1976 t h a t S t a t e s do have the r i g h t t o a d j u d i c a t e waters w i t h i n the boundaries of t h e i r s t a t e l i n e s under the McCarran amendment. * The c o n s i d e r a t i o n of the c o u r t d i d not take i n t o account the p r i v a t e p r o p e r t y r i g h t s held i n t r u s t for Indian t r i b e s . This i s a c r u c i a l p o i n t i n t h a t the f e d e r a l government argued t h a t I n d i a n r i g h t s are f e d e r a l r i g h t s , which negates the sovereignty o f t r e a t y r i g h t s o f I n d i a n t r i b e s under the Winters D o c t r i n e . This case i s i m p o r t a n t because i t may serve as a precedent f o r other cases i n the f u t u r e and could become the b a s i s o f a s t a t e ' s r i g h t b a t t l e f o r water i n the west.ix/ United States v. C a l i f o r n i a . This case d e a l s w i t h F e d e r a l preemption o f S t a t e water r i g h t s . The F e d e r a l D i s t r i c t c o u r t i n C a l i f o r n i a has e n t e r e d a judgment d e c l a r i n g t h a t the U.S. can w i t h o u t a p p l y i n g to the s t a t e of C a l i f o r n i a , a p p r o p r i a t e a l l unappropriated waters necessary f o r use i n any F e d e r a l Reclamation project. T h i s case w i l l c e r t a i n l y s e t a precedent f o r the r i g h t s o f s t a t e s t o p l a c e Federal water uses under s t a t e laws, and w i l l have s i g n i f i c a n t impact on the Upper M i s s o u r i Basin s t a t e s . This d e c i s i o n i s c e r t a i n l y being appealed i n F e d e r a l c o u r t . M / * 43 U . S . C . 3 666, 66 S t a t . 560. 186 Page LEGAL ISSUES Fourteen (Continued) Arizona v. C a l i f o r n i a . Three cases r e p r e s e n t t h e bulk o f a 45 year s t r u g g l e over a l l o c a t i o n , use, and j u r i s d i c t i o n over the Colorado R i v e r System between A r i z o n a , Nevada, C a l i f o r n i a and the F e d e r a l government. The f i r s t case* 283 U , S . 423 (1931) arose out of the attempt by Arizona t o e n j o i n the Boulder Canyon P r o j e c t Act of 1928 which a u t h o r i z e d water from the lower Colorado Basin f o r i r r i g a t i o n and urban expansion i n Southern C a l i f o r n i a . The Supreme Court r u l e d t h a t the Colorado i s a n a v i g a t i b l e stream and the U . S . government can develop the Colorado system as i t sees f i t under the commerce clause o f the C o n s t i t u * i.on. 47 / The second case ,298 U . S . 5 8 8 ( 1 9 3 6 ) , . stemmed from t h e a t t e m p t of Arizona t o a s s e r t c o n t r o l over the Boulder Canyon Act o f 1928 w i t h s t a t e laws and s t a t e h e l d p r i o r a p p r o p r i a t i o n s . Again, the supreme Court r u l e d t h a t the U . S . government under t h e comm e r c e clause o f the C o n s t i t u t i o n i s not s u b j e c t t o the c o n t r o l of the s t a t e i n b u i l d i n g p r o j e c t s . & J The t h i r d case, 373 U.S. 5 4 6 ( 1 9 6 3 ) , stemmed from t h e quest i o n of whether the s t a t e s had c o n t r o l over the a l l o c a t i o n o f t h e Colorado R i v e r . I n t h i s case C a l i f o r n i a was seeking a l a r g e r a l l o c a t i o n d e s p i t e the uses earmarked f o r the water by A r i z o n a . Again the Supreme Court r u l e d t h a t the F e d e r a l government has the f i n a l power • t o a l l o c a t e water i n the Colorado R i v e r . A l s o , t h a t compacts, and a l l o t h e r elements governing s t a t e law which i n t e r p o s e d F e d e r a l law could be moved aside by Congress; t h a t the t r i b u t a r i e s o f the Colorado i n Arizona are not t o be considered i n the a l l o c a t i o n o f Colorado r i v e r system; and t h a t the a d m i n i s t r a t i v e power of the F e d e r a l government over the Colorado River l i e s i n the hands o f the S e c r e t a r y of I n t e r i o r . F i n a l l y the Winters D o c t r i n e a s s e r t i n g I n d i a n water r i g h t s would be a p p l i c a b l e t o a l l p r e s e n t and f u t u r e uses as w e l l as expanding I n d i a n water r i g h t s t o i n c l u d e uses o t h e r than a g r i c u l t u r e . The f i n a l outcome was an a l l o c a t i o n of t h e lower Basin account of 7.5 m i l l i o n a c r e f e e t per year d i v i d e d w i t h C a l i f o r n i a r e c e i v i n g 4 . 4 m i l l i o n a c r e f e e t per y e a r , A r i z o n a 2 . 8 m i l l i o n , and Nevada r e c e i v i n g 300,000 A F . - i ^ The backdrop of these cases was set by the s t r u g g l e b e tween the economic forces i n C a l i f o r n i a and A r i z o n a . Because C a l i f o r n i a was r a p i d l y u t i l i z i n g t h e i r water through the Boulder Canyon Act o f 1928 f o r i r r i g a t i o n o f t h e i m p e r i a l v a l l e y , A r i z o n a , f e a r i n g an over a l l o c a t i o n by C a l i f o r n i a , a t t e m p t e d t o e n j o i n the F e d e r a l Project unsuccessfully. The spectacular growth o f the I m p e r i a l V a l l e y ' s a g r i c u l t u r a l economy would prove t o be the dominant i n t e r e s t behind the d e c i s i o n s rendered by the c o u r t s . The a g r i c u l t u r a l methods of farming the I m p e r i a l V a l l e y r e q u i r e d massive c a p i t a l i n vestment to grow food along the v a s t expanse of what was a semia r i d desert. And so, by c e n t r a l i z i n g c o n t r o l over the Colorado through the Department of I n t e r i o r and Congress, the c a p i t a l i n v e s t ments promoting r a p i d growth i n Southern C a l i f o r n i a were p r o t e c t e d . 187 Page LEGAL ISSUES Fifteen (Continued) Out of the sheer f o r c e o f massive a g r i c u l t u r a l and urban expansion came two basic precedents which have served t o p r o t e c t c a p i t a l investment i n water p r o j e c t s and t h e i r r e l a t e d growth: (a) Once a "present b e n e f i c i a l use" precedent i s e s t a b l i s h e d , no s t a t e can i n t e r f e r e w i t h i t . I n the case of C a l i f o r n i a , i t has been using Colorado R i v e r water f o r years t o expand m u n i c i p a l and a g r i c u l t u r a l growth. Any e f f o r t t o take away t h i s water would cause s e r i o u s impacts on the s t a t e . (b) Once an i n t e r s t a t e commerce p r o j e c t i s e s t a b l i s h e d no s t a t e can i n t e r f e r e w i t h i t . For example, i f water being used i n I m p e r i a l V a l l e y from the Colorado were shut o f f then the food products now supplying the n a t i o n would be cut back t o the d e t r i ment of the n a t i o n . These two precedents w i l l have an enormous i m p l i c a t i o n to energy development i n the Upper M i s s o u r i Basin. For example, i f an energy conversion p r o j e c t were e s t a b l i s h e d i n a s t a t e and was supplying energy t o another p a r t o f the country i t can f a l l very e a s i l y i n t o the two c a t e g o r i e s o f "present b e n e f i c i a l maximum user and i n t e r s t a t e commerce p r o j e c t . " So i f i t were proven t h a t t h i s p r o j e c t was s e r i o u s l y a f f e c t i n g the water supply f o r a g r i c u l t u r e no s t a t e or e n t i t y could i n t e r f e r e w i t h i t . F i r s t Iowa H y d r o e l e c t r i c Coop, v . FPC. (328 U . S . 152 (1946)). This case arose out of the attempt by the s t a t e o f Iowa t o f o r c e F e d e r a l h y d r o e l e c t r i c p r o j e c t s on n a v i g a t a b l e streams to comply w i t h s t a t e laws s e t t i n g up a s i t u a t i o n o f d u p l i c a t e compliance. The Supreme Court r u l e d t h a t the s t a t e s do not have veto power through s t a t e laws when the commerce clause of the C o n s t i t u t i o n i s i n v o l v e d . 50./ EPF v . Morton. Successful l i t i g a t i o n o f t h i s s u i t w i l l s i g n i f i c a n t l y slow development pressure because the Federal government would have t o e v a l u a t e a l l of i t s e x i s t i n g water commitments. The case c e n t e r s around t h r e e b a s i c i s s u e s : (1) the a u t h o r i t y o f the F e d e r a l government to market water f o r i n d u s t r i a l purposes under e x i s t i n g s t a t u t e s i n the Upper M i s s o u r i Basin w i t h out Congressional changes; (2) the v i o l a t i o n of A r t i c l e X of the Yellowstone Compact which p r o h i b i t s i n t e r s t a t e d i v e r s i o n of water from Montana t o the c o a l f i e l d s of Wyoming; (3) the requirement of Environmental Impact Statements on a l l .contracts f o r i n d u s t r i a l water o p t i o n s i n the Yellowstone B a s i n . — / 188 Page LEGAL ISSUES Sixteen (Continued) I n t a k e P i p e l i n e Co. v . Montana and N o r t h D a k o t a . This case d e a l s w i t h A r t i c l e X o f t h e Y e l l o w s t o n e Compact. Intake pipeline, a subsidiary of Tenneco is challenging the c o n s t i t u t i o n a l i t y o f t h e Y e l l o w s t o n e Compact i n t h e F e d e r a l D i s t r i c t c o u r t i n B i l l i n g s , as i t r e l a t e s t o t h e p r o h i b i t i o n o f i n t e r s t a t e transfers. I n t a k e w a n t s t o move w a t e r f r o m G l e n d i v e , M o n t a n a t o B e a c h , N o r t h Dakota. I f t h e Y e l l o w s t o n e Compact i s b r o k e n , d i v e r s i o n s o f w a t e r f r o m one s t a t e t o a n o t h e r c o u l d g r e a t l y expand i n d u s t r i a l development. I f the c o u r t does uphold the p r o h i b i t i o n o f i n t e r b a s i n t r a n s f e r s , Tenneco c o u l d c i r c u m v e n t A r t i c l e X by b u i l d i n g i t s T h e c o a l p l a n t f u r t h e r west and i n s i d e t h e Y e l l o w s t o n e B a s i n . t h e n w o u l d h a v e t o be m o v e d f r o m t h e c o m p a n y ' s c o a l f i e l d s i n N o r t h Dakota across the s t a t e l i n e s i n t o Montana.—/ I n t a k e v . Montana. I n t a k e W a t e r Company h a s r e c e n t l y won t h i s c a s e t o h a v e p e r m i t s f o r 8 0 , 0 0 0 a c r e f e e t f r o m t h e Y e l l o w s t o n e R i v e r f o r c o n s t r u c t i o n o f a s many a s 8 g a s i f i c a t i o n p l a n t s . Tenneco had c l a i m e d t h i s w a t e r under p r o v i s i o n s o f Montana law w h i c h was r e p e a l e d i n 1973 b y t h e s t a t e l e g i s l a t u r e . The D i s t r i c t c o u r t has r u l e d t h a t t h e o l d law a p p l i e s A i L / 189 Page Seventeen FEDERAL LAW " T h e r e has been a s l o w e v o l u t i o n o f t h e B u r e a u o f Rec l a m a t i o n program t o w a r d i n c l u d i n g m u n i c i p a l and i n d u s t r i a l (M&I) w a t e r s u p p l y as p r o j e c t p u r p o s e s . But each o r g a n i c r e c l a m a t i o n s t a t u t e has p l a c e d s p e c i f i c l i m i t a t i o n s on s u p p l y i n g M&I w a t e r f r o m r e c l a m a t i o n p r o j e c t s " 5 4 / : 1 . The M i s c e l l a n e o u s S u p p l y A c t o f 1 9 2 0 . This early A c t p l a c e d v e t o power o v e r a l l c o n t r a c t s s e t o u t by t h e S e c r e t a r y o f I n t e r i o r f o r purposes other than a g r i c u l t u r e i n the hands o f s t a t e a p p r o v e d w a t e r u s e r s a s s o c i a t i o n s . There had t o b e c l e a r s h o w i n g t h a t no p r a c t i c a l a l t e r n a t i v e w a t e r s o u r c e e x i s t e d , t h a t r i g h t s o f p r i o r a p p r o p r i a t o r s w o u l d be p r o t e c t e d a n d t h a t t h e i n d u s t r i a l s u p p l y w o u l d n o t be d e t r i m e n t a l t o i r r i g a t i o n needs. The L i b r a r y o f C o n g r e s s A m e r i c a n Law D i v i s i o n has p o i n t e d o u t t h a t t h e Department o f I n t e r i o r has r e p e a l e d t h i s l a w b y i m p l i c a t i o n w i t h no a u t h o r i z i n g l a n g u a g e i n s u b s e q u e n t r e c l a m a t i o n a c t s r e p e a l i n g t h e 1920 A c t . ^ 5 / 2 . " T h e 1939 R e c l a m a t i o n P r o j e c t A c t . This Act p r o v i d e s f o r m u l t i p u r p o s e s a l e o£ w a t e r t o r m u n i c i p a l a n d m i s c e l laneous uses where a u t h o r i z e d , b u t t h e S e c r e t a r y o f I n t e r i o r m u s t make a f i n d i n g t h a t t h e v a l u e o f t h e p r o j e c t f o r i r r i g a t i o n i s n o t t o be p r e c l u d e d f o r m u n i c i p a l a n d i n d u s t r i a l u s e s . " L § / 3 . The F l o o d C o n t r o l A c t o f 1 9 4 4 . A l t h o u g h Congress e n v i s i o n e d m u l t i p l e and c h a n g i n g uses on t h e r e s e r v o i r s a u t h o r i z e d i n t h e 1944 F l o o d C o n t r o l A c t , i t s d e s i g n a t i o n o f d o m i n a n t i n t e r e s t had t h e e f f e c t o f g i v i n g p r e f e r e n c e t o uses viewed as c o n t r i b u t i n g t o t h e g r e a t e s t good o f the p e o p l e o f v a r i o u s r e g i o n s s e r v e d by t h e p r o j e c t s , and t h a t a u t h o r i z a t i o n t o a l t e r t h e e x p r e s s e d d o m i n a n t i n t e r e s t i n t e n d e d by Congress had n o t b e e n d e l e g a t e d , C h a r g e s i n t h a t p r e f e r e n c e r e q u i r e new C o n g r e s sional approval. The C o n g r e s s and t h e B u r e a u o f R e c l a m a t i o n e n v i s i o n e d t h e c o n t i n u e d dominance o f a g r i c u l t u r e as t h e e c o n o m i c base o f t h e M i s s o u r i R i v e r B a s i n and recommended t h a t r e s e r v o i r s on t h e Y e l l o w s t o n e R i v e r a n d t h e Upper M a i n s t e m M i s s o u r i s h o u l d be p r i marily for irrigation; and t h a t a g r i c u l t u r a l dominance i n the U p p e r M i s s o u r i B a s i n was a c c e p t e d i n t h e r e c o n c i l i a t i o n b e t w e e n t h e Corps and t h e Bureau o f R e c l a m a t i o n and a d o p t e d by Congress t h r o u g h i n c o r p o r a t i o n o f t h e P i c k / S l o a n P l a n as t h e document i n t h e A c t , C o n g r e s s t h e r e b y e n d o r s e d and a d o p t e d i r r i g a t i o n as t h e p r i m a r y use i n t e n d e d o f w a t e r f r o m P r o j e c t s i n t h e Upper M i s s o u r i Basin.LT 190 Page FEDERAL LAW Eighteen (Continued) 4 . The 1958 W a t e r S u p p l y A c t . This Act states t h a t s t o r a g e f o r m u n i c i p a l a n d i n d u s t r i a l u s e s may be i n c l u d e d i n e x i s t i n g o r f u t u r e R e c l a m a t i o n o r C o r p s p r o j e c t s b u t m u s t be s p e c i f i c a l l y a u t h o r i z e d by Congress i f t h e o r i g i n a l purposes o f t h e project such as i r r i g a t i o n w o u l d be s e r i o u s l y a f f e c t e d . This i s o u t l i n e d p a r t i c u l a r l y i n T i t l e I I I of the A c t . " T h i s p r o g r e s s i o n o f C o n g r e s s i o n a l A c t s shows t h a t Congress has approached t h e whole q u e s t i o n o f "M&I" w a t e r v e r y cautiously. I t i s c l e a r t h a t t h e n o t i o n o f d e v o t i n g enormous q u a n t i t i e s of water, l e t alone the preponderance of a c e r t a i n p r o j e c t ' s , r i v e r ' s , o r r e g i o n ' s water t o e n e r g y / i n d u s t r i a l uses has n e v e r been r a i s e d o r a p p r o v e d by C o n g r e s s . " I t i s c l e a r t h a t t h e demand f o r i n d u s t r i a l w a t e r i s exceeding a l l p r i o r expectations. B u t t h e use o f t h e t e r m " m i s c e l l a n e o u s " or " i n d u s t r i a l " i n the e x i s t i n g r e c l a m a t i o n laws o b v i o u s l y d i d n o t c o n t e m p l a t e massive e n e r g y / i n d u s t r i a l demands, a n d we m u s t be s u r e t h a t t h e s e l i m i t e d a u t h o r i z a t i o n s f o r " M & I " w a t e r a r e n o t i n t e r p r e t e d by t h e agencies as broad a u t h o r i t y f o r massive i n d u s t r i a l water a l l o c a t i o n s from Federal projects."-^®/ RECENT FEDERAL ACTIONS I n d u s t r i a l Water M a r k e t i n g Program - — 1967-1972. This p r o g r a m was i n s t i t u t e d b y S e c r e t a r y o f I n t e r i o r S t u a r t U d a l l a n d A s s i s t a n t S e c r e t a r y f o r W a t e r a n d Power Ken H o l l u m . The N i x o n a d m i n i s t r a t i o n s u b s e q u e n t l y c a r r i e d i t on u n t i l t h e f a r m e r s , r a n c h e r s , S t a t e s and I n d i a n t r i b e s a f f e c t e d by t h i s program d i s covered the magnitude o f the s a l e s i n 1972. Since then the Department has imposed a m o r a t o r i u m o v e r s a l e s i n t h e Y e l l o w s t o n e B a s i n u n t i l t h e l a w s u i t b r o u g h t a g a i n s t them by t h e E n v i r o n m e n t a l Defense Fund, i r r i g a t i o n i s t s , and t h e S t a t e o f Montana i s r e s o l v e d . T h i s p r o g r a m h a d no p r o c e d u r e s w h e r e b y t h e S t a t e s , w a t e r u s e r s ' a s s o c i a t i o n , and I n d i a n t r i b e s c o u l d approve t h e c o n t r a c t s . The o n l y a p p r o v a l was a s p e c i a l p r o c e d u r e w i t h i n t h e D e p a r t m e n t . The s t a t e s w e r e n e v e r i n f o r m e d t h r o u g h f o r m a l p r o c e d u r e a s t o w h a t t h e w a t e r b e i n g s o l d was g o i n g t o be u s e d . As a r e s u l t , 6 5 8 , 0 0 0 a c r e f e e t o f w a t e r was o p t i o n e d o u t q u i e t l y a t a p r i c e r a n g i n g f r o m 9 t o 1 1 d o l l a r s a n a c r e f o o t w i t h a 50C o p t i o n t o renew. The a m o u n t o f w a t e r o p t i o n e d f r o m t h e Y e l l o w t a i l r e s e r Although v o i r may w e l l h a v e e x c e e d e d i t s a c t i v e s t o r a g e c a p a c i t y . t h e Y e l l o w t a i l r e s e r v o i r , where most o f t h e s a l e s went on, i s c l e a r l y a u t h o r i z e d f o r a g r i c u l t u r e , no w a t e r h a s b e e n a l l o c a t e d f o r i r r i g a t i o n from t h i s r e s e r v o i r since i t s c o n s t r u c t i o n . 59/ 191 Page RECENT FEDERAL ACTIONS Nineteen (Continued) The Ad Hoc C o m m i t t e e o n w a t e r m a r k e t i n g i n t h e U p p e r M i s s o u r i B a s i n was f o r m e d u p o n t h e r e q u e s t o f t h e C o r p s o f Engineers and t h e Bureau o f Reclamation t o t h e M i s s o u r i R i v e r Basin Commission. T h e C o m m i t t e e was c o m p r i s e d o f r e p r e s e n t a t i v e s f r o m t h e s t a t e s o f M o n t a n a , Wyoming, S o u t h D a k o t a , N o r t h D a k o t a , and Nebraska; t h e Corps o f E n g i n e e r s , t h e Bureau o f R e c l a m a t i o n and t h e M i s s o u r i R i v e r B a s i n Commission. The p u r p o s e o f t h e C o m m i t t e e was t o s e t t l e u p o n c o n v i n c i n g a p p r o a c h e s t o m a r k e t w a t e r from t h e main stem M i s s o u r i R i v e r f o r i n d u s t r i a l purposes. They a l s o a g r e e d upon s e t t i n g t h e p r i c e o f t h i s w a t e r i n t h e r a n g e o f $3 t o $20 a n a c r e f o o t . The s t a t e s w e r e g i v e n the f i r s t r i g h t to market. H o w e v e r , t h e k e y p r o b l e m s o f how much w a t e r d o e s e a c h s t a t e h a v e r i g h t t o , w h a t a r e t h e I n d i a n r i g h t s t o t h i s w a t e r , a n d who h a s f i n a l v e t o p o w e r o v e r i n d u s t r i a l w a t e r c o n t r a c t s was n e v e r r e s o l v e d . Following t h i s imp a s s e , t h e F e d e r a l g o v e r n m e n t i m p o s e d t h e "Memorandum o f U n d e r s t a n d i n g , " w h i c h e f f e c t i v e l y r e p e a l e d t h e e f f o r t s o f t h e ad hoc committee t o s e t t l e upon a r e g i o n a l approach t o i n d u s t r i a l w a t e r m a r k e t i n g .JL2' I n F e b r u a r y o f 1975, t h e Corps o f E n g i n e e r s and t h e D e p a r t m e n t o f I n t e r i o r s i g n e d a "memorandum o f u n d e r s t a n d i n g " w h i c h would e x p e d i t e t h e s a l e o f main stem M i s s o u r i water f o r i n d u s t r i a l use. H e a r i n g s were h e l d by S e n a t o r s A b o u r e z k and M e t c a l f o n t h i s a c t i o n a n d i t was d i s c o v e r e d t h a t t h e s t a t e s were never i n f o r m e d o f t h i s agreement, t h a t a g r i c u l t u r a l w a t e r i s t o be " l o a n e d " t o i n d u s t r y , a n d t h a t i n d u s t r i a l w a t e r u s e w i l l have p r e f e r e n c e o v e r h y d r o e l e c t r i c g e n e r a t i o n . The f i r s t c u s t o m e r f o r t h i s w a t e r i s E T S I who w a n t s i t f o r a c o a l s l u r r y p i p e l i n e f r o m Wyoming t o A r k a n s a s . 6 1 / The H o u s e I n t e r i o r C o m m i t t e e o f t h e U . S . C o n g r e s s i s c u r r e n t ly considering a b i l l to i n s t i t u t i o n a l i z e coal slurry pipelines ( H.R. 1863). The f i r s t m a j o r p r o j e c t a n d p r i m e l o b b y i s t f o r t h i s b i l l i s b e i n g p u s h e d b y E T S I * who i s p r o p o s i n g t h e W y o m i n g / A r k a n s a s s l u r r y l i n e u s i n g w e s t e r n c o a l and water e i t h e r from the Madison F o r m a t i o n o r the Main stem M i s s o u r i i n South Dakota. This b i l l a l s o r e p r e s e n t s t h e i n s t i t u t i o n a l i z a t i o n o f i n d u s t r i a l w a t e r use i n t h e Upper M i s s o u r i by Congress, s i n c e ETSI i s t h e f i r s t l a r g e s c a l e u s e r and costomer f o r Upper M i s s o u r i w a t e r . * ETSI o r E n e r g y T r a n s p o r t a t i o n Systems I n c . i s a w h o l l y owned j o i n t v e n t u r e b e t w e e n Lehman B r o t h e r s I n v e s t m e n t f i r m a n d B e c h t e l Engineering and C o n s t r u c t i o n . 192 Page T w e n t y - f o u r WATER DIVERSION SCHEMES for A t o t a l o f 13 d i v e r s i o n p l a n s h a s b e e n a d v a n c e d , a g r i c u l t u r e and 11 f o r i n d u s t r i a l development. 2 (1) The A g r i c u l t u r a l D i v e r s i o n s a r e G a r r i s o n i r r i g a t i o n p r o j e c t i n N o r t h D a k o t a a n d Oahe I r r i g a t i o n P r o j e c t i n South Dakota. G a r r i s o n i s under c o n s t r u c t i o n . Oahe i s i n t h e p l a n n i n g stages b u t f a c e s f o r m i d a b l e l e g a l o b s t a c l e s and local opposition. (2) The West R i v e r D i v e r s i o n P r o j e c t i n N o r t h D a k o t a w o u l d c a r r y w a t e r f r o m L a k e S a k a k a w e a b e h i n d G a r r i s o n Dam o n the M i s s o u r i across the headwaters of the f i v e t r i b u t a r i e s of t h e L i t t l e M i s s o u r i , the K n i f e , the H e a r t , the Cannonball and t h e Grand R i v e r . W a t e r w o u l d be r e l e a s e d i n t o t h e s e s t r e a m s w h i c h w o u l d be damned t o p r o v i d e s t o r a g e . The t o t a l d i v e r s i o n , f o u r m i l l i o n a c r e f e e t a c c o r d i n g t o t h e N o r t h D a k o t a W a t e r Comm i s s i o n , w o u l d s u p p o r t 42 g a s i f i c a t i o n p r o j e c t s a n d 8 , 8 0 0 megawatts o f e l e c t r i c a l power g e n e r a t i o n . In exchange, the f a r m e r s a n d r a n c h e r s o f t h i s a r e a a r e p r o m i s e d some w a t e r f o r a g r i c u l t u r a l use. However, t h e N o r t h Dakota s t a t e l e g i s l a t u r e has v o t e d n o t t o s u p p o r t t h i s p r o j e c t over the o b j e c t i o n s o f the N o r t h Dakota S t a t e Water Commission. (3) W a t e r f o r T a c o n i t e i n t h e B l a c k H i l l s T h e Bur e a u o f Reclamation (which w i l l cooperate w i t h the N o r t h Dakota S t a t e Water Commission i n d e s i g n i n g t h e West R i v e r D i v e r s i o n f a c i l i t i e s ) has s t u d i e d moving water t o t h e S t u r g i s , S.D. area f o r i n d u s t r i a l use. P i t t s b u r g h Pacific Mining of Hibbing, M i n n e s o t a h a s c l a i m e d 96 m i l l i o n t o n s o f t a c o n i t e # i r o n o r e u n d e r a b o u t 250 a c r e s o f N a t i o n a l F o r e s t L a n d i n t h e B l a c k H i l l s . P i t t - P a c plans to market 1,000,000 tons per year i n Rapid C i t y , p r o b a b l y t o meet t h e s t e e l r e q u i r e m e n t s o f c o a l g a s i f i c a t i o n and t h e r m a l e l e c t r i c a l g e n e r a t i o n . (4) W a t e r f r o m N o r t h Dakota t o Wyoming. The U n i t e d P l a i n s m e n , an e n v i r o n m e n t a l g r o u p i n N o r t h D a k o t a , has p o i n t e d o u t t h a t the S t u r g i s area i s o n l y a s h o r t d i s t a n c e from the c o a l r i c h b u t w a t e r p o o r Powder R i v e r B a s i n i n Wyoming. The B u r e a u o f R e c l a m a t i o n has s a i d p u b l i c a l l y t h a t t h e y have scrapped p l a n s t o d i v e r t w a t e r f r o m N o r t h Dakota t o Wyoming; however, t h e Bureau has n o t been v e r y c r e d i b l e i n t h e i r d e a l i n g s w i t h t h e s t a t e s so f a r . 193 Page T w e n t y - f o u r WATER DIVERSION SCHEMES (Continued) (5) W a t e r f r o m S o u t h D a k o t a t o Wyoming. The B l a c k H i l l s Conservancy S u b d i s t r i c t , a l o n g w i t h the Bureau o f Reclamat i o n , has d e v e l o p e d a f e a s i b i l i t y s t u d y t o t r a n s p o r t a b o u t 100,000 a c r e f e e t f r o m t h e Oahe R e s e r v o i r a c r o s s w e s t e r n S o u t h D a k o t a ( b e t w e e n t h e C h e y e n n e a n d Bad R i v e r s ) i n t o t h e G i l l e t t e W y o m i n g area. 2 0 , 0 0 0 a c r e f e e t i s t o be m i x e d w i t h c o a l a n d s e n t down to Arkansas i n s l u r r y form. The f i r s t p i p e l i n e o f t h i s s o r t i s e x p e c t e d t o s h i p 25 m i l l i o n t o n s o f c o a l a y e a r . Since water i s s c a r c e i n t h e G i l l e t t e A r e a , i t seems l i k e l y t h a t t h e w a t e r n o t b e i n g u s e d by Energy T r a n s p o r t a t i o n Systems I n c . (ETSI) c o u l d be s o l d t o o t h e r e n e r g y i n t e r e s t s f o r c o a l c o n v e r s i o n a t t h e mine s i t e . (6) W a t e r f r o m t h e M a d i s o n U n d e r g r o u n d F o r m a t i o n . ETSI has secured 20,000 a c r e f e e t o f w a t e r from t h e Madison F o r m a t i o n f r o m t h e s t a t e o f Wyoming. They p l a n t o d r i l l a h i g h p r e s s u r e w e l l f i e l d i n one o f t h e s h a l l o w e r s e c t i o n s o f t h e f o r m a t i o n , w h i c h i s b e i n g used f o r d r i n k i n g w a t e r and s t o c k w a t e r f o r t h e communit i e s i n e a s t e r n Wyoming and w e s t e r n S o u t h D a k o t a . There i s a s e r i o u s q u e s t i o n as t o w h e t h e r t h i s 20,000 a c r e f o o t w i t h d r a w a l w i l l exceed the recharge o f the f o r m a t i o n , thus d r o p p i n g the ent i r e w a t e r t a b l e o f t h e Powder a n d Cheyenne R i v e r B a s i n s . Since the Madison Formation i s under i n d i v i d u a l s t a t e j u r i s d i c t i o n , it w i l l be u p t o t h e c o u r t s o r C o n g r e s s v i a a n i n t e r s t a t e c o m p a c t t o d e t e r m i n e w h e t h e r o r n o t i n d u s t r i a l use o f t h e Madison Formation is beneficial. (7) W a t e r f r o m M o n t a n a t o Wyoming. The Y e l l o w s t o n e R i v e r D i v e r s i o n i s discussed i n g r e a t d e t a i l i n the Bureau o f R e c l a m a t i o n ' s Montana/Wyoming Aqueduct S t u d y . The s t u d y p r o j e c t s t h e c o n s t r u c t i o n o f a l a r g e number o f a d d i t i o n a l r e s e r v o i r s on t h e Tongue and Powder, o t h e r t r i b u t a r i e s o f t h e Y e l l o w s t o n e and the Yellowstone i t s e l f ; as w e l l a s c o n s t r u c t i o n o f a l a r g e number o f a q u e d u c t s f o r t r a n s p o r t i n g w a t e r f r o m t h e Boysen and Y e l l o w t a i l r e s e r v o i r s , to p o i n t s of i n d u s t r i a l use, m a i n l y around the G i l l e t t e Wyoming A r e a . Three p r o j e c t s are being a c t i v e l y c o n s i d e r e d : t h e f i r s t one w o u l d t a k e w a t e r f r o m t h e Y e l l o w s t o n e R i v e r n e a r M i l e s C i t y , M o n t a n a , t o G i l l e t t e , Wyoming; t h e second p r o j e c t would d i v e r t w a t e r f r o m the B i g Horn R i v e r i n H a r d i n , Montana, t o G i l l e t t e , Wyoming; and the t h i r d p r o j e c t w o u l d d i v e r t w a t e r from t h e B o y s e n R e s e r v o i r a l o n g t h e W i n d R i v e r R e s e r v a t i o n i n Wyoming to the G i l l e t t e area.* * The d i v e r s i o n f r o m M o n t a n a t o W y o m i n g w o u l d v i o l a t e A r t i c l e X o f the Y e l l o w s t o n e Compact, w h i c h p r o h i b i t s t h e t r a n s f e r o f w a t e r from Montana t o Wyoming. Montana,Wyoming, and N o r t h Dakota are s i g n a t o ry states. However, t h e t r a n s f e r s o f w a t e r p r o p o s e d by t h e B u r e a u o f R e c l a m a t i o n i n t h e Wyoming/Montana Aqueduct Study do n o t c o m p l y w i t h the formula for w a t e r use o u t l i n e d i n t h e C o m p a c t w h i c h was s i g n e d i n 1950. T h a t f o r m u l a a l l o c a t e s a 60-40 share between Montana 194 Page T w e n t y - f o u r WATER DIVERSION SCHEMES (Continued) (8) N o r t h P l a t t e R i v e r i n Wyoming t o t h e Powder R i v e r * i n Wyoming. T h i s p r o j e c t was p r o m o t e d b y t h e f o r m e r S e c r e t a r y o f I n t e r i o r , S t a n l e y H a t h a w a y , w h i l e h e was G o v e r n o r o f W y o m i n g . Hathaway a t t e m p t e d t o g e t s t a t e funds t o b u i l d a d i v e r s i o n f r o m t h e N o r t h P l a t t e R i v e r near Casper t o G i l l e t t e . The N o r t h P l a t t e i s n o t a l a r g e r i v e r and t h e f l o w s m i g h t n o t s u s t a i n an i n d u s t r i a l d i v e r s i o n w i t h o u t augmentation from another r i v e r system, t h e Green R i v e r . (9) Green R i v e r t o t h e N o r t h P l a t t e i n Wyoming. The a u g m e n t a t i o n d i v e r s i n was a l s o p r o m o t e d b y S t a n l e y H a t h a w a y w h i l e Governor o f Wyoming. The G r e e n R i v e r i s a t r i b u t a r y o f t h e C o l o r a d o and i s l o c a t e d i n s o u t h e r n Wyoming. This diversion could aggravate s a l i n i t y problems i n the lower Colorado Basin. (10) F o r t Peck t o C i r c l e , M o n t a n a . This diversion w o u l d t a k e w a t e r f r o m t h e M i s s o u r i R i v e r b e h i n d F o r t P e c k Dam t o t h e C i r c l e , Montana area where B u r l i n g t o n N o r t h e r n R a i l r o a d i s p l a n n i n g an i n d u s t r i a l complex w h i c h w o u l d produce n i t r o g e n f e r t i l i z e r , m e t h a n o l , and s y n t h e t i c d i e s e l f u e l from low q u a l i t y lignite coal. and Wyoming, w i t h Montana g e t t i n g the larger percentage. North D a k o t a , a l t h o u g h n o t d i r e c t l y i n v o l v e d , does have a say o v e r t h e issue of interbasin transfer. I n a d d i t i o n , Montana s t a t e law f o r b i d s any t r a n s f e r f r o m t h e s t a t e w i t h o u t c o n s e n t f r o m t h e s t a t e l e g i s l a t u r e , w h i c h so f a r h a s n o t a g r e e d . * T h e r e e x i s t s a c o m p a c t o n t h i s s t r e a m w h i c h g i v e s W y o m i n g 25% a n d N e b r a s k a 75% o f t h e s h a r e o f t h e N o r t h P l a t t e . I f over a l l o c a t i o n s w e n t b e y o n d W y o m i n g ' s 25%, t h e n i r r i g a t i o n i n w e s t e r n N e b r a s k a c o u l d be a f f e c t e d . Thus l e a d i n g t o a n i n t e r s t a t e l e g a l f i g h t . Upper M i s s o u r i Basin rivers general diversion routes continental _ _ _. divides ^ j s t a t e bounderies aquifer drilling T h i s map i s adapted from an a r t i c l e by Mike Jacobs i n V o l . 1 No. 2 of the Onlooker , " R i n S around the Rosey; or ithe Great Diversion". 1. Garrison Diversion Unit 2 . Oahe D i v e r s i o n P r o j e c t 3. West R i v e r Diversion(N.D.) 4 . Oahe West D i v e r s i o n 5 . Y e l l o w s t o n e River 6. Big Horn River 7 . Boysen R e s e r v i o r 8.North P l a t t e Diversion Diversion Diversion Diversion 9-Green R i v e r D i v e r s i o n ( a c r o s s the d i v i d e ) 10. F o r t h Peck D i v e r s i o n 11. Madison Formation and d i v e r s i o n drilling co 196 Page Twenty-four END NOTES 1. P r o j e c t Independence B l u e p r i n t , Water f o r Energy, F i n a l D r a f t r e p o r t s u b m i t t e d t o t h e F e d e r a l Energy Agency Water Resources T a s k f o r c e , S e p t . 5 , 1 9 7 4 , h e r e a f t e r r e f e r r e d a s "FEA R e p o r t " r pg. IV-50. ' 2. Bowden, C h a r l e s , The I m p a c t o f E n e r g y D e v e l o p m e n t o n W a t e r R e sources i n A r i d L a n d s , O f f i c e o f A r i d Land S t u d i e s , U n i v e r s i t y o f A r i z o n a , Tucson A r i z o n a , h e r e a f t e r r e f e r r e d t o as "Bowden Report") pg. 29. 3. U.S. 4. Bowden R e p o r t 5. U.S. Senate I n t e r i o r Committee, Hearings Before t h e Subcommittee on Energy Research and Water Resources 9 4 t h Cong. 1 s t s e s s i o n , On t h e S a l e o f W a t e r f r o m t h e U p p e r M i s s o u r i R i v e r B a s i n b y t h e F e d e r a l Government f o r t h e Development o f Energy, B i l l i n g s Mont a n a , Aug 26, 1975, R a p i d C i t y S o u t h D a k o t a , A u g u s t 28, 1975, p a r t two, h e r e a f t e r r e f e r r e d t o as "Upper M i s s o u r i B a s i n H e a r i n g ! pg. 248. 6. Upper M i s s o u r i B a s i n H e a r i n g s , p a r t one, Statements o f E n g i n e e r s , and t h e Bureau o f R e c l a m a t i o n . 7. Bureau o f Reclamation,Montana/ IV-50 9. Upper M i s s o u r i Basin Hearings " " " " 11. FEA R e p o r t p g . IV-51 12. Upper M i s s o u r i Basin Hearings " " 14. 15. " " FEA R e p o r t p g . 17. Upper M i s s o u r i 19. " " " 16. 18. of the Corps Ibid FEA R e p o r t p g . 13. Study, pg.95 8. 10. Wyoming A q u e d u c t " " pg. 224, " 232 pg. 227 " 226-7 " 248 " 426 207 IV-51 Basin Hearings " " pg. 2 34 pg. 297 U . S . S e n a t e I n t e r i o r C o i r m i t t e e , 9 4 t h C o n g . , 1 s t S e s s i o n , On t h e N o m i n a t i o n o f S t a n l e y K. H a t h a w a y , To be S e c r e t a r y o f t h e I n t e r i o r , A p r i l 2 1 , 2 2 , 3 0 , May 5 & 6 , 1975 h e r e a f t e r r e f e r r e d t o a s " H a t h a w a v H e a r i n g s " ) p g . 474 197 Page T w e n t y - s e v e n END NOTES 20. Upper 21. Ibid 22. Upper (Continued) Missouri Basin Hearings pg. 238 Missouri Basin Hearings pg. 234 23. Hathaway H e a r i n g s pg. 181 24. " 182 " " 2 5 . FEA R e p o r t p g . IV-52 2 6 . U . S . D e p a r t m e n t o f I n t e r i o r , P r o p o s e d C o a l G a s i f i c a t i o n Combined Cycle P i l o t P l a n t , p r e p a r e d by the O f f i c e o f Coal Research. 2 7 . FEA R e p o r t p g . 28. IV-53 Ibid 2 9 . P r o g r e s s R e p o r t , S o u t h D a k o t a S t a t e W a t e r P l a n , H a n d o u t for May 3 0 , 19 75 o f t h e S t a t e B o a r d o f N a t u r a l R e s o u r c e s . 30. D a v i s , B r y a n t L . , S c h l e u s n e r , R i c h a r d S . , I n s t i t u t e o f S c i e n c e s , South Dakota School o f Mines- ( a b s t r a c t ) 3 1 . Upper M i s s o u r i 32. " " Basin Hearings " " 34. J a c o b s , M i k e , O p p o s i t i o n J a n . 2 6 , 1976 p g . i~2 33. " 35. Ibid " 3 6 . FEA R e p o r t p g . pg. 356 pg. 261 t o Big Coal E s c a l a t e s , " pg. The Atmospheric Onlooker, 282 I V 53 3 7 . Memorandum, T o : R e g i o n a l D i r e c t o r , Upper M i s s o u r i R e g i o n , BR, B i l l i n g s , F i e l d S o l i c i t o r , From: M i s s o u r i R i v e r B a s i n P l a n n i n g O f f i c e r , S u b j e c t : Nebraska P o s i t i o n r e g a r d i n g M i s s o u r i R i v e r Mainstem M a r k e t i n g , U.S. D e p t . o f I n t e r i o r , A p r i l 17, 1974. 3 8 . Upper M i s s o u r i B a s i n H e a r i n g s p g . 295 39. 393 " " " " pg. 40. U.S. v . B i g Horn R i v e r Water Users A s s o c i a t i o n , U.S. v . Tongue R i v e r W a t e r U s e r s A s s o c i a t i o n , b o t h f i l e d i n F e d e r a l D i s t r i c t C o u r t , B i l l i n g s , Montana 198 Page T w e n t y - s e v e n END NOTES 41. 42. (Continued) Upper M i s s o u r i " " 43. Basin Hearings " « " pg. 267 » 386 " 464 4 4 . New M e x i c o v U . S . , f i l e d i n F e d e r a l D i s t r i c C o u r t "remanded t o S t a t e c o u r t p e n d i n g A i k e n D e c i s i o n . 45. Albuquerque, S u p e r i o r Court of the U . S . , Colorado R i v e r Conservancy D i s t r i c t e t a l , v . The U n i t e d S t a t e s , a r g u e d o n j a n . 1 4 , 1 9 7 6 , d e c i d e d on March 24, 1976. 4 6 . U n i t e d S t a t e s v . The S t a t e o f C a l i f o r n i a , U . S . F e d e r a l - C o u r t , State of C a l i f o r n i a . ~~ District 4 7 . W i t m e r , R i c h a r d T . , D o c u m e n t s on t h e Use and C o n t r o l o f t h e W a t e r s o f I n t e r s t a t e a n d I n t e r n a t i o n a l S t r e a m s , U.S Government P r i n t i n g O f f i c e , Second E d i t i o n , p g . 5 3 9 f h e r e a f t e r r p f e r r - o ^ a s " W i t m e r " •) 48. Witmer pg. 554-555 4 9 . B r o w n , Howar d H . , C e n t r a l A r i z o n a P r o j e c t , F e b . 2 5 , 1 9 7 6 , C o n g r e s s i o n a l Research S e r v i c e , E n v i r o n m e n t a l P o l i c y D i v i s i o n , Witmer, pg. 604-614. 50. Veeder, W i l l i a m H., Unpublished d i s c u s s i o n concerning o f F e d e r a l j u r i s d i c t i o n o v e r S t a t e Water l a w s . 5 1 . EDF v . M o r t o n , Fe-eral 52. I n t a k e v . Montana, 53. Intake v. 53. Jacobs, District Court, Federal D i s t r i c t Billings Court, precedents Montana Billings Montana Montana Mike, Intake v. Montana, Onlooker, Jan 26, 54. E x e r p t e d from a s t a t e m e n t by K a t h r i n e F l e t c h e r , Senate I n t e r i o r C o m m i t t e e , A u g u s t 26, 1975. 1976 EDF, before 55. C o s t e l l o , George M . , A n a l y s i s o f F e d e r a l W a t e r M a r k e t i n g P r o g r a m i n t h e Upper M i s s o u r i B a s i n , F e b . 1 9 7 5 , C o n g r e s s i o n a l R e s e a r c h S e r v i c e , A m e r i c a n Law D i v i s i o n . 56. S t a t e m e n t by K a t h r i n e Fletcher, August 57. Mauk, W i l l i a m , F l o o d C o n t r o l A c t o f A n t i o c h S c h o o l o f Law, May 1 9 7 5 . 26, 1975 1 9 4 4 , U r b a n Law Institute, 199 Page END NOTES Twenty-seven (Continued) 5 9 . U . S . D e p a r t m e n t o f I n t e r i o r , Memorandum, T o : C o m m i s s i o n e r , from: R e g i o n a l D i r e c t o r B i l l i n g s Montana, S u b j e c t , Sale o f Water f o r I n d u s t r i a l Purposes f r o m B i g Horn R i v e r , Feb. 2, 196 8 6 0 . R e p o r t o f t h e Ad Hoc C o m m i t t e e o n W a t e r M a r k e t i n g ; R e c o n s i d e r a t i o n s o n I s s u e s I n v o l v i n g M&I W a t e r M a r k e t i n g f r o m t h e S i x M a i n Stem F e d e r a l R e s e r v i o r s o n t h e M i s s o u r i , J u l y 1 , ' * 1 9 7 4 . 6 1 . Upper M i s s o u r i B a s i n H e a r i n g s 62. pg. 4 36-442 T h i s s e c t i o n has been e x c e r p t e d from a p i e c e by Mike J a c o b s , e n t i t l e d , " R i n g Around t h e Rosey:The Great D i v e r s i o n " , t h e O n l o o k e r , J u n e 1 9 7 5 , w i t h t h e a d d i t i o n o f #1T b y t h e a u t h o r of t h i s paper. 71-787 O - 76 - 200 Page twenty-eight SUPPLEMENTARY L I S T OF REFERENCES Amiran, Bell, D.H.K. 1965 A r i d zone d e v e l o p m e n t : A r e a p p r a i s a l u n d e r m o d e r n technolgoical conditions. Economic Geography 41(3) : 189-210. T. 1973 Cootner, P.H. 1966 The e n e r g y c r i s i s : W a t e r comes up s h o r t . Country News(5):2 3. and G.O.G. L o f W a t e r demand f o r s t e a m e l e c t r i c g e n e r a t i o n : An economic p r o j e c t i o n model. Resources f o r t h e F u t u r e , Washington, D.C. D i s t r i b u t e d by Johns Hopkins Press, B a l t i m o r e , Maryland. 14 4 p . Corbridge, J r . , 1968 D e l a n e y , R. 1966 De V o t o , B . A . 1947 Dewsnup, R . L . 1973 Dupree, High J . N . a n d R . J . Moses W e a t h e r m o d i f i c a t i o n : Law a n d a d m i n i s t r a t i o n . N a t u r a l Resources J o u r n a l 8 (22): 207-235. Water f o r o i l s h a l e d e v e l o p m e n t . Journal 43(1):72-82. Across the wide M i s s o u r i p a n y , B o s t o n . 48 3 p . Denver Houghton M i f f l i n a n d D.W. J e n s e n , e d s . A Summary-digest o f s t a t e water laws. o n a l Water Commission, A r l i n g t o n , Va. J r . W. G. a n d L . A . West United States energy 1972 Law through the year Com- U.S. N a t i 826 p . 2000. U.S. E n v i r o n m e n t a l D e f e n s e Fund n.d. U n p u b l i s h e d r e p o r t b y Tom F r i z z e l l o n t h e o v e r - a p propriation o f the Yellowstone R i v e r . Denver, Colo. Ford, Bacon a n d Company 1952 The s y n t h e t i c l i q u i d f u e l p o t e n t i a l o f C o l o r a d o , U t a h , and Wyoming. U.S. Dept. o f I n t , Wash., D.C. G i l l e t t e , R. 1973 NAS: W a t e r 181:525. s c a r c i t y may l i m i t western coal. Science 201 Page Twenty-nine SUPPLEMENTARY L I S T OF REFERENCES H a m i l t o n , B. 1974 C o a l c o n f l i c t o n Tongue R i v e r . News, A u g u s t 3 0 , 1974 High Country 1974 Hynes, D e c i s i o n on s l u r r y l i n e . J u l y 19, 1974, p . 6. J o h n s o n , R.W. 1971 News, University of The e c o l o g y o f r u n n i n g w a t e r s . University Toronto Press, Toronto. 555 p . of Major i n t e r b a s i n t r a n s f e r s . merce, Legal Study 7. Com- U.S. Dept. of 0. A r i d l a n d s and t h e i r f u t u r e . I n G.L. Bender, ed. Future Environments o f a r i d regions of the southwest. American A s s o c i a t i o n f o r t h e Advancement o f S c i e n c e , C o m m i t t e e on D e s e r t and A r i d zone R e s e a r c h , Contribution 12:33-38. L o w d e r m i l k , W.C. 1935 H.C. 1973 Country High Country The b i o l o g y o f p o l l u t e d w a t e r s . Toronto Press, Toronto. 202 p . 1972 Madsen, High News H.B.N. 1971 Lewi s , J r . , 1969 (Con't.) et Man made d e s e r t s . Pacific Affairs 8 (4):409-419 . al F u t u r e a l l o c a t i o n o f l a n d and w a t e r : I m p l i c a t i o n s f o r A g r i c u l t u r a l and Water P o l i c i e s . Journal of S o i l and Water C o n s e r v a t i o n 2 8 ( 2 ) : 5 2 - 6 0 . M i s s o u r i B a s i n I n t e r - A g e n c y Committee 1969 M i s s o u r i R i v e r B a s i n C o m p r e h e n s i v e Framework S t u d y . G o v t . P r i n t i n g O f f i c e , W a s h i n g t o n , D, C. Montana, E n v i r o n m e n t a l Q u a l i t y C o u n c i l n.d. Water and E a s t e r n Montana c o a l d e v l e o p m e n t , p a r e d b y Bob A n d e r s o n . H e l e n a , M o n t a n a . N a t i o n a l Water 19 73a pre- Commission A s u m m a r y - d i g e s t o f t h e F e d e r a l w a t e r l a w s and programs. E d i t e d b y J o h n L . De W e e r d t and P . M . Glick. GPO, W a s h i n g t o n , D. C. N o r t h C e n t r a l Power S t u d y , C o o r d i n a t i n g C o m m i t t e e 1971 N o r t h C e n t r a l Power S t u d y : R e p o r t o f Phase I . U . S . B u r e a u o f R e c l a m a t i o n , B i l l i n g s , MT. 2 v o l s , v a r i o u s pages. , * .. 202 Page Thirty SUPPLEMENTARY L I S T OF REFERENCES (Con't.) N o r t h e r n Great P l a i n s Resources Program S t a f f 1974 Northern Great P l a i n s resources program report). Denver, Colorado. Otto, N. 1974 Parker, (draft Wyoming c o a l p r o c e s s i n g a f f e c t s a g r i c u l t u r a l Union Farmer, J a n . - F e b . 1974. water. F . L . AND R. A . K r e n e l 1969 Thermal p o l l u t i o n s Status o f t h e a r t . N a t i o n a l Center f o r Researhc and T r a i n i n g i n t h e H y d r o l o g i c and H y d r a u l i c Aspects o f Water P o l l u t i o n Congrol, Report 3. Vanderbilt University, N a s h v i l l e , Tenn. S h e r b r o o k e , W. C. a n d P . P a y l o r e 1973 W o r l d d e s e r t i f i c a t i o n : cause and e f f e c t . U n i v . o f A r i z o n a , O f f i c e o f A r i d Lands S t u d i e s , A r i d L a n d s R e s o u r c e I n f o r m a t i o n P a p e r 3 . 168 p . U.S. Department o f I n t e r i o r 1975 Westwide s t u d y . C r i t i c a l water problems f a c i n g the eleven western s t a t e s . R e p o r t and E x e c u t i v e Summary. 2 pts. Final, Denver, Colorado. Webb, zwick, W.P. 1936 D. a n d M. 1971 The G r e a t P l a i n s , Benstock Water Wasteland. Houghton M i f f l i n , Boston. Grossman P u b l i s h e r s , N.Y. 525 p. 494 p. 203 Environmental Policy Institute 200 Third Street, S.E. Washington, D.C. 20003 202 /544-8200 THE NEED FOR ENERGY FACILITY SITES I N T H E U N I T E D STATES: 1975 1985 AND 1985-2000 204 "The Need f o r Energy F a c i l i t y S i t e s i n t h e U n i t e d S t a t e s : 1975- 1985 and 1 9 8 5 - 2 0 0 0 " was p r e p a r e d by t h e E n v i r o n m e n t a l P o l i c y I n s t i t u t e under c o n t r a c t w i t h t h e P r e s i d e n t ' s C o u n c i l on E n v i r o n m e n t a l Q u a l i t y . The R e p o r t was p r e p a r e d by Marc M e s s i n g , D i r e c t o r o f F a c i l i t y S i t i n g A n a l y s i s , w i t h t h e a s s i s t a n c e o f F l o r e n c e Pappas and S k i p S p a u l d i n g , Research Assistants. The f i n d i n g s and c o n c l u s i o n s o f t h e r e p o r t do n o t n e c e s s a r i l y r e f l e c t e i t h e r the views or t h e p o l i c i e s of t h e C o u n c i l . June 3 0 , 1975 R e p o r t p r e p a r e d under CEQ C o n t r a c t EQ5AD272 205 SUMMARY The F e d e r a l Energy A d m i n i s t r a t i o n has e s t i m a t e d t h a t "'640 new e l e c t r i c g e n e r a t i n g p l a n t s must be i n o p e r a t i o n by 1 9 8 5 . . . ( i n c l u d i n g ) t h e e q u i v a l e n t o f 200 1000 MW n u c l e a r p l a n t s and 150 new 800 MW c o a l - f i r e d p l a n t s , " and t h e P r e s i d e n t ' s E n e r g y F a c i l i t i e s P l a n n i n g and Development A c t o f 1975 has been i n t r o d u c e d i n r e s p o n s e t o t h e need f o r s i t i n g t h e s e facilities. H o w e v e r , i f t h e FEA e s t i m a t e s a r e compared t o a v a i l a b l e d a t a r e g a r d i n g u t i l i t y p l a n s and c o n s t r u c t i o n s c h e d u l e s , i t can be s e e n t h a t a p p r o x i m a t e l y 55% o f t h e e s t i m a t e d f a c i l i t i e s a r e e i t h e r a l r e a d y u n d e r c o n s t r u c t i o n o r w i t h i n two y e a r s o f c o n s t r u c t i o n ( a n d p r e s u m a b l y beyond t h e i n i t i a l s i t e s e l e c t i o n s t a g e ) ; an a d d i t i o n a l 4% o f p l a n n e d c a p a c i t y a r e c o m p r i s e d o f u n i t s s m a l l e r t h a n t h o s e w h i c h w o u l d be r e g u l a t e d under the f e d e r a l l e g i s l a t i o n . I f e i t h e r t h e number o f new f a c i l i t i e s l i k e l y t o be s i t e d u n d e r e x i s t i n g s t a t e power p l a n t s i t i n g l a w s , o r t h e p o t e n t i a l f o r r e d u c i n g a d d i t i o n a l c a p a c i t y demands t h r o u g h more e f f e c t i v e e n e r g y c o n s e r v a t i o n and u t i l i t y l o a d management p r o g r a m s , a r e c o n s i d e r e d , t h e n t h e r e m a i n i n g number o f new f a c i l i t i e s w h i c h w o u l d be a f f e c t e d by f e d e r a l power p l a n t s i t i n g l e g i s l a t i o n becomes n e g l i g a b l e . A d d i t i o n a l Capacity Estimated A d d i t i o n a l G e n e r a t i n g C a p a c i t y Needed (GWe) 485 Additional Tnits/Sites 644 A d d i t i o n a l G e n e r a t i n g C a p a c i t y Which Would Be U n a f f e c t e d by F e d e r a l S i t i n g L e g i s l a t i o n : P l a n n e d C a p a c i t y Under 300 MW o f Over 300 MW and W i t h i n Two Years o f C o n s t r u c t i o n 1288) (383) 261 * ] 97 * E s t i m a t e d C a p a c i t y Demand o f Twelve L a r g e s t S t a t e s With Power P l a n t S i t i n g Laws (240) (179) 21 18 Generating Capacity Reduction With C o n s e r v a t i o n and Load Management (160) (213) -142 Range o f E s t i m a t e d S i t i n g S u b j e c t to FederaJ S i t i n g Demands Legislation 0 - 197 -197 0 - 261 T h r o u g h 1985 i t a p p e a r s t h a t c u r r e n t c o n s t r u c t i o n p l a n s , e x i s t i n g s t a t e m e c h a n i s m s , and a c o o r d i n a t e d f e d e r a l e f f o r t t o i n c r e a s e e n e r g y c o n s e r v a t i o n measures and i m p r o v e u t i l i t y l o a d management p r o c e d u r e s , can a d e q u a t e l y accomodate p r o j e c t e d e l e c t r i c energy f a c i l i t y s i t i n g needs. Beyond 1 9 8 5 , t h e a d d i t i o n a l c o n s t r u c t i o n o f new g e n e r a t i n g u n i t s on e x i s t i n g s i t e s , and t h e i n c r e a s e d u t i l i z a t i o n o f s m a l l , c e n t r a l l y l o c a t e d s i t e s made a v a i l a b l e by t h e r e t i r e m e n t o f o l d e r g e n e r a t i n g u n i t s , may e s s e n t i a l l y I n t h e absence s t a b i l i z e t h e number o f g e n e r a t i n g s i t e s needed f r o m 1985 t h r o u g h 2 , 0 0 0 . o f d a t a r e g a r d i n g c u r r e n t u t i l i t y l a n d h o l d i n g s , i t i s i m p o s s i b l e t o e v a l u a t e t h e need f o r a d d i t i o n a l s i t e a c q u i s i t i o n i n d e p e n d e n t l y o f t h e need f o r r e g u l a t o r y s i t e a p p r o v a l . * These f i g u r e s r e p r e s e n t t h e maximum number o f new c a p a c i t y / u n i t s n e e d e d . Further r e d u c t i o n o f t h i s number by e i t h e r o f t h e two f o l l o w i n g c a t e g o r i e s y i e l d u n i t numbers f r o m 2] t o 4 3 , and c o n s i d e r a t i o n o f b o t h y i e l d s l a r g e n e g a t i v e f i g u r e s . 206 TABLE OF CONTENTS Introduction i PART ONE: ENERGY PROJECTIONS AND THE NEED FOR NEW FACILITIES P r o j e c t i o n s o f Energy Demand 5 A n a l y s i s o f E l e c t r i c Energy Demand F o r e c a s t s 9 E l e c t r i c Generating F a c i l i t y P r o j e c t i o n s 21 P o t e n t i a l Improvements i n E l e c t r i c Efficiencies 25 Generating PART TWO: THE NEED FOR ELECTRIC GENERATING FACILITY SITES A n a l y s i s o f P r o j e c t Independence f o r 1985 Estimates 31 E l e c t r i c G e n e r a t i n g F a c i l i t y S i t i n g Needs Beyond 1985 35 State F a c i l i t y S i t i n g Projections 37 APPENDICES: A: The Need f o r New O i l 3: The Need f o r S y n t h e t i c F u e l Facilities C: Planned G e n e r a t i n g F a c i l i t y Additions D: FEA E s t i m a t e s o f Needed New F a c i l i t i e s E: E l e c t r i c G e n e r a t i n g F a c i l i t y C o n s t r u c t i o n and E l e c t r i c Energy Demand; J u l y , 1974 - December, 1974 F: Reasons f o r Delay i n Power P l a n t Refineries Development 207 LIST OF FIGURES Figure 1 Page Total Energy/GNP Thermal Ratio: Efficiency of 1935 - Large 1975 15 Steam P l a n t s : 1920 - 1975 16 L I S T OF TABLES Table I Survey 1973 - of Projected 2000 Survey o f P r o j e c t e d 1973 - 2000 Comparison o f Other of Energy Electric FEA E n e r g y Forecasts Parameters Total Growth Energy Rates: Consumption: Projections with Range of Surveyed FEA's 8 Economic Forecast for 1985 10 R t er sg y o P f rG o 5r s E na e o jr eo cwtt iho nasn d t oF a 1c 9t 8 of Increase for FEA Rates o f Growth and F a c t o r s LMFBR E n e r g y P r o j e c t i o n s t o of Increase 2000 for AEC/ Population Parameters for Energy Comparison o f E l e c t r i c Energy E n e r g y L o s s e s : 1973 - 2000 12 Projections Production and Thermal 18 FEA P r o j e c t i o n s 10 Requirements of A d d i t i o n a l E l e c t r i c Generating Based on F E A ' s P r o j e c t e d Needs t o 1985 Needed E l e c t r i c 12 State F a c i l i t y Problems Needed E l e c t r i c 13 9 I I of Generating Siting 11 Facility Generating Sites: Laws a n d A n t i c i p a t e d Facilities 1974 22 Facilities 23 - 2000 33 Siting 38 208 L I S T OF TABLES (Cont.) Table Page 11 Electrical Capacity 12 Electric 13 E s t i m a t e d Number o f Generation t o Meet Energy Projections Plant 32 Requirements New F a c i l i t i e s Demand I n c r e a s e s over 1972 33 14 Additional New C a p a c i t y 15 Additional Generating 16 17 Planned E l e c t r i c G e n e r a t i n g U n i t s by Size A d d i t i o n a l G e n e r a t i n g U n i t s / S i t e s Needed: A d j u s t e d f o r U n i t S i z e and U n i t s Under Construction 36 18 Summary o f 41 19 System Reserve M a r g i n as a F u n c t i o n o f Number o f I d e n t i c a l U n i t s 20 Power P l a n t State F a c i l i t y S i t i n g S i t i n g Problems Needed f o r 32 Required Units/Sites Siting Laws a n d 1985 34 Needed 35 Needs: 1975-1985 37 the 44 Anticipated 48 209 INTRODUCTION In January, Union Address, plants of 1975, that m u s t be i n approximately operation 200-1000MW n u c l e a r i n November Report 1974, Ford noted i n subsequently the A d m i n i s t r a t i o n ' s Energy F a c i l i t i e s Impact 1975. Environmental The P r o j e c t a Facilities methodology parameters Task was o r i g i n a l l y "Need f o r These the four the parent reports assumptions, Administration's projection Facilities introduced the of Project as t h e 1974) basis paper (FEA, available indicating VIII of the the the January, 1975). regarding underlying the needs. President's by Bill entitled P l a n n i n g and Development A c t as T i t l e Act of facility Siting siting (FEA) for accompanied materials and t h e m e t h o d o l o g y facility March energy Facilities Legislation" energy plants." Energy A d m i n i s t r a t i o n establishing and t h e the best data base, the P l a n n i n g and Development an u n p u b l i s h e d Siting represent the The E n e r g y was o r i g i n a l l y Report, of equivalent fired R e p o r t was o r i g i n a l l y base used i n accompanied by Energy F a c i l i t y of reaffirmed F o r c e R e p o r t . (FEA N o v e m b e r , data the S t a t e m e n t p r e p a r e d b y FEA i n Independence and the for (including) completed by the Federal in the State generating a n d 1 5 0 new 800MW c o a l were based on f o r e c a s t s and were his " 6 4 0 new e l e c t r i c by 1 9 8 5 . . . plants These e s t i m a t e s Independence President of 1975 Omnibus 210 Energy A c t (the separately i n b o t h Houses o f the preparation Administrator of and r e q u i r e d the within the one y e a r legislation federal Energy of States of government a series of the integrity of (1), this fuel exploration and p e t r o l e u m gas facilities; natural lines; for Since the any of it (sec. 804). 803), Programs Although the on s p e c i f i c the b i l l (particularly ) which have the should allow decisions the Act, mandated Management (Sec. within final legislation and development; fuel fuel in tended sites provided Sections to undermine ports, such as o i l related for facilities liquified storage refineries; facilities; and e l e c t r i c uranium enrichment energy support and i n t e r i m pipelines, justification generating deep-water and c o a l w a s h i n g slurry plants, include handling facilities plants, other quantitative new e l e c t r i c nothing (807(h) the processing and a s s o r t e d principal of gas p i p e l i n e s , synthetic Report introduced Report by enactment Energy F a c i l i t y authorities terminals, gas p r o c e s s i n g pipelines, plants, fuel The l e g i s l a t i o n and F a c i l i t i e s months o f procedures and and subsequently position. The a u t h o r i t i e s for that to override to 804 ( j ) twelve prepare Administrative (1), Siting the A d m i n i s t r a t o r ' s stipulated pursuant the to Act), Congress. a National FEA w i t h i n selected 804 ( i ) Independence plants, facilities. legislation petroleum transmission solar Nonetheless, remained the plants. introduction of this legislation, coastal zone the need 211 facilities have been e v a l u a t e d context the of Coastal have been s i m i l a r l y transmission and a l l aspects richment, posal of of refineries ment p l a n s minimize facilities For the on the reasons, need f o r generating Firstly, for we h a v e electric by comparing the both Project total 1985 and t h e 2000, new f a c i l i t i e s the next data of against originally clearly the 1980's. fuel attention, this Report, as t h e in and 1985 a n d t h e with comparing year recent energy demand for reduced FEA's p r o j e c t i o n s these utility new methodology other potentials we h a v e a n a l y z e d by for and s y n t h e t i c base and f o r e c a s t current the develop- through facilities, through as w e l l need decade w i l l demand and e l e c t r i c a l Secondly, the At B. focused our generating the bodies. and modest sites refineries A and subject problem than Report, suitable the Commission, FEA) extensive efficiencies, n e e d e d new f a c i l i t i e s . demand f o r currently (within Independence energy year are independent sites, the concerns; dis- Appendices facilities' demands and i n c r e a s e d of in legislation; en- Regulatory oil other regulatory uranium during need f o r facilities and t h e Independence fuels the including and o t h e r a less in transportation, wastes, Nuclear of special cycle, identifying contained these u s e d b y FEA i n through Project of fuel off-shore context re-examination synthetic are of the problem of summaries estimates by Foundation, the for the electric nuclear the present reprocessing, has i n d i c a t e d in in radioactive an i n t e r n a l anticipated 2000. the studies Science same t i m e Report, considered fabrication, extensive Brief of Congress p r i m a r i l y Zone M a n a g e m e n t A c t ; and p i p e l i n e s high-level National oil lines by t h e estimates plans for new 212 facilities for the number demands. are through for we h a v e e s t i m a t e d new s i t e s Additionally, discussed. provisions of 1985, Finally, meeting necessary considerations we h a v e projected the relative demands t o meet p r o j e c t e d for surveyed the case current demands o n t h e facility from State State 19 8 5 - 2 0 0 0 laws level. and 213 PART ONE: ENERGY PROJECTIONS AND THE NEED FOR NEW F A C I L I T I E S Projections of During studies rates Energy the for national Basing p r o j e c t i o n s supply-demand introduction the past several have been u n d e r t a k e n extrapolations in Demand national of energy projections the relative needs through the years on e x a m i n a t i o n on and t e c h n o l o g i c a l of past patterns, and p r o b a b l e new t e c h n o l o g i e s , policies basis parameters, of a wide the trends, scenarios studies of and 2000. mathematical projections regarding and/or relations, range major growth 1985 econometric both gradual and i n t e r n a t i o n a l the than a dozen project historical functions, of y e a r s more to and the abrupt changes programming economic, generally of observe social, three caveats: 1) "regardless of the a c t u a l methodology used, the f o r e c a s t e r ' s m a i n c h a l l e n g e i s t o come t o g r i p s w i t h t h e b a s i c u n d e r l y i n g f o r c e s a n d f a c t o r s w h i c h may come t o b e a r , i n t h e f u t u r e , on t h e p a t t e r n w h i c h he i s a t t e m p t i n g t o p r e d i c t . " / R e p o r t o f t h e A d Hoc E n e r g y F o r e c a s t W o r k i n g G r o u p , Instit u t e o f E l e c t r i c a l and E l e c t r o n i c E n g i n e e r s , J a n u a r y 1 9 7 5 / 2) "The p a s t 12-18 m o n t h s ( s i n c e t h e 1973 o i l embargo) simply represents too short a time period t o t e s t the accuracy of conclusions based upon a n a l y s i s o f p a s t g r o w t h when a p p l i e d t o new e c o n o m i c a n d s o c i a l c o n t e x t . . . " / R e p o r t o f member e l e c t r i c c o r p o r a t i o n s o f t h e New Y o r k P o w e r Pool, and the Empire S t a t e E l e c t r i c Energy Research C o r p o r a t i o n , P u r s u a n t t o A r t i c l e V I I I , S e c t i o n 149b o f t h e P u b l i c S e r v i c e Law, V o l . , 1, p . 2 , 1975/ 3) " C e r t a i n elements o f the f o r e c a s t i n g p r o b l e m are beyond t h e s t a t e - o f - t h e - a r t i n f o r e c a s t i n g (economic as w e l l as e n e r g y ) . . . " / P r o j e c t I n d e p e n d e n c e R e p o r t , November 1974, p . 418. 214 As a r e s u l t , through 2000. 1985, A survey indicates of a range range of the of 3.3 to 11.o energy in than other the Independence year i t does considering and 1985 closely the (TkWh) are energy FEA's p r o j e c t i o n s the Institute projections of of the the general cf the year The Electrical and E l e c t r o n i c AEC/LMFBR project beyond 1985, for the 2000, and of 3 have the utilized the (page projections Engineers, but purpose we 1985 w i t h Table of 2). "substantially year year from consump- approximations range Trillion and energy Therefore, 2,000.* the 4.4 total t h e AEC/LMFBR p r o j e c t i o n s , both with projected (See T a b l e notes, the to 103 Q B t u 26,30/. the demand the to electric needs t h r o u g h 1974 a n d 12 3 QBtu) situation projections. through 2.3 oil) pp. year 15.0 QBtu), 37.6 Report cit. as c o n s i s t a n t through the to to $ll/barrel as energy 1985, from (7.9 the through Similarly, (12.3 QBtu) model of compares 1985 FEA o p . siting model case 1). (11.3 (at considers AEC/LMFBR p r o j e c t i o n s the 2000 both, FEA p r o j e c t i o n compatible total 124 Q u a d s i n 1 significant through f r o m 1972 projected in TkWh forecasts"/ electric by released consumption v a r i e s 3.6 facility demand a r e substantially (See T a b l e n o t make q u a n t i t a t i v e compared the 2000 the year Report of projected in projections consumption less estimates year TkWh i n tion studies energy per T h e FEA t e s t - c a s e in increase 93 Q u a d s t h r o u g h year electric Killowatt-hours to major from approximately 202 Quads i n variations and t e n d and FEA 8) surveyed with model. * I t s h o u l d b e n o t e d h e r e t h a t b o t h t h e AEC a n d FEA e l e c t r i c e n e r g y p r o j e c t i o n s c o n t a i n e d i n t h e IEEE s u r v e y e s t i m a t e a n n u a l g r o w t h r a t e s o f 6 . 6 % t h r o u g h 1 9 8 5 , a n d t h e AEC/LMFBR c a s e u s e d i n c o m p a r i s o n w i t h FEA f o r p r o j e c t i o n s t h r o u g h 2 , 0 0 0 u t i l i z e d a 6 . 1 % a i n u a l g r o w t h r a t e . T h i s r e f l e c t s a r e v i s i o n f r o m t h e e a r l i e r AEC e s t i m a t e o f 6.5% a n n u a l g r o w t h t h r o u g h 2 , 0 0 0 ( c o n t a i n e d i n t h e IEEE s u r v e y ) , and i s more c o n s i s t a n t w i t h FEA1s modest g r o w t h r a t e e s t i m a t e s and t h e g e n e r a l t r e n d i n v i r t u a l l y a l l the p r o j e c t i o n s surveyed towards lower e l e c t r i c e n e r g y g r o w t h r a t e s t h r o u g h t h e y e a r 2000 t h a n t h r o u g h 1 9 8 5 . 215 TABLE 1 SURVEY OF PROJECTED TOTAL ENERGY GROWTH RATES: Chase M a n h a t t a n Resources the Future of the Interior Department Stanford Study for GROWTH RATE 1973-85 TOTAL ENERGY 1985 5.0 124 Study Study 118 Study 3.8 119 Power Commission Forecast 3.6 116 Council on E n v i r o n m e n t a l Quality Lawrence Livermore Energy National Institute 3.7 Federal Atomic Research 1973 Academy o f Ford Foundation FEA P r o j e c t Laboratory Commission Study Study Engineering Study Independence Report SOURCE: 71-787 O - 7fi Study 3.3 112 3.7 118 2.9 107 1.7 93 2.6 103 - 2000 GROWTH RATE TOTAL 1973ENERGY 2000 2000 3.5 192 3.5 192 3.7 202 1.8 123 3.6 197 1.9 126 I . E . E . E . (Ad Hoc) E n e r g y F o r e c a s t Working Group; Oct 1974-Jan 1975. 216 TABLE 2 SURVEY OF PROJECTED ELECTRIC ENERGY CONSUMPTION: Growth Rate 1973-1985 GMB Electric Consumption 7.5% 1973-2000 Growth Rate 1973-2000 Electric Consumption 4.4 RFF DOI 6.9 4.1 SRI 6.4 3.9 FPC 7.7 4.5 CEQ 6.8 10.8 6.0 9.0 6.8 11.0 4.5 6.0 10.1 LLL 5.2 3.4 AEC 6.6 4.0 6.5 NAE 7.0 EPP 1.9 2.3 2.2 FEA 6.6 4.0 FPC 7.5 ° 0 6.6 Source: I.E.E.E., January 1975 TABLE 3 COMPARISON OF FEA ENERGY PROJECTIONS WITH RANGE OF OTHER FORECASTS 1985 total High estimates. energy 124 o a t u 2000 electric energy 1 5 . 0 QBtu Low e s t i m a t e s 93 7.9 FEA e s t i m a t e s 103 12.3 AEC/LMFBR SURVEYED 12.3 total energy- eLectric 202 QBtu 37.6 123 11.3 30.7 energy QBtu 217 Analysis cf Electric E n e r g y Demand When FEA r e l e a s e d November, energy most 1974, analysis it the presented ever Forecasts Project i t as Independence " t h e most undertaken." It is Report in comprehensive certainly one o f the complex. Fundamentally, demand m o d e l present to evaluate government policies the Report utilizes different policies increased production to different price summarizes the basic production scenarios (Business-as-Usual) for according a price-elastic under alternate (Accelerated Development),* levels data used i n and supply- for the world oil. following The and Report manner: 1) " c a l c u l a t i o n s . . . i n d i c a t i n g how m u c h p r o d u c t i o n c o u l d be a c h i e v e d f o r e a c h o f t h e s o u r c e s o f e n e r g y u n d e r d i f f e r e n t w o r l d o i l p r i c e s and under (the) two a l t e r n a t i v e a s s u m p t i o n s — B u s i n e s s - a s - U s u a l and A c c e l e r a t e d Demand," 2) " E s t i m a t e s w e r e made o f t h e c o s t s a t w h i c h k e y f a c i l i t i e s — r e f i n e r i e s , n a t u r a l gas p l a n t s , and e l e c t r i c u t i l i t i e s — c o u l d be b u i l t and t h e i r leadtimes," 3) "At the and l e a d product function tions in specific same t i m e t h a t e n e r g y p r o d u c t i o n l e v e l s , costs t i m e s w e r e p r o j e c t e d , t h e demand f o r e a c h e n e r g y ( i n c l u d i n g e l e c t r i c i t y ) f o r each r e g i o n , as a o f p r i c e , was d e v e l o p e d . In addition to reducdemand i n d u c e d b y h i g h e r p r i c e s , t h e i m p a c t o f c o n s e r v a t i o n m e a s u r e s was a l s o f o r e c a s t . " 2 Additionally, which underly necessarily the permeate FEA i d e n t i f i e s in the 1985 the Report identifies forecast, the model. forecast three key assumptions and a v a r i e t y of The t h r e e assumptions model are as key lesser assumptions which follows: * I n f a c t , f o u r broad s t r a t e g i e s , i n c l u d i n g a base case, a c c e l e r a t e d s u p p l y , a c o n s e r v a t i o n s t r a t e g y , and an emergency p r e paredness s t r a t e g y , i n a d d i t i o n t o a s p e c i a l case r e g a r d i n g the I n t e r n a t i o n a l Energy Program, were a l l c o n s i d e r e d ; b u t trie p r o d u c t i o n s t r a t e g i e s s t u d i e d a r e t h e B u s i n e s s as U s u a l base c a s e , and A c c e l e r a t e d Supply s t r a t e g i e s . 218 "(1) t h e r a t e and economic t r e n d s i n s e c t o r a l g r o w t h ; (2) t h e p h y s i c a l a v a i l a b i l i t y , e c o n o m i c s a n d t e c h n i c a l a s p e c t s o f f u t u r e e n e r g y s u p p l y ; and (3) t h e e n e r g y p o l i c i e s i n e f f e c t w h i c h d i r e c t l y shape o r c o n s t r a i n t h e energy s e c t o r s . " 3 The R e p o r t of domestic in real of the P r o j e c t in turn notes economic GNP. activity; two key parameters namely demographic The f o l l o w i n g figures Independence Report: are in the trends reproduced forecast and growth from Table TABLE 4 PARAMETERS OF F E A ' S ECONOMIC FORECAST FOR 1985 Average 1973 A c t u a l 1985 F o r e c a s t Growth Population 210 m i l l i o n GNP ( 1 9 5 8 C o n s t a n t $) $.84 Notwithstanding at this time, the models capita energy year(in increase just in about of sensitive consumption capita 1973) levels. to 436 m i l l i o n energy in year 2000 t h e AEC/LMFBR m o d e l rise to 726 m i l l i o n increases t o more t h a n d a t a u s e d b y FEA i s of the Census, notably jections Btu per higher Btu i n 1985, total while (see t a b l e compatible than the Council based on S e r i e s F data. with concommitant TkWhr/year to For energy data the consumption energy 5). of Quality to consumption The t h e AEC/LMFBR m o d e l on E n v i r o n m e n t a l projects Btu 4). electric per FEA m o d e l with a from 8,800 (see t a b l e forecasts TkWhr the electric throughout projected f r o m 360 m i l l i o n based on E - s e r i e s p o p u l a t i o n and i s of For example, person, 32,000 variables high rates 1985 forecasting e n e r g y consumption and consumption TkWhr/year 3.5% economic to population relative Annual Rate 0.96% trillion hazards o f energy consumption electric 17,000 $1.28 both t o t a l s u r v e y e d due t o increased per per trillion the obvious forecasts energy consumption are 236 m i l l i o n 1-4 the population Bureau , but (CEQ) is pro- 219 TABLE 5 RATES OF GROWTH AND FACTORS OF INCREASE FOR FEA ENERGY PROJECTIONS TO 1 9 8 5 1973 (Actual) Population (Millions) 211 Per C a p i t a Energy C o n s u m p t i o n (MBTU) 360 T o t a l Energy C o n s u m p t i o n (QBTU) 76 I n s t a l l e d Per C a p i t a Generating Capacity (kW) 2.07 Per C a p i t a E l e c t r i c Energy Consumption (kWhr) 8,763 Total Electric Generating Capacity ( M i l l i o n s o f kW) 438 Total Electric Energy Production (TkWhr) 1.849 1985 (Projected) ANNUAL RATE OF GROWTH (%) FACTOR OF INCREASE 0.9 1.1 1.6 1.2 103 2.6 1.4 3.9 5.4 1.9 5.5 1.9 6.4 2.1 236 436 16,949 922 6.6 Source: I.E.E.E., Jan. 75 220 TABLE 6 RATES OF GROWTH AND FACTORS OF INCREASE FOR AEC/LMFBR ENERGY PROJECTIONS TO 2 0 0 0 1971 (Actual) Population (Millions) Per C a p i t a Energy C o n s u m p t i o n (MBTU) 207 333 T o t a l Energy C o n s u m p t i o n (QBTU) 2000 (Projected) I n s t a l l e d Per C a p i t a GEnerating Capacity <kW) 1.78a FACTOR* OF INCREASE 279* 0.9 1.35 726 2.7 2.18' 202.637 3.8 2.93 4.7 3.78 b 68.969° ANNUAL RATE* OF GROWTH (%) 6 .72 Per Capita E l e c t r i c Energy Consumption (kWhr) 7,800a 32,210 5.0 4.12 Total Electric Generating Capacity ( M i l l i o n s o f kW) 367.5a 1,880.0° 5.8 5.12 a Total Electric Energy Production (TkWhr) 9.01 1.60 a Energy Research and Development 1974, Table 2 . 1 - 1 3 . b Computed from c Ibid, * F i g u r e s i n columns t h r e e and f r o m d a t a i n c o l u m n s one and Table Administration, 5.63 WASH 1 5 3 5 , Dec. note. 2.1-12. f o u r have two. been computed directly 221 The following the year table compares 2000 a c c o r d i n g consumption, and the to relative the energy consumption AEC/LMFBR p r o j e c t i o n s different demographic of levels per projection (280 e l e c t r i c energy consumption (32,210 Tkwh/year) t o t a l energy (726 m i l l i o n consumption Btu/year) Because model, bles model i t in is the is of the to look to at the identify with clearly of 182 the FEA the most However, Qkwhr QBtu projection salient insofar assumptions variaa s the t h e AEC/LMFBR m o d e l , explicated F million) 8,085 QBtu projections. compatible (251 Qkwhr complexity clearly energy T h e AEC/LMFBR m o d e l i t may there. assumes: 1) "that total r e l a t i o n to twenty-five 2) " t h a t e l e c t r i c a l energy i n p u t r e q u i r e m e n t s . . . (will) c o n t i n u e t o g r o w i n r e l a t i o n t o GNP i n m u c h t h e same way t h a t i t h a s i n t h e p a s t . " 3) "that e l e c t r i c i t y (will) continue to substitute for o t h e r forms o f energy i n areas o f c u r r e n t energy use a n d t h a t new c a s e s ( w i l l ) b e f o u n d f o r i t i n t h e f u t u r e . " 4) "electric utilities ( w i l l ) c o n t i n u e t o add more e f f i c i e n t g e n e r a t i o n u n i t s and, t h e r e f o r e , t h a t the average energy i n p u t s needed t o produce a k i l o w a t t hour (will) g r a d u a l l y d e c l i n e f o r the t o t a l U.S. system." T h e AEC a l s o that 203 inherent difficult electric essentially be h e l p f u l million) 9,019 capita estimates. TABLE 7 POPULATION PARAMETERS FOR ENERGY PROJECTIONS Series E Series population in the notes, economy w i l l e n e r g y demand w i l l c o n t i n u e t o g r o w GNP m u c h t h e same w a y i t h a s i n t h e years." as a corollary become m o r e to efficient 1), in that the in past it'implies utilization of 222 energy, continuing Of these the long assumptions, superceded by a d i f f e r e n t the price-elasticity than the model. assuming the they of the trend 110 1973), 2) does n o t appears the FEA m o d e l : fuels continued electric appear nature of the in the somewhere w i t h i n to be that in the rather the be c o n s i s t e n t The being FEA m o d e l substition to FEA m o d e l . all, trend the AEC with assumptions, FEA m o d e l , Product itself assumption of a continued between energy raises total a series 1) that i t thousand B t u / d o l l a r in 1935 to that i t account of towards has n o t for the electric that been w i t h o u t post require the period fossil conceptually towards and i n longer to the continued commercial however, period considered to two o f a n d 4) figure question, 1). from technologic A casual that 3) three living. abundant or in that the 1935 on the i t through availability 1973, of (both and a g r a d u a l progression electricity. characteristics Fossil fuels inexpensive, i t resource Moreover, steam-generated these review (decreasing advancements applications), of the 90 t h o u s a n d B t u / d o l l a r by an a b u n d a n t i n w h i c h we a r e be e i t h e r questions. has been modest marked v a r i a t i o n s , (see in t h e maximum e f f i c i e n c i e s likelihood, apply fuels, continuously has had a dampening e f f e c t efficiency one w h i c h c a n be c h a r a c t e r i z e d (and consumption and embargo p e r i o d , utilities increased s h o u l d be n o t e d low-cost of suggests consumption all third in assumptions relation Gross N a t i o n a l is the competitive also exist more e f f i c i e n t ) from only assumption examination. First of of assumption of Otherwise t h e more r e c o n d i t e close term t r e n d . " ® no are In longer no and f o r more 223 Sources AEC, WASH 1535, DEC 1974 224 16 ' than a decade electricity also be tion and energy that have noted efficiency the in that recent energy consumption, observed and employment correlated torically, econometric lying essentially to 7 namely while third total projections subject to observers positive in plateaued at the that energy factors output based substantial which figure energy to one correlation generated suggested net begin least steam (see have as development means o n l y some achieved utilization technological "The may b e efficiencies a I t might declining c o s t s cE intrude economist between use 2) . explora- on our has gross pointed non-human a n d e m p l o y m e n t are have been out energy both increasing his- and total population." 8 upon these historical correlations uncertainties due to Thus, changes in under- parameters. Figure 2 50 — 0 1920 '30 '40 '50 '60 '70 '80 '90 Year T h e r m a l e f f i c i e n c y o f l a r g e steam p l a n t s has d o u b l e d i n 50 y e a r s , h e a t r a t e s w i t h i n t h e 10,000 Btu/kWh r a n g e . Source: bringing POWER, J i n e , 1975 225 Secondly/ ties is will continue subject out that a s we h a v e to to two the the add more e f f i c i e n t important "dramatic achieved by noted above, in power conversion industry that steam-generating considerations. increases electric assumption While since units t h e AEC efficiency utili- points have been its inception (around these increases occurred 9 1900)", it prior 1960. to fails to point Since out that time, temperatures and p r e s s u r e s , dating have them, addition older of of less new u n i t s increasing the nuclear fact that to efficiencies higher will again tend generating finest more tend the between h i g h e r further in t o have of available off-set fueled light national water the increased electrification FEA a n d AEC/LMFBR m o d e l s , table are the surveyed, growth following efficiencies and n o t both others consumption the the the lower (31-34%), than that severe. accounting assume total either efficiency the decrease While the of system„ the Despite efficiencies 33% i n budget must n e c e s s a r i l y of but of will terms of efficiencies. Thirdly, all gains. of effect equipment, (38-40%), below The gradual reactors average 1 0 percentage these units accomo- replacement the an i n c r e a s i n g to boiler of efficiencies. efficiencies of costs Gas R e a c t o r s may a c h i e v e fossil numerous t o keep on efficiency introduction the of trade-offs may c o n t i n u e High-temperature comparable probably overall the reactors with units most o f and t h e m e t a l l u r g i c a l imposed c e i l i n g s efficient simultaneously that faster energy in Assuming a n e t energy terms the of conversion losses is energy virtually electric i t energy total like of consumption, the p e n a l t i e s for rates of total energy clear from thermal rate of r e s u l t i n g from 3,412 trans- Btu/Kwh, 226 mission of systems; electric i t is energy comparable AEC/LMFBR electricity to (about apparent that generation the total 9%), in U.S. or less the thermal the year energy efficient energy 2000 w i l l budget in generating losses be 1971 from essentially (based on the case). COMPARISON OF E L E C T R I C TABLE 8 ENERGY PRODUCTION AND THERMAL ENERGY 1973 - 2000 COMPARISON OF ELECTRIC ENERGY PRODUCTION AND TOTAL U.S. ENERGY PRODUCTION: 1971 percent of T o t a l 2000 LOSSES: 1971 - 2000 percent of T o t a l T o t a l Energy Budget 3 68.969 100 202.637 100 E l e c t r i c Energy Resource Consumption 3 (resource i n p u t i n QBTU) 17.048 25 100.287 49 E l e c t r i c Energy Production 15 (resource output i n QBTU) Energy Lost i n E l e c t r i c Generation 0 (computed on the b a s i s of 3,412 BTU per kWhr, presented i n QBTU) 5.868 8.5 38.019 18.7 11.180 16.5 62.268 37.5 M. Messing/EPI a b Energy Research and Development A d m i n i s t r a t i o n Wash 1 5 3 5 , D e c . , 1 9 7 4 , T a b l e 2 . 1 - 1 2 Computed from "a" above c Computed from d a t a above note: percent f i g u r e s r e p r e s e n t p e r c e n t o f T o t a l Energy 227 While t h e AEC/LMFBR m o d e l s n o t e s o n l y energy input requirements t o GNP i n much t h e note the implications overlooks ... of this the market value not consider the e f f e c t s u p p l y demand m o d e l . of 81% a r e p o s s i b l e , t i o n of reconsideration in for lost utilization energy energy p o t e n t i a l s . in on o t h e r here, system e f f i c i e n c i e s these S o c i e t y and t h e of systems and second l a w s o f energy e f f i c i e n c i e s , its have 55% are Moreover, International Advanced S t u d y has recommended a As summarized i n and does the industry press t h e economics of to elements of under p r e s e n t e n e r g y p r i c i n g , 1 - ' - relative relation and f a i l s the thermal energy of both the f i r s t the context of t o grow i n has i n t h e p a s t , " t h e FEA m o d e l total the American P h y s i c a l Institutes continue electrical continued p a t t e r n , its and t h a t becoming more a t t r a c t i v e study of of it Technical a r t i c l e s recently pointed out that to (will) same way t h a t "that a Federa- fundamental thermodynamics rather than absolute SCIENCE: "The s h o r t c o m i n g s o f t h e u s u a l d e f i n i t i o n o f e n e r g y e f f i c i e n c y are p a r t i c u l a r l y apparent f o r tasks i n which f o s s i l f u e l s a r e used t o p r o d u c e l o w - t e m p e r a t u r e h e a t . Since f o s s i l f u e l s burn a t very high flame t e m p e r a t u r e s — up t o 4 0 0 0 ° F ( 2 2 1 0 ° C ) — t h e a v a i l a b l e work p r o d u c e d by f o s s i l f u e l s i s l a r g e l y w a s t e d when i t i s used f o r h o t w a t e r h e a t i n g , space h e a t i n g , o r e v e n i n d u s t r i a l s t e a m product i o n , since these are r e l a t i v e l y llow-temperature processes. F o r such p u r p o s e s , t h e f u e l c o u l d o f t e n be b e t t e r used t o r a i s e t h e t e m p e r a t u r e o f h e a t pumped i n f r o m a n o t h e r s o u r c e r a t h e r t h a n t o p r o d u c e h e a t d i r e c t l y by b u r n i n g . " 1 2 Similarly, for solar stitution water it's in although t h e FEA m o d e l energy development, for heating, social electric is likely of as a l o w - t e m p e r a t u r e traditional that values for for variable source relative sub- space h e a t i n q much t h e energy a the p o t e n t i a l and c o m m e r c i a l has been u n d e r e s t i m a t e d value the context it residential incorporates same r e a s o n : is energy and i.e., underestimated efficiencies. 228 Finally, involve large assumptions, model Report it s h o u l d be n o t e d degrees but itself. of from inherent An e x a m p l e that uncertainty of the limitations these FEA not only projections from the within limitations the is given base-case simulation in the Methodology: " T h i s l i s t (of v a r i a b l e s and v a l u e s used i n t h e f o r e c a s t ) i n c l u d e s i n f o r m a t i o n on t h e l e v e l and d i s t r i b u t i o n o f a g g r e g a t e r e a l o u t p u t i n t h e economy (GNP), t h e u n e m p l o y m e n t r a t e , t h e r a t e o f i n f l a t i o n , p o p u l a t i o n , and r e a l p e r s o n a l disposable income. A key assumption i n the model i s t h a t e n e r g y demand l e v e l s a r e c o n d i t i o n a l u p o n t h e v a l u e s o f these v a r i a b l e s . For l a r g e changes i n the r e l a t i v e prices o f energy, i m p l y i n g l a r g e changes i n the q u a n t i t i e s of e n e r g y i n p u t s demanded, t h i s a s s u m p t i o n i s u n r e a l i s t i c , and t h e f o r e c a s t e d macroeconomic and demographic v a r i a b l e s must be a d j u s t e d t o make t h e m c o n s i s t e n t w i t h t h e p r o j e c t e d energy environment." ^ 229 Electric Generating F a c i l i t y Projections N o t w i t h s t a n d i n g problems i n the projections of e l e c t r i c generating s i m p l e and s t r a i g h t f o r w a r d . construction Project in imports, objectives i n c r e a s i n g domestic n u c l e a r power p l a n t unit sizes, it is units, tion and f a c t o r i n g assumed t h a t typical coal turbines w i l l c o a l p r o d u c t i o n , and compensating It is for plant the estimates of petroleum accelerating n e e d e d new additions by an optimum p l a n t m i x . t y p i c a l nuclear facilities be 500 MW. facilities normalized will In other power p l a n t s w i l l and p e s s i m i s t i c words, be 1 , 0 0 0 MW be 800 MW, and t y p i c a l Estimated additions and e s t i m a t e d c o a l - f i r e d of combus- nuclear figures additions for assumed t h a t t h e number o f new c o m b u s t i o n t u r b i n e remain constant r e g a r d l e s s that the c o n t r i b u t i o n of other of generating FEA s u m m a r i z e d t h e n e e d f o r as f o l l o w s : ( s e e page 22) sources w i l l new e l e c t r i c estimates. units the n u c l e a r / c o a l - f i r e d Accordingly, nuclear a r e b a s e d on t h e d i f f e r e n c e b e t w e e n h i g h and low n u c l e a r will are i n the p h y s i c a l c o n s t r a i n t s which might of c a p a c i t y a r e b a s e d on o p t i m i s t i c plant construction, be c o n s i s t a n t w i t h estimated capacity the r e a l i z a t i o n requirements o f p h a s i n g o u t r e l i a n c e on construction, a r e made by d i v i d i n g inhibit facility FEA's On t h e a s s u m p t i o n t h a t power t h e n e x t decade w i l l Independence f o r e c a s t model, be mix, added and negligible. generating units 230 22. TABLE 9 FEA PROJECTIONS OF NEEDED ELECTRIC GENERATING F A C I L I T I E S * Capacity 1973 Nuclear 2/ Coal 3 / Combustion Turbines 4/ (GWe) 1 / 1985 New F a c i l i t i e s R e q u i r e d i n 1985 20 204 - 240 184 167 327 - 291 200 33 162 260 - 260 664 - 635 - 220 155 1/ W i t h o u t measure t o r e d u c e t h e l e a d t i m e s f o r n u c l e a r p l a n t s i t i n g and l i c e n s i n g , t h e l o w e r e s t i m a t e s f o r n u c l e a r and h i g h e r f o r c o a l a r e more l i k e l y . I f nuclear p l a n t delays can be r e d u c e d , t h e h i g h e r n u c l e a r e s t i m a t e s a r e more l i k e l y . 2/ Typical 3/ Typical f a c i l i t i e s of 4/ Typical f a c i l i t i e s o f 500 MW s i z e . f a c i l i t i e s of 1000 MW s i z e . 800 MW s i z e . Source: T h i s s i t u a t i o n can be c l a r i f i e d a d d i t i o n a l c a p a c i t y needed w i t h t h e new f a c i l i t y (rather requirements. (see page and t h e h i g h - c o a l s c e n a r i o 1975 s l i g h t l y by comparing than t o t a l c a p a c i t y , as The f o l l o w i n g t a b l e on t h e above d a t a and c o n s i d e r s t h e h i g h - n u c l e a r base c a s e , FEA, J a n , is s c e n a r i o as (in parens), as t h e the above), based the alternative, 18). * f o r a summary o f FEA's t o t a l e n e r g y f a c i l i t y Appendix z . s i t i n g needs, see 231 TARLK 10 REQUIREMENTS OF ADDITIONAL ELECTRIC GENERATING F A C I L I T I E S BASF.D ON FFA' S PROJECTED NEEDS TO 1935 Additional C a p a c i t y (GWe) Nuclear (184) Coal Combustion Turbine table i t (184) - 220 124 (200) - 155 (129) 129 (260) - 260 (12) 12 (644) - 635 (485) From t h i s 220 (160) Other Totals - Number of U n i t s is clear - 485 t h a t of the a d d i t i o n a l c a p a c i t y a n t i c i p a t e d between 1973 and 1 9 8 5 , the f a c i l i t y 485 GWe requirement p r o j e c t i o n s assume t h a t a l l b u t 12 GWe w i l l be produced e i t h e r by coal, im- nuclear, plicit o r combustion t u r b i n e u n i t s . Furthermore i t t h a t t h e a d d i t i o n s w i l l be i n t h e form o f comparable t o t h e n o r m a l i z e d u n i t large units s i z e s used i n t h e is essentially computations. These assumptions a r e a t w i d e v a r i a n c e w i t h t h e d a t a a v a i l a b l e utility p l a n s t h r o u g h 1 9 8 3 . (see Appendix c) • F i r s t of a l l , R e l i a b i l i t y Council it if F e d e r a l Power Commission (FPC) d a t a f o r (ERC) p r o j e c t i o n s from 1974 t h r o u g h 1983 i s a p p a r e n t t h a t more t h a n 1 , 0 0 0 g e n e r a t i n g p l a n n e d by ERC u t i l i t i e s . * * regarding u n i t s are Electric isocamined, currently Of those u n i t s f o r w h i c h p l a n s have C u r r e n t ( A p r i l , 1974) ERC p r o j e c t i o n s a n t i c i p a t e 4 8 5 , 1 7 0 MW a d d i t i o n s f o r t h e t e n y e a r p e r i o d from 1974 t h r o u g h 1 9 8 3 . Of t h e s e a d d i t i o n s , u n i t s have been s p e c i f i e d f o r a p p r o x i m a t e l y 90% o f t h e c a p a c i t y . Ins o f a r as t h e 4 8 5 , 1 7 0 MW (485 GWe) p r o j e c t i o n s c o r r e s p o n d p r e c i s e l y w i t h FEA p r o j e c t i o n s t h r o u g h 1 9 8 5 , and each r e p r e s e n t s e s t i m a t e s o f t h e n e x t 485 GWe t o be added, t h e f i g u r e s have been used interchangeably. 71-787 O - 76 - 16 232 been s p e c i f i e d , more unit size used i n more than 250 u n i t s 485 GWe p l a n n e d , storage continue to of National a year its earlier data through rate of ment, downwards by forecasts regional the growth concurrent consumption last in the with figures, On t h e w h o l e , of needed facilities jections, but are new f a c i l i t i e s plant it siting appears size, from half further (see 10.4%, are the still next in April, revised its 1975, projected reductions in same t i m e , FPC to indicate new e l e c t r i c of decline the own e s t i m a t e cf 1974 c o n t i n u e d rate based, estimates the of are d e c a d e as a prices, citing to the pumped geothermal At may b e h i g h unquestionably that for Of and 19.6%.14 therefore, load reductions Council 5.2% of size. are a constant generating in electric equipenergy A p p e n d i x D) . which would still. figures normalized there and more r e c e n t load growth a constant 33 GWe w o u l d b e i n further 1 1 0 0 MW o f these installation legislation. certain 0 a n d 5 0 0 MW i n and e l e c t r i c i t y Reliability smallest i.e., 32 GWe a r e h y d r o e l e c t r i c Additionally, reduced the (500MW); on pre-embargo d a t a , fuel Electric than and an a d d i t i o n a l forecast higher less planned between planned. the most p a r t , result 2 50 a r e FEA c a l c u l a t i o n s approximately facilities; currently for than the it appears as the result inflated come u n d e r in the Of p r o j e c t e d hydroelectric reduce the of FEA high regard to authority capacity 20 GWe w o u l d b e i n would that units of need for forecast the pro- number federal of power additions of less 300 MW i n and g e o t h e r m a l the projections new than units, 4 8 5 GWe, and facilities Potential Improvements The p o t e n t i a l energy generation, units without falls into unit in for Electric improving and t h e r e b y reducing electric A s we h a v e the cost-benefit efficient b o t h by units the lower the difference additional generally for potential between h i g h e r unlikely in fossil increasing for of increasing for high- and l o w - under an a c c e l e r a t e d produced power(the if nuclear alternate, low n u c l e a r new f a c i l i t i e s presently by planned. penalty amount units about that did not of 6% o n and less and more efficient be o f f s e t S i m p l y by units, by comparing between l i g h t - w a t e r 6%) w i t h FEA's scenarios, production i t itself two o f the coal-fired words, the largest be there 44 GWe ( f In other reduce reacesti- can schedule approximately come o n l i n e ) . would the newer, w o u l d b e p r o d u c e d b y new GWe, o r to appears temperatures and w i l l production nuclear scenario, 2.6 older (approximately nuclear units, Although reactors. efficiencies seen t h a t w o u l d be an e f f i c i e n c y operating be d r a m a t i c , plants continuing thermodynamics, costs. light-water for individual to displace to operating fueled of law of metallurgical efficiencies and first may c o n t i n u e are the units consumption the p o t e n t i a l efficiencies trade-offs and h i g h e r the benefits mates electric need f o r the p o t e n t i a l and the noted above, generating limited, pressures, tors energy the of efficiencies. increase t o be Efficiencies the e f f i c i e n c y reducing two broad c a t e g o r i e s : generating efficiencies, system Generating need nuclear FEA's for uiits 234 As a l s o noted above, there efficiencies in the u t i l i z a t i o n FEA a n a l y s i s of March, of possible discuss is, however, total industrial-use and t h e F a c i l i t i e s concept without of a potential 1975 r e c o g n i z e s "multiple it, is exploring somewhat i t energy this in detail. increased systems. potential siting, Task F o r c e for but in does similarly The Task The mention not mentions Force the mention, provocative: "No c o n s i d e r a t i o n i s g i v e n t o p r i v a t e power g e n e r a t i o n f a c i l i t i e s for i n d u s t r i a l use. T h e r e a r e q u i t e a lumber o f t h e s e ( i n u s e ) b u t t h e i r i n d i v i d u a l s i z e i s u s u a l l y much b e l o w the ' b u i l d i n g block' sizes considered i n t h i s study. I n some c a s e s , t h e s e f a c i l i t i e s a r e t i e d i n t o t h e l o c a l u t i l i t y so t h a t s h a r i n g o r p u r c h a s i n g o f t h e excess power i s p o s s i b l e . " I 5 Because jections of such f a c i l i t i e s based on u t i l i t y electric increased development of doubling the by shifting by t y i n g reduce and t h e to tap the potential both the regional these savings A third of capital of the and a r e the in the energy to private the (due the in By systems generating Additionally, industry, private utilities, systems improving increased portion systems energy fuels. total of next individual unit to the However, the and energy and t e n d ability s o u r c e s when n e c e s s a r y . probably pro- sector, energy total systems, systems large new e l e c t r i c construction needs o f private total nuclear) transmission possibility w o u l d be need f o r (or the ERC power p r o j e c t i o n s . utilization, fossil from t o t a l n o t been q u a n t i f i e d , efficiencies energy reliability in with electric in industrial industrial of of need f o r systems would reduce increase private the o b l i g a t i o n in with and because o f consumed b y t h e effect efficiency would obviously facilities figures, power w h i c h i s w o u l d have a m u l t i f o l d would n o t be i n c l u d e d systems the decade have limited. utilization of generating combined cycle 235 units, with fossil fueled iency) to are seem to limit On t h e utility equipment number limited other needs. hand, In and v o l t a g e of 31% control facility of operating recognizes needed as but higher or natural contribution of this readily 1975, reliability equipment efficiency oil more a t t e n t i o n January, gross (actual paper steam t u r b i n e s , the American Public to the new s i t e s availability the p o t e n t i a l attention projected increasing from about s y s t e m s may o f f e r speech b e f o r e utility the coupled w i t h and t h e of T h e FEA j u s t i f i c a t i o n reduce costs of steam u n i t s 40%. would also turbines the p o t e n t i a l to the achievable Louis H. c o u l d have effic- that this combustion installation gas for fuel technology. increased efficiency reductions in Roddis noted, Power A s s o c i a t i o n , standards, of reserve substantial that new in a increased requirements, effects on requirements: "Another t e c h n i c a l area which I b e l i e v e r e q u i r e s c o n s i d e r a b l y more i n d u s t r y e x a m i n a t i o n i n v o l v e s t h e r e l i a b i l i t y s t a n d a r d s t h a t are r e q u i r e d i n t h e o v e r a l l d e s i g n s o f l a r g e s y s tems . . . " . . . l o w e r i n g t h e g e n e r a t i o n r e s e r v e r e q u i r e m e n t t o be more i n consonance w i t h the d i s t r i b u t i o n performance c o u l d produce something l i k e a four percent energy reserve r e d u c t i o n . . . "Proper o u t f i t t i n g o f system v o l t a g e c o n t r o l s equipment t o a l l o w r e d u c t i o n s o f a n o n - h a r m f u l n a t u r e , c o u l d save a n o t h e r four-percent. This eight percent reduction in o v e r a l l generating r e s e r v e r e q u i r e m e n t s by 1985 c o u l d p r o d u c e a s a v i n g o f a s m u c h a s 40 m i l l i o n k i l l o w a t t s i n c a p a c i t y a n d $20 b i l l i o n i n i n v e s t m e n t s . " 16 I n March, possibilities for found a d d i t i o n a l 1975, FEA c o m p l e t e d i t s increasing new own e v a l u a t i o n the p r o d u c t i v i t y possibilities: of of the power p l a n t s and 236 "By 1980, an i n d u s t r y w i d e r e d u c t i o n i n t h e average forced outage r a t e of j u s t 1 percentage p o i n t could r e duce t h e N a t i o n ' s i n s t a l l e d c a p a c i t y r e q u i r e m e n t s by up t o 6 , 8 0 0 MW a n d c a p i t a l r e q u i r e m e n t s b y a s m u c h a s $ 1 . 8 billion (1974 d o l l a r s ) . O v e r t h i s same p e r i o d , a c a p a c i t y nuclear factor increase of 8 percentage points for u n i t s a n d s e v e r a l p e r c e n t a g e p o i n t s f o r 4 0 0 MW a n d l a r g e r c o a l - f u e l e d u n i t s would p e r m i t an i n c r e a s e i n o u t p u t from these u n i t s equivalent to the e l e c t r i c energy produced by b u r n i n g more t h a n 500,000 b a r r e l s o f o i l p e r d a y . At p r o j e c t e d c o s t s f o r o i l , c o a l , and n u c l e a r f u e l , this could reduce the u t i l i t y industry's t o t a l fuel costs in 1 9 8 0 b y a p p r o x i m a t e l y $3 m i l l i o n p e r d a y ( 1 9 7 4 d o l l a r s ) . " At units, both outages The is in fact wide issue nuclear large that basis not is been has fossil on total less to had a than the the reliability fueled, system availability contrary but basically and units both have only earlier, here and expected of large effects requirements and c a p a c i t y assumptions series the of generating of forced and c o s t s . factors on an industry- and d e c l i n i n g in in discussed the models deleterious effects on recent years u t i l i t y productivity: "On a v e r a g e , o v e r t h e p a s t y e a r o r t w o , t h e N a t i o n ' s l a r g e n u c l e a r and f o s s i l - f i r e d b a s e - l o a d e d u n i t s were f o r c e d o u t o f s e r v i c e m o r e t h a n 15 p e r c e n t o f t h e t i m e , w e r e u n a v a i l a b l e f o r s e r v i c e m o r e t h a n 25 p e r c e n t o f t h e t i m e , a n d o p e r a t e d a t l e s s t h a n 60 p e r c e n t c a p a c i t y factor. Hence, a l a r g e f r a c t i o n o f t h e h i g h e s t c a p i t a l c o s t g e n e r a t i n g c a p a c i t y was n o t i n s e r v i c e as much as had b e e n anticipated. This has s e v e r e l y aggravated the financial, s i t i n g , l i c e n s i n g , manpower, and o t h e r problems afflicting the industry." Although obtained very correlation to the the high immaturity maintenance other causative effect are projections, and size procedures, manifest higher that forced of inferior in reserve costs, the and, that unit quality to higher and outage the unrelated capital some l a r g e standards, and individuality factors observed reliability between u n i t quate the Report units the have observed t i m e may b e designs, of inherent due inade- workmanship, size margins, ultimately, of higher the or units, facility 237 29. higher larger records electric utility I n June, 1974, generating of many requirements unit large over rates. the FPC s t a t e d sizes, units, that and the operate which that is "the trend relatively to increase toward poor availability reserve n e e d e d when s m a l l e r , margin mature units 1q predominate utility toward on a system. margins capacities reserve "the upper 20 observed." end of Moreover, are calculated p r o j e c t e d maximum p e a k capacities result peak in trends 20-25 reserve loads. to in indicated that be on t h e b a s i s loads, i t sizes the net will the FPC o b s e r v e d next of necessary that tended currently that reserve reserves over projected reserve m a x i m u m summer p e a k s usually on t h e easy decade band t o remember and t h e r e f o r e over is the 25 p e r c e n t important be c u m u l a t i v e . unit for 15 t o is percent system e f f i c i e n c i e s ultimately it a result, planned the capacities Therefore tend increases in of -^As to order Contrary efficiencies 40 p e r c e n t see how t h e necessarily and o p e r a t i n g of to the effects may b e of assumptions be a c c o m p a n i e d costs, over recent lower by winter these that increases experience and t h e costs has may higher. " T h e r e i s l i t t l e q u e s t i o n t h a t o f t h e 20 o r 25 p e r c e n t o f p l a n t r e p r e s e n t e d by s p e c i f i c e q u i p m e n t , economies o f s c a l e favor the large units. However, c o s t e f f e c t i v e n e s s d i m i n i s h e s r a p i d l y i f l a r g e s i z e d i c t a t e s custom d e s i g n and custom construction. I n t h e s e c a s e s , a c o n s e q u e n t i n c r e a s e i n t h e 80 p e r c e n t o f t h e p l a n t c o s t s r e p r e s e n t e d by f i e l d l a b o r and o v e r h e a d — m o s t o f w h i c h a r e t i m e d e p e n d e n t - - make t h e t o t a l c o s t o f a l a r g e r p l a n t c o m p a r a b l e t o an e q u i v a l e n t number o f smaller facilities. 11 In f a c t , the c a p i t a l cost per k i l o w a t t of i n s t a l l e d output has been r i s i n g i n a c t u a l d o l l a r s a l o n g w i t h p l a n t size."21 238 Although a reduction i n u n i t to increase t h e t o t a l number o f c a n be s e e n t h a t increase energy systems, need f o r a reversal the attractiveness size might at sites required, first be in this thought context i n the t r e n d towards l a r g e r units of in small u n i t s increase u t i l i t y a s u b s t a n t i a l amount o f incorporated system r e l i a b i l i t y , it might total and reduce reserve capacity generating the facil- ities. Finally, effect it s h o u l d be n o t e d t h a t o t h e r c o n s i d e r a t i o n s the net e f f i c i e n c i e s decade? c o n s i d e r a t i o n s (resulting either proximity to equipment, of generating from higher v o l t a g e load centers), l i n e s or (including r e s u l t i n g from ultimately it appears t h a t effect either in closer control different such t h i n g s as c o a l s o r t i n g w a s h i n g t o a l l o w more e f f i c i e n t u s e s o f our purposes, siting next efficiencies the energy costs o f p o l l u t i o n or increased e f f i c i e n c i e s management p r o c e d u r e s system over t h e s u c h as i n c r e a s e d t r a n s m i s s i o n may higher q u a l i t y the wide range o f a net increase, and coals.) such v a r i a b l e s or decrease i n t o t a l e f f i c i e n c i e s o v e r t h e n e x t d e c a d e , b u t t h e number o f v a r i a b l e s probably larger than the l i k e l y On t h e b a s i s o f that the t h e above c o n s i d e r a t i o n s it t o be 10 t o 25 p e r c e n t and t h r o u g h t h e y e a r is our appears reasonable. is feeling t h a n t h e 485 GWe e s t i m a t e d 2000 a r e d u c t i o n o n t h e o r d e r o f b e l o w t h e AEC/LMFBR e s t i m a t e s lower system effects. t h e a d d i t i o n a l g e n e r a t i n g c a p a c i t y r e q u i r e d t h r o u g h 1985 likely FEA, magnitude of For may 25 is by percent 239 PART TWO: THE NEED FOR E L E C T R I C Analysis of Project Independence E s t i m a t e s f o r The P r e s i d e n t ' s 1975 c l e a r l y plants, GENERATING F A C I L I T Y State of 1985 t h e U n i o n Message o f s t a t e d t h e need f o r a n d 20 new s y n t h e t i c and t h e " E n e r g y F a c i l i t i e s however, gas f a c i l i t i e s power 30 new o i l s i t i n g and c o n s t r u c t i o n o f neither the Project any o f t h e need f o r the a v a i l a b l e If s u p p o r t i n g documents, new e n e r g y f a c i l i t y s i t e s m u s t be i n f e r r e d sites. f r o m need f o r 1985, was in- the need- Independence nor the Energy Independence A c t E n v i r o n m e n t a l Statement, fact, re- on l i n e by P l a n n i n g and Development A c t " troduced to assure the t i m e l y ed f a c i l i t i e s : January, 200 m a j o r new n u c l e a r 150 l a r g e new c o a l - f i r e d power p l a n t s , fineries, SITES Report, nor, explicitly The n e e d f o r new new e n e r g y address facility facilities. FEA e s t i m a t e s o f n e e d e d new g e n e r a t i n g f a c i l i t i e s are compared w i t h a v a i l a b l e i n d u s t r y data regarding c o n s t r u c t i o n f r o m 1974 t h r o u g h 1 9 8 3 , and a d j u s t e d t o a c c o u n t f o r m i n o r in plant t y p e s and s i z e s , facility s i t e s needed d r o p s f r o m a p p r o x i m a t e l y 150. The f o l l o w i n g t a b l e s bility or w i l l of new s i t e s (i.e., be a p p r o v e d , ) be n e e d e d b e t w e e n 1974 t h e e s t i m a t e d number o f new 640, plans variations generating to less do n o t a d d r e s s t h e q u e s t i o n s o f than availa- w h e t h e r t h e new s i t e s n e e d e d h a v e but only t h e number o f and'1985v' in new s i t e s likely been, to 240 Tables electric 1975, 11, 12, generating and March, a n d 13 i n d i c a t e facilities 1975, needs Electrical Capacity f r o m November, 1985 P r o j e c t i o n s BAU $11/BBL. 65 20 167 78 61 33 Table Electric 1002 6.3 7.4 100 204 327 81 48 162 100 240 379 64 48 171 Nuclear Nov. 74, 11-24 Plant Requirements (GWe) 1985 New F a c i l i t i e s R e q u i r e d i n 1985 20 204-240 184 220 167 327-291 200 155 33 162 260 Combustion Turbine 664 693-693* Source: FEA, 12 Generation Capacity 1973 693GWe t o t a l l e d January, (in Gigawatts) Demand Management 922 424 Source: * 1974, 11 Growth Rate 19731985, %/yr. Coal projected Projections Existing Capacity end-1973 Hydro C a p a c i t y Nuclear Capacity Coal Capacity O i l Capacity Gas C a p a c i t y Combustion Turbine of respectively. Table Total Electricity Capacity FEA e s t i m a t e s from table data FEA, 260 - Jan., 635 1975 241 Table 13 E s t i m a t e d Number o f New F a c i l i t i e s R e q u i r e d M e e t E n e r g y Demand I n c r e a s e s o v e r 1 9 7 2 * Nuclear (1000MW) Coal F i r e d (800MW) Combustion T u r b i n e Hydro (500MW) Energy Independence Act (GWe) B u s i n e s s As Usual (GWe) 184 (184) 184 (184) 204 (163) 138 (110) 454 (227) 504 (252) 117.5 (1000MW) -21 Oil(800MW) N a t u r a l Gas -16 (800MW) Total From t h e d a t a reorganizing Table as new f a c i l i t i e s ) , Table * 11, the in - (-13) -16 (662) Source: FEA, M a r c h , I n d e p e n d e n c e A c t 3 u s i n e s s - A s - U s u a l Case which were t a r g e t e d (-17) it the (922-924.5 the Energy Independence A c t : 12 t o i n d i c a t e additional table c a n be (- (649) 2-21 that Project GWe) a r e those however, new c a p a c i t y (as by well in constructed: The u n i t s i z e s h a v e b e e n n o r m a l i z e d as i n d i c a t e d ; have b e e n computed f o r b e n e f i t o f c o m p a r i s o n 2) (-13) 1975, and b y c o m p a r i n q t h i s w i t h t h e b r e a k d o w n following 3 924.5 can be seen energy requirements of (118) 117.5 (118) 922.5 i n T a b l e s 1 1 and 1 3 , the p r o j e c t e d e l e c t r i c a l to GWe f i g u r e s 242 34 Table 14 A d d i t i o n a l New C a p a c i t y N e e d e d f o r 1985 Additional Capacity GWe (184)*- 220 (184)*- 220 (800MW) (160) - 124 (200) - 155 Combustion Turbine (500MW) (129) - 129 (260) - 260 (12) r 12 (485) - 485 (644) - 635 Nuclear Coal (1000MW) Other The a d d i t i o n a l more c l o s e l y to capacity the h i g h - c o a l shown i n T a b l e scenario with t h e BAU $ 1 1 / B B L p r o j e c t i o n that the fired "other" capacity, and an i n c r e a s e additions. sites category of about decrease conforms to 11, and i t fact conforms when compared can be seen in net gas-fired and m i s c e l l a n e o u s t h e number o f t h e number o f the new following high-coal capacity generating (additional) first 35) low-nuclear oil- capacity, data: (see page Numbers i n p a r e n s i n d i c a t e in a small decrease i n n e t we c a n c o n s t r u c t a p p r o x i m a t i o n b a s e d o n t h e FEA Table we assume t h a t needed most c l o s e l y 14 ( i n parens) 35 GWe i n h y d r o - if needed, in represents a substantial Therefore, generating units * Number of Units scenario 243 34 T a b l e 14 Additional Generating Unit/Sites Additional C a p a c i t y GWe Nuclear (1000MW) Needed Additional Units/Sites 184 184 (800MW) 160 200 Combustion Turbine (500MW) 129 Coal Other Utilizing the estimates this 260 12 - 0 - 485 644 base-line data f o r c a n be compared w i t h projected current site utility needs, construction p l a n s as t a b u l a t e d by t h e F e d e r a l Power C o m m i s s i o n f r o m Electrical Reliability tations the of recent estimates First tric of Council reports, "Energy F a c i l i t i e s made b y all, under generating plants with the Planning Act", statutory and w i t h the d e f i n i t i o n s (other of the Act, than hydro-electric) legislation. If data, approximately 23 p e r c e n t it hydro) c a n be seen t h a t units p l a n n e d by u t i l i t i e s and t h e r e f o r e the proposed s i t i n g limimore FEA. w o u l d be a f f e c t e d by t h i s number o f National one l o o k s a t are under w o u l d n o t come u n d e r legislation (see T a b l e only over of 300 MW 1 9 7 4 FPC the total (excluding the a u t h o r i t i e s 16): elec- 300 MW of 244 T a b l e 13 Planned E l e c t r i c Generating Units by Size (Excluding Number of Units Unit Output (MW) Hydro) Percentage of total (No. o f u n i t s ) 000 - 299 20,318 148 23 300 - 499 41,033 104 16 500 799 113,836 185 29 26 - 800 -1199 70,402 171 1200 -2399 49,852 40 _6 395,441 648 100 Source: More significantly, facilities volved the in constructing number of units FPC c o m p i l a t i o n and Larger to for Begin w i t h of categories. for years of. of scheduled sites nuclear necessarily fossil plants to be assumed t h a t probable facilities, exist plants be under be on by line for that not plant plants number new in- account Begun o r is that Scheduled Therefore, for in automatically two comprised i t capacity. sites within 1 6 1 GWe, regulatory or, in specific is that 300MW planned capacity 2 6 8 GWe l i s t e d exist for The Unit Additions or operation, will of lead-times do n o t assumed planned imply 1974 construction 1979. sites 268 GWe o f does forthcoming might 1, construction. 2 6 8 GWe o f the for but under has A l r e a d y 1 6 1 GWe o f approved this fueled plants, i t either the and t h e Steam G e n e r a t i n g indicates Although those indicate 1985, currently Projected construction, plants safely by which Construction these all these already Two Y e a r s , exist of FEA f i g u r e s w h i c h must be on l i n e FPC, A p r i l can and In that the case approval the case begin of is 245 operation these without figures been c o m p l e t e d . figures, they further imply Ef would that the regulatory the appear Additional for as Size are but adjusted Unit/Sites and U n i t s Additional Units/ Sites 644 161 Adjusted for Planned Capacity Under C o n s t r u c t i o n o r w i t h i n Two Y e a r s o f C o n s t r u c t i o n and on l i n e 1980-1984 reflect currently * have either 214* 107 142* 197 261 although substantially are subject the number o f accelerated power to lower additional projected plant siting than the adjustment. sites in laws, or Number o f u n i t s c a l c u l a t e d o n t h e b a s i s o f t h e t o t a l GWe d e m a n d a n d e s t i m a t e d n u m b e r o f u n i t s these 2 7* Adjusted for Planned Capacity o n l i n e b y 1979 do n o t reflect Construction Adjusted for Planned Capacity U n d e r 300 MW FEA e s t i m a t e s to that has Needed: Under 485 These e s t i m a t e s , process 17 Additional C a p a c i t y GWe initial we b e l i e v e selection follows: Generating Unit site FEA e s t i m a t e s Table Adjusted delays: initial They States which further r a t i o between (485:644) 246 29. or the p o t e n t i a l jected for further since the release of s t a t e s w i t h power p l a n t p o w e r demand o f in siting the twelve w i t h power p l a n t centage of siting and i f we assume t h a t the electric demand the projected the twenty-two i s no g r e a t e r legislation, states than the per- states of pass t h e n t h e number c o v e r e d b y t h e s e l a w s w o u l d be of approximately 0.37).22 that the t o t a l FEA h a s r e c e n t l y need f o r developed f i g u r e s installed m i g h t be r e d u c e d b y as much a s o n e - t h i r d new g e n e r a t i n g FEA A d m i n i s t r a t o r for John S a w h i l l reduced f a c i l i t y In October, spoke q u a l i t a t i v e l y capacity which capacity ( 1 6 0 GWe), w i t h c o m b i n e d 23 management and e n e r g y c o n s e r v a t i o n p r o g r a m s . potential the 37 p e r c e n t o f we assume t h a t no a d d i t i o n a l A t t h e same t i m e , indicate If legislation i n d e p e n d e n t power p l a n t s i t i n g p r o j e c t e d new u n i t s (€44 x (see T a b l e 2 0 ) , power g r o w t h f o r pro- twenty-two 1973 c a p a c i t y r e p r e s e n t e d b y t h e t w e l v e l a r g e s t those states, 240 laws Of t h e approximately ( 4 3 8 , 4 9 3 MW). percentage of e l e c t r i c figures. s t a t e s w i t h t h e l a r g e s t power 1973 was 1 6 3 , 7 4 0 MW— national total l o a d r e d u c t i o n s w h i c h FEA h a s th»se about through improved load 1974, the plant p e r f o r m a n c e a n d management p r a c t i c e s : " I f a p l a n t o p e r a t e s a t o n l y 50% o f c a p a c i t y , we m u s t b u i l d two p l a n t s t o g e t t h e o u t p u t o f o n e . Thus we p a y t h e p r i c e o f h i g h e r e l e c t r i c r a t e s , and d o u b l e t h e a l r e a d y c o n siderable competition for investment c a p i t a l , s i t i n g , licensing and u t i l i z a t i o n o f s c a r c e r e s o u r c e s . " P o o r p l a n t p e r f o r m a n c e i s i n f l a t i o n a r y , w a s t e f u l , and unnecessary. I t m u s t be e l i m i n a t e d , a n d t h i s c a n be a c c o m p l i s h ed i n two ways. T h e r e m u s t be i m p r o v e d q u a l i t y c o n t r o l i n t h e m a n u f a c t u r e and d e s i g n o f p l a n t s a n d e q u i p m e n t c o m p o n e n t s . And t h e u t i l i t i e s m u s t s h a r e r e s p o n s i b i l i t y b y p u t t i n g q u a l i t y a t the top of t h e i r purchasing p r e r e q u i s i t e s f o r these g o o d s and s e r v i c e s . " 24 247 29. I n March, reported FEA h a d q u a n t i f i e d t h e s e s a v i n g s f u r t h e r and that: " B y 1 9 8 0 , an i n d u s t r y w i d e r e d u c t i o n i n t h e a v e r a g e f o r c e d outage r a t e of j u s t 1 percentage p o i n t could reduce t h e N a t i o n ' s i n s t a l l e d c a p a c i t y r e q u i r e m e n t s b y up t o 6 , 8 0 0 MW a n d c a p i t a l r e q u i r e m e n t s b y a s much a s $ 1 . 8 b i l l i o n (1974 d o l l a r s ) . Over t h i s same p e r i o d , a c a p a c i t y f a c t o r i n c r e a s e o f 8 p e r c e n t a g e p o i n t s f o r n u c l e a r u n i t s and s e v e r a l p e r c e n t a g e p o i n t s f o r 400MW and l a r g e r c o a l - f i r e d u n i t s w o u l d p e r m i t an i n c r e a s e i n o u t p u t f r o m t h e s e u n i t s e q u i v a l e n t t o t h e e l e c t r i c e n e r g y p r o d u c e d b y b u r n i n g more than 500,000 b a r r e l s o f o i l per day." 2 5 Finally, effective i n June, FEA A d m i n i s t r a t o r Frank Zarb announced l o a d management and r e l a t e d c o n s e r v a t i o n p r o g r a m s reduce the "use o f imported o i l as much a s 1 . 3 m i l l i o n for electric b a r r e l s p e r d a y and i n s t a l l e d c a p a c i t y by about o n e - t h i r d " Specifically, Mr. Zarb could power g e n e r a t i o n (the) need f o r over the next that by new decade.26 said: " W h i l e o u r a n a l y s i s o f a l l t h e a s p e c t s o f l o a d management i s not yet complete, our p r e l i m i n a r y f i n d i n g s i n d i c a t e t h a t s e v e r a l s p e c i f i c o b j e c t i v e s c a n r e a l i s t i c a l l y be m e t b y 1 9 8 5 : — we c a n i m p r o v e l o a d f a c t o r s t o 69 p e r c e n t ; — we c a n i m p r o v e c a p a c i t y p e r c e n t t o 57 p e r c e n t ; from the present factors 62 from the present percent 49 — we c a n e n c o u r a g e e x p a n s i o n o f b a s e l o a d c a p a c i t y , p r i m a r i l y n u c l e a r a n d c o a l c a p a c i t y , f r o m 45 p e r c e n t t o 55 percent of t o t a l generation; — we c a n i n c r e a s e e n d - u s e e f f i c i e n c y b y a b o u t 10 p e r c e n t through energy c o n s e r v a t i o n a c t i o n s ; — we c a n r e d u c e t h e use o f i m p o r t e d o i l f o r e l e c t r i c p o w e r g e n e r a t i o n b y a s much as 1 . 3 m i l l i o n b a r r e l s p e r d a y . " Moreover, reductions it is important the and s a v i n g s a r e a c h i e v e d t h r o u g h r e d u c e d e l e c t r i c a t i n g capacity expansion rather sumption. to note t h a t the basis of As M r . 71-787 O - 76 - 17 Zarb n o t e d , than reduced e l e c t r i c energy " T h r o u g h l o a d management a n d genercon- related 2_ 248 conservation programs, at a manageable or minus usage, peak one h a l f and f o u r load new s i t e tion is likely the of power estimated the from if either to plant to for siting number were the of with increased conservation 18 s u m m a r i z e s to plus kilowatt or hour percent siting for number legisla- which laws, negligable. needed i s the either siting which might might figures: (see page the federal capacity 41) by the laws or If over then only and number If planned by the be a f f e c t e d to by 300 MW would drop l o a d management be r e d u c e d are the reduced 300 MW o r 1 9 7 GWe a n d 2 6 1 u n i t s . legislation if new s i t e s authorities and i m p r o v e d new f a c i l i t i e s these is under siting further, number siting or met, state capacity existing for power p l a n t percent— w h i c h w o u l d be a f f e c t e d construction, the of is of expedited sites legislation new f e d e r a l states number facilities t o be r e d u c e d in sales, objectives m i n u s one h a l f potential generating planned 485 GWe a n d 644 u n i t s Editions or five w h i c h m i g h t be a f f e c t e d by allow two years subject electric this new p o w e r p l a n t of about these 2 8 additional number and W i t h i n units for of again plus t o be accomodated under number federal by percent-- selections adjusted can a t t a i n growth rate percent— demand." Obviously, of annual the Nation by zero. of to this capacity potential procedures, federal Table 249 T a b l e 13 Summary o f Power Plant Siting Needs: 1975 - Additional C a p a c i t y GWe Estimated Additional Generating Capacity Needed 1/ 1985 Additional Units/Sites 485 644 288 383 Estimated Capacity Demand o f T w e l v e L a r g e s t S t a t e s w i t h Power P l a n t S i t i n g Laws 3/ 179 240 Generating Capacity Reduction with C o n s e r v a t i o n and Load Management S a v i n g s 4 / 160 213 Additional Generating Capacity W h i c h W o u l d Be U n a f f e c t e d B y F e d e r a l Power P l a n t S i t i n g Legislation: Planned Capacity U n l e r 3 0 0 MW o r O v e r 3 0 0 MW a n d W i t h i n Two Years o f C o n s t r u c t i o n Range o f E s t i m a t e d Demands S u b j e c t t o Power P l a n t S i t i n g 2/ Siting Federal Legislation 5/ 0 - 197 0 - 261 c 1 / TTPA 5 W n v ^ T , ~e 1 2 / FPC, Summary o f P r o j e c t e d G e n e r a t i n g U n i t A d d i t i o n s by U n i t S i z e f o r t h e P e r i o d 1974 - 1 9 8 3 , P r o j e c t e d G e n e r a t i n g U n i t A d d i t i o n s and R e t i r e m e n t s f o r t h e P e r i o d 1974 - 1 9 8 3 , and P r o j e c t e d Steam G e n e r a t i n g U n i t A d d i t i o n s 300MW and L a r g e r f o r w h i c h C o n s t r u c t i o n Has A l r e a d y Begun o r i s Scheduled t o B e g i n W i t h i n Two Y e a r s , as r e p o r t e d under FPC Docket R-362 , A p r i l 1 , 1974. See T a b l e 17. 3/ See T a b l e 20. 4./ See n o t e 23. 5 / The range e s t i m a t e d d e r i v e s a low f i g u r e by s u b s t r a c t i n g t h e f i g u r e s f r o m l i n e s 2 , 3, and 4 , ( p l a n n e d c a p a c i t y a d d i t i o n s , e s t i m a t e d demand o f t w e l v e l a r g e s t s t a t e s , and c o n s e r v a t i o n and l o a d management s a v i n g s , ) f r o m t o t a l c a p a c i t y a d d i t i o n s needed. The h i g h f i g u r e i s d e r i v e d by s u b s t r a c t i n g o n l y t h o s e p l a n t s under 300MW o r o v e r 300 MW and w i t h i n two y e a r s o f c o n s t r u c t i o n f r o m t h e e s t i m a t e d a d d i t i o n a l c a p a c i t y needed. 250 These f i g u r e s d o n o t a d d r e s s s e v e r a l k e y f a c t o r s plant siting decisions: units (under t h e y do n o t a d d r e s s t h e f a c t 300 MW) may i m p l y l a r g e r increased p o t e n t i a l for numbers o f u t i l i z a t i o n of the the f a c t or i s that existing s i t e s on w h i c h p l a n t sites, smaller made a v a i l a b l e b y r e t i r e m e n t o f o l d e r u n i t s ; in that power smaller with urban sites t h e y do n o t address c o n s t r u c t i o n has s c h e d u l e d t o b e g i n w i t h i n t w o y e a r s may y e t e n c o u n t e r l a t o r y delays; and t h e y d o n o t a d d r e s s t h e f a c t e x i s t i n g power p l a n t problems i n do c l e a r l y site siting that Nonetheless, figures t h e number o f g e n e r a t i n g u n i t s n e e d e d o n t o new f e d e r a l p o w e r siting legislation, a substantial or for with encounter the l i n e b y 1985 and w h i c h w o u l d be s u b j e c t exists begun regu- states l e g i s l a t i o n may n o n e t h e l e s s selection or approval. indicate that an i s modest, addressing these and t h a t s i t i n g needs e i t h e r plant potential on t h e s t a t e level t h r o u g h i n c r e a s e d c o n s e r v a t i o n a n d i m p r o v e d l o a d management programs. 251 Electric Generating F a c i l i t y . Beyond t h e y e a r stabilize rather S i t i n g Needs Beyond 1985 1985, t h e need f o r than continue new g e n e r a t i n g to increase. t h e AEC f o r e c a s t o f n u c l e a r e n e r g y s u p p l i e s 2 , 0 0 0 r a n g e d f r o m 825 - sites I n December, 1974, through the year 1 , 2 0 0 GWe, w i t h t h e m o s t l i k e l y case b a s e d on t h e a s s u m p t i o n t h a t n u c l e a r e n e r g y w o u l d a c c o u n t for 72 - 81% o f new g e n e r a t i n g a d d i t i o n s 90's, t h r o u g h t h e 8 0 ' s and and w i t h t h e h i g h e s t i m a t e b a s e d o n t h e a s s u m p t i o n t h a t e n e r g y w o u l d be " a b o u t 90% o f a l l additions nuclear to generating capacity 29 after If 1985." these p r o j e c t i o n s generating capacity of that total capacity less a r e compared t o a t o t a l t h a n 450 GWe i n additions of 600 - 1973, it c a n be 1 , 0 0 0 GWe a r e forecast, and as many a s 1 , 2 0 0 - 1 , 3 0 0 new g e n e r a t i n g s i t e s m i g h t be There a r e , however, First of all, should increase of several mitigating the p o t e n t i a l smaller increased capacity 2,000, in generating units, reserve margins. The f i r s t reductions Increased r e l i a b i l i t y system. A hypothetical i n Table 19: necessary to there i s a p o t e n t i a l i n reserve margin capacities i m p r o v e s as a f u n c t i o n o f as s y s t e m i n c r e a s i n g numbers o f statement of function and as a f u n c t i o n i n t u r n d e c r e a s e t h e amount o f r e s e r v e c a p a c i t y However, reductions b o t h as a of p o i n t i s w e l l - k n o w n and h a s argued i n g r e a t d e t a i l . system r e l i a b i l i t y . needed. factors. f r o m 1985 t h r o u g h t h e y e a r increased r e l i a b i l i t y been p u b l i c l y for electric seen this for insure further reliability units within potential would is the presented 252 30 T a b l e 13 System Reserve M a r g i n as A F u n c t i o n o f t h e Number o f I d e n t i c a l U n i t s 3 9 20 33 to to to to Reserve C a p a c i t y as a % o f T o t a l Capacity Number o f t h e T o t a l U n i t s R e q u i r e d as Spare U n i t s f o r Reserve* T o t a l Number o f Identical Units i n System 8 19 32 49 Source: Huettner 67% 33% 20% 15% to to to to 25% 16% 13% 10% and Landon * B a s e d o n a f o r c e d o u t a g e r a t e o f 2% f o r e a c h i n d i v i d u a l t u r b i n e - g e n e r a t o r u n i t and a system l o a d l o s s p r o b a b i l i t y than 0.0004. Hopefully, for therefore, new i n s t a l l e d improved reduction reduce generating l o a d management regardless of in the 1 2 0 0 GWe t o its include through 1985, is the capacity more from 1975 generating - (1600 to and t h e r e f o r e to 1985; a s FEA n o t e d in and a from likely to new the the conservation additions and beyond 2,000 from 1985 for beyond would approximately However, forecast need one-third 1985 - case) new u n i t s ) . amount 956 reducing be r e a l i z e d capacity 1,000 356 t o for through likely 485 GWe a n d 6 4 4 u n i t s 715 GWe a n d Secondly, potential (based on AEC's most 800 GWe figures 315 GWe t o effects installed need the boilero f no more these addition 1985 of units. January Paper: " N u c l e a r and c o a l - f i r e d p l a n t s w i l l g e n e r a l l y be s i t e d i n groups of two o r f o u r . C o m b u s t i o n t u r b i n e p l a n t s o f 5 0 0 MW capacity w i l l c o n s i s t of several u n i t s occupying a s i n g l e site. As c o m b u s t i o n t u r b i n e s a r e c o u p l e d i n c o m b i n e d c y c l e s w i t h steam t u r b i n e s , t h e c a p a c i t y o f t h e s e i n s t a l l a t i o n s will i n c r e a s e , t h e r e b y d e c r e a s i n g t h e number o f s i t e s r e q u i r e d . " 31 253 For this plants reason p r o j e c t e d from 1985 smaller number case the to and l e s s units site of might existing and t h e generating i t companies in potential sites of new u n i t s relation to companies the developing quisitions the right and a r e of than the eminent will number new a much certainly may b e larger the developed, numbers o f earlier); but i t current increased smaller is utility additions against as load of to these or grow, insofar now; the but third increasing sites. year the offset In and agents, often i t is utility generating fact, is ac- purchases; existing the 2 , 0 0 0 may n o t figure land land the hard the result from options, of can which would as u t i l i t y party in utility far extent and addition land which as o u t r i g h t the for words, and w h i c h purchase through anticipated in of as w e l l the dispersed of transmission However, potential we h a v e other of land prices rotate evenly tracts located estimate be needed In large utility inventories and t o sites centers a variety among both r i s i n g sites domain, to their criteria, acquire conducted the practice increase long-distance may i n c l u d e existing that to utilization impossible either sites of generally is terms of for 900 This centers load centers. tended or in 350 t o require that generating load centers. land holdings to selection gradually of virtually years as a hedge costs full viewed potential projected prohibitive energy extent (as m e n t i o n e d if among l a r g e be d e v e l o p e d from the of fact sites. site have may i n has been a g e n e r a l recent stringent additions approvals. large to be d e v e l o p e d Thirdly, more that true significant holdings unit 2,000, new s i t e extent likely especially through number be much to capacity of greater quantify 254 29. i n t h e absence o f u t i l i t y land data. 255 State Facility Within have e n a c t e d of planning. of the sions most of the or expediting ness of Siting power various contiguous per se a r e States pose siting, serious responded to too early laws, i t informal, rather accurately officials levels of siting law, year for power the of of states agency effective- from a general survey power p l a n t siting State problems level the Governor's responsible plant i t the siting was f o u n d problems, dependent and p r o b l e m s for that the availability and capital shortages, problems than site this survey siting is believed priorities The whether problems following or are not that of the concerns table the of natural Although i t to States substantial the in office power most upon o i l of deci- was e x p e c t e d selection. reflect purpose use site consumption, the more who r e s p o n d e d . 33.) that power water, states for evaluate In c a l l i n g Environmental those to apparent present 1985, than precise, and w h a t to State through in is 1985. whether twenty laws, and a u g m e n t i n g S t a t e l a n d states, considered the present process responses (see page still availability and t h e State is negatively. appeared tion i t problems the siting State asking gas), approximately siting, and a s k i n g (particularly years power p l a n t plant not fuels all several forty-eight through each S t a t e , plant past consolidated Although the Projections acquisiwas tabulated of those indicates 1973 S t a t e has a power anticipated through 1985: plant 256 TABLE STATE F A C I L I T Y SITING 20 LAWS AND A N T I C I P A T E D '"anacitv* 1 N j Alabama Alaska A r i zona Arkansas California Colorado Connccticut Delav.v.re Florida Georgia 11,,824 586 4,,819 ,566 3, 31,,999 3,,384 5,, 189 1,,455 19,,073 9,,144 Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland 1.,188 1.,656 23,,989 12,,502 4,,107 5,,447 10,,745 10,r 358 1,, 707 6,, 7 3 1 Massachusetts Michiqan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New J e r s e y 7,,776 15,,962 5/ ,917 3,,272 10,,461 1,, 8 8 1 3,,033 3,, 328 ,146 11.,300 ;Y New M e x i c o New Y o r k North Carolina N o r t h Dakota Ohio Oklahoma Oreqon Pennsylvania Rhode I s l a n d South C a r o l i n a 3, 943 25,,960 11.,960 1,,308 21,,496 5,,795 6.,091 23,,725 360 7,,407 jY IY South Dakota Tennessee Texas Utah Vermont Virqinia Washinqton West V i r q i n i a Wisconsin Wyominq 1,,693 12 j, 826 33,,985 780 906 8,,245 15,,356 12,,334 7,,664 1-,835 * source: Edison E l e c t r i c I n s t i t u t e , SITING PROBLEMS SITING LAW N !E ! V Y Y Y I ! N N Y N N • N 1 N 1 N S N '! fY 1 1 N 1 i >Y i iY ! }Y 1 Y 1 \ • N 1 i • N 1 N ; 5 N Y Y N F N EF N E W N' E W N iY '. Y C^ ?? E WC 1 i • i ; n E i N: F i Y EFW : n j N F ! N EF » NE N N N N N N ?? N N N | . Y • N N Y Y Y : v i \ S i I j i 1 : | i 1 n N N N N N N .E -E EFW : : N :E W •• N E; •• N E C Y ,:E W 1 1 F N |; F N E W : N Y F C ! N Y Y E ?? N n :iEFW * N !!e Y •?? n N N N !1 ;e |E EF 1 1974 KEY E = F = W = C = ??= E n v i r o n m e n t a l Problems F u e l S h o r t a g e s - gas & o i l Water A v a i l a b i l i t y C a p i t a l Shortages Uncertain = Siting large concentrations of power i n remote areas would i n v o l v e economic and regional planning problems. 257 APPENDIX A : THE NEED FOR O I L REFINERIES F o l l o w i n g the p u b l i c a t i o n o f the P r o j e c t Independence Forec a s t s f o r e n e r g y f a c i l i t i e s , i n c l u d i n g 30 n e w o i l r e f i n e r i e s b y 1 9 8 5 , the Federal Energy A d m i n i s t r a t i o n conducted p u b l i c hearings i n December, 1974 t o o b t a i n a n i n f o r m a t i o n b a s e f o r f u r t h e r g o v e r n m e n t programs. The i n f o r m a t i o n , h o w e v e r , d i d n o t s u p p o r t e i t h e r t h e p r e l i m i n a r y f i n d i n g s t h a t 30 n e w f a c i l i t i e s w o u l d b e n e e d e d , o r t h a t t h e s i t i n g o f needed r e f i n e r i e s would p r e s e n t a g g r e v a t e d problems f o r t h e industry. On t h e b a s i s o f t h e h e a r i n g s , t h e p u b l i s h e d r e p o r t , U . S . P e t r o l e u m R e f i n i n g C a p a c i t y O v e r v i e w (FEA, 1 9 7 5 ) , c o n c l u d e d : 1) t h a t i n the c o n t e x t of the P r o j e c t Independence Report, "the requirements f o r a d d i t i o n a l r e f i n e r y c a p a c i t y range from s l i g h t l y less than nothing to 8 m i l l i o n b a r r e l s per day. Even assuming t h a t the f a r ends o f the range are n o t v e r y l i k e l y o p t i o n s , a range of a t l e a s t 1 . 1 m i l l i o n to 6 m i l l i o n b a r r e l s per day remains." (p.3) 2) i f i t i s assumed t h a t a n a d d i t i o n a l c a p a c i t y o f a p p r o x i m a t e l y 1 . 6 m i l l i o n b a r r e l s p e r d a y o f new c a p a c i t y w i l l be n e e d e d t o accomodate g r o w t h i n demand, i t w o u l d be e x p e c t e d t h a t f i r m i n d u s t r y committments f o r an a d d i t i o n a l 2.3 m i l l i o n b a r r e l s per d a y , and a d d i t i o n a l i n d u s t r y p l a n s f o r 4 . 5 m i l l i o n b a r r e l s p e r d a y c a p a c i t y , s h o u l d b e a d e q u a t e t o m e e t t h e d e m a n d , ( p . 5) 3) i t w a s t h e o p i n i o n o f i n d u s t r y s p o k e s m a n who t e s t i f i e d t h a t t h e a v a i l a b i l i t y o f s u i t a b l e s i t e s was n o t a p r o b l e m , b u t " t h e p r i m a r y p r o b l e m was t h e i n a b i l i t y o f r e f i n e r s t o p l a y due t o t h e lack of a n a t i o n a l energy p o l i c y . " ( p . 7) 4) F i n a l l y , i t w a s n o t e d t h a t t h e P r e s i d e n t ' s e s t i m a t e o f 30 n e w r e f i n e r i e s was b a s e d on a t h e o r e t i c a l p r o j e c t i o n o f demand a n d r e f i n i n g s i t e c a p a c i t y a d d i t i o n s ; but t h a t "because r e f i n e r y construction o f t e n takes place adjacent to e x i s t i n g s i t e s , i t ( c o u l d ) s a f e l y b e a s s u m e d t h a t a t l e a s t 20 o f t h e s e 30 r e f i n e r i e s p r o b a b l y have s i t e s s e c u r e d . This would leave approxim a t e l y 10 n e w s i t e s , s e v e r a l o f w h i c h h a v e b e e n r e c e n t l y s e c u r e d , t o b e o b t a i n e d o v e r t h e n e x t 10 y e a r s . " ( p . 8) 258 APPENDIX B : THE NEED FOR SYNTHETIC FUEL FACILITIES I n J u l y , 1974, t h e S y n t h e t i c Gas-Coal Task Force f o r t h e S u p p l y T e c h n i c a l A d v i s o r y Committee o f t h e F e d e r a l Power Commission N a t i o n a l Gas S u r v e y , o b s e r v e d t h a t " t h e c o a l r e s o u r c e s o f t h e U n i t e d S t a t e s are s u f f i c i e n t t o s u p p o r t a c o a l - t o - s y n t h e t i c n a t u r a l qas i n d u s t r y w e l l i n t o the n e x t c e n t u r y , " and w h i l e v a r i o u s d e m o n s t r a t i o n p l a n t s are being tested for d i f f e r e n t commercial processes, the f u n d a m e n t a l t e c h n o l o g y f o r c o a l - g a s c o n v e r s i o n has been c o m m e r c i a l l y a v a i l a b l e f o r more t h a n a g e n e r a t i o n . P r i o r t o t h e o i l embargo o f 1973, t h e c o s t s o f s y n t h e t i c fuel c o n v e r s i o n were n o t c o m p e t i t i v e w i t h p e t r o l e u m o r n a t u r a l gas p r i c e s , b u t w i t h h i g h e r w o r l d o i l p r i c e s and d i m i n i s h i n g domestic r e s e r v e s , i t now a p p e a r s t h a t m a r k e t c o m p e t i t i v e n e s s w i l l b e a c h i e v e d w i t h i n a couple of years. The E v a l u a t i o n o f C o a l G a s i f i c a t i o n T e c h n o l o g y p r e p a r e d b y t h e A d Hoc P a n e l o n C o a l G a s i f i c a t i o n T e c h n o l o g y o f t h e N a t i o n a l Academy o f S c i e n c e s a n d N a t i o n a l R e s e a r c h C o u n c i l w a r n e d i n 1972 t h a t " i t w o u l d be u n r e a l i s t i c t o t h i n k ( t h e p r o j e c t e d d e f i c i t s i n g a s c o n s u m p t i o n f r o m 1 9 8 0 - 1 9 9 0 ) c o u l d b e made u p e n t i r e l y w i t h s y n t h e t i c gas f r o m c o a l , i f f o r no o t h e r r e a s o n t h a n l a c k o f c a p a c i t y t o p r o d u c e t h e s p e c i a l e q u i p m e n t t h a t w o u l d be r e q u i r e d f o r t h e p l a n t s , " b u t the p o t e n t i a l f o r large scale development around the t u r n of the century remains s u b s t a n t i a l . A l l t h a t remains i s f o r p r i c e compett i v e n e s s , and c l a r i f i c a t i o n o f goverment e n e r g y p o l i c i e s . I n December, 1973, f o l l o w i n g t h e P r e s i d e n t ' s d i r e c t i v e t h a t t h e N a t i o n s h o u l d become e n e r g y s e l f - s u f f i c i e n t b y 1 9 8 0 , t h e A t o m i c E n e r g y Commission complete a s p e c i a l r e p o r t o u t l i n i n g a n " a g g r e s s i v e new program... immediately (beginning) construction of f u l l - s c a l e commercial p l a n t s using e x i s t i n g technologies for producing synthetic f u e l s from coal." I n J a n u a r y , 1 9 7 4 , t h e Commerce D e p a r t m e n t p r o p o s e d a p a c k a g e of f e d e r a l programs t o reduce the c a p i t a l r i s k of s y n t h e t i c f u e l investments t h r o u g h p r i c e g u a r a n t e e s and o t h e r c a p i t a l i n c e n t i v e s , and i n F e b r u a r y t h e W h i t e House gave f u r t h e r i m p e t u s t o t h e i d e a o f a m a s s i v e s y n t h e t i c f u e l s i n d u s t r y i n i t s p r o p o s a l t o make t h e U . S . a " n e t e x p o r t e r of energy during the 1980's." Despite the f a c t t h a t the P r o j e c t Independence Report concluded t h a t " s y n t h e t i c f u e l s w i l l n o t p l a y a m a j o r r o l e b e t w e e n now a n d 1 9 8 5 " , t h e P r e s i d e n t ' s E n e r g y M e s s a g e a n d FEA's subsequent Environmental Statement r e i t e r a t e d the e a r l i e r p r o p o s a l s f o r a m b i t i o u s new c o m m e r c i a l i z a t i o n p r o g r a m s a n d s u b s i d i e s . In the context of a p r i v a t e , but reportedly thorough, American Gas A s s o c i a t i o n s t u d y o f s u i t a b l e s i t e s f o r g a s i f i c a t i o n facilities, i t a p p e a r s t h a t a p p r o x i m a t e l y 175 s i t e s e x i s t w i t h a d e q u a t e f u e l a n d w a t e r a v a i l a b i l i t y , a n d t h a t t h e s i t i n g o f 20 f a c i l i t i e s s h o u l d n o t pose a s i g n i f i c a n t s i t i n g p r o b l e m o v e r t h e n e x t t e n y e a r s . Beyond 1985 l a r g e s c a l e d e v e l o p m e n t i s l i k e l y t o pose more s e r i o u s w a t e r r e s o u r c e c o n f l i c t s , than s i t e selection problems. 259 APPENDIX C : PLANNED GENERATING F A C I L I T Y ADDITIONS The f o l l o w i n g t a b l e c o m p a r e s F E A ' s summary o f p r o j e c t e d c a p a c i t y a d d i t i o n s (and i n s t a l l e d g e n e r a t i n g c a p a c i t y i n 1985) w i t h FPC e s t i m a t e s b a s e d o n c u r r e n t u t i l i t y plans:* 1973 I N S T A L L E D GENERATING CAPACITY Nuclear of kW) 167 Coal Combustion 33 Turbine 217 Other** FEA E S T I M A T E S : Generating Nuclear Coal Combustion Capacity & 204 - 327 - Turbine Other** FPC E S T I M A T E S : Generating Coal*** Combustion Turbine (specified) Source: FPC D o c k e t New Additions 240 184 - 291 200 - 220 155 162 260 229 12 Capacity & Nuclear Other (millions 20 New Additions 214 194 369 202 55 22 284 67 R-362, April 1, 1974 * U t i l i t y p r o j e c t i o n s a r e , i n f a c t , compiled t o 1983. However, insofar a s b o t h p r o j e c t i o n s a r e f o r i n s t a l l e d c a p a c i t i e s o f 9 2 2 GWe, a n d b o t h represent p r o j e c t i o n s f o r the types of reactors comprising the next 4 8 5 GWe t o b e a d d e d , t h e y h a v e b e e n c o m p a r e d d i r e c t l y . ** T h i s f i g u r e has been computed b y ^ d e d u c t i n g the f i g u r e s f o r t h e o t h e r o t h e r u n i t s i n d i c a t e d (and c i t e d p r e v i o u s l y ) , f r o m P r o j e c t Independence B l u e p r i n t p r o j e c t i o n s f o r the year 1985. *** U t i l i t y f i g u r e s are g i v e n f o r f o s s i l f u e l e d u n i t s , and have l a b e l e d a s c o a l u n i t s h e r e f o r Jthe p u r p o s e . o f c o n s i s t a n c y w i t h a s s u m p t i o n s t h a t a l l f u t u r e f o s s i l steam p l a n t s a r e t o be c o a l been FEA fired. 260 Appendix C: p.2 I t s h o u l d b e n o t e d h e r e t h a t m o r e t h a n 16% o f p l a n n e d c a p a c i t y a r e f r o m u n i t s u n d e r 5 0 0 MW; UNIT OUTPUT (MW) PERCENT OF TOTAL (MW) NUMBER OF UNITS the utilities' PERCENT OF TOTAL (No. o f U n i t s ) 000 - 299 20318 5 148 23 300 - 499 41033 11 104 16 500 - 799 113,836 29 185 29 800 - 1199 70,402 43 171 26 49,852 13 40 6 395,441 101 648 100 1200 - 2099 Source: FPC, April 1, 1974 a n d a p p r o x i m a t e l y 14% o f p l a n n e d c a p a c i t y a d d i t i o n s t h r o u g h 1 9 8 3 consist of h y d r o - e l e c t r i c or miscellaneous units (other than coal, n u c l e a r , and combustion t u r b i n e s ) : TYPE OF U N I T FOSSIL STEAM NUCLEAR STEAM COMBUSTION TURBINE PROJECTED MW OUTPUT PERCENT OF TOTAL 202,326 41.7 193,330 38.9 21,870 4.5 HYDRO-ELECTRIC 13,580 2.8 PUMPED STORAGE 18,261 3.7 GEOTHERMAL 14,021 2.9 MISCELLANEOUS 21,752 4.5 485,140 99.0 TOTAL: Source: FPC, April 1, 197 4 261 Appendix - : p. 3 Construction plans for t i e s by e l e c t r i c r e l i a b i l i t y the f o l l o w i n g t a b l e : a d d i t i o n a l new g e n e r a t i n g facilicouncil areas, are represented i n ECAR ERCOT MAAC MAIN MARCA NPCC SERC SWPP WSCC 5 1974 4 6 1 3 7 11 TOTAL 3 6 46 43 43 1975 6 3 4 4 2 6 8 3 6 1976 6 4 2 4 2 1 13 4 7 1977 6 4 4 5 3 3 5 4 4 38 7 6 9 42 3 6 42 1978 5 2 4 5 2 2 1979 8 1 5 3 3 4 9 1980 4 1 3 4 3 8 3 5 31 3 1 4 2 5 23 3 3 4 16 1 1 9 52 333 1981 2 1 5 1982 2 1 3 1983 2 3 1 1 46 24 37 30 TOTAL ECAR ERCOT MAAC MAIN MARCA NPCC SERC . SWPP WSCC - 15 30 69 30 East C e n t r a l Area R e l i a b i l i t y C o o r d i n a t i o n Agreement E l e c t r i c R e l i a b i l i t y C o u n c i l o f Texas M i d - A t l a n t i c Area Council Mid-America I n t e r p o o l Network M i d - C o n t i n e n t Area R e l i a b i l i t y C o o r d i n a t i o n Agreement N o r t h e a s t Power C o o r d i n a t i n g C o u n c i l Southeastern E l e c t r i c R e l i a b i l i t y Council S o u t h w e s t Power P o o l C o o r d i n a t i o n C o u n c i l Western Systems C o o r d i n a t i n g C o u n c i l F i n a l l y , i t s h o u l d be n o t e d t h a t n e i t h e r F E A ' s e s t i m a t e , n o r o u r o w n , t a k e s a c c o u n t o f t h e a v a i l a b i l i t y o f new s i t e s r e s u l t i n g from the r e t i r e m e n t of older f a c i l i t i e s o r the p o t e n t i a l f o r adding a d d i t i o n a l u n i t s to e x i s t i n g s i t e s . 262 Appendix c : p. 4 The f o l l o w i n g t a b l e i n d i c a t e s p r o j e c t e d f a c i l i t y additions ( i n M e g a w a t t s ) f o r u n i t s o v e r 300 MW d u r i n g t h e p e r i o d f r o m 1 9 7 4 t h r o u g h 1 9 7 9 , a n d f o r u n i t s l i s t e d a s b e i n g o v e r 300MW a n d e i t h e r u n d e r c o n s t r u c t i o n o r w i t h i n t w o y e a r s o f c o n s t r u c t i o n i n FPC d a t a c o m p i l e d p u r s u a n t t o Docket R-362, A p r i l 1, 1974. MA RCA NPCC SERC SWPP WSCC 540 1837 4315 11685 2650 3665 3165 2557 868 4095 7731 2740 3770 2296 1745 2490 1200 850 10433 2197 3330 3026 3205 3025 1688 1311 5284 2213 2573 ECAR ERCOT MAAC MAIN 1974 5709 2516 4827 1975 5434 2135 1976 6071 1977 4738 1978 5008 2940 2800 3535 761 1420 6721 3459 7159 12147 6354 111991 41854 13259 19497 1631 4200 7324 2220 2930 26960 12913 15742 1979 5008 750 4575 2198 1980 2138 1150 3098 3760 2755 7968 2155 4150 1981 2114 750 5515 3360 1150 4450 1630 5670 1982 2330 1150 3048 3557 3291 1983 Total 2610 760 2114 2250 1160 950 13704 6050 17396 10268 1631 11662 24224 6005 40664 18963 33138 22415 7985 23653 66078 19264 1191 16120 35 17 Table ESTIMATED ENERGY INDEPENDENCE ACT Underground (3 m i l l i o n Coal Mines tons/yr mine) Surface Coal Eastern (1 n i l l i o n - Western (5 m i l l i o n ACCELERATED SUPPLY ACCELERYTEO CONSERVYT I 0*1 53 83 51 35 ENERGY RETJCED SiiP^.Y REDUCED C n N S T'RVAT 10*1 47 6 io 197 135 119 Mines tons/yr mine) 155 155 tons/yr mine) 40 38 204 248 197 (21)3 (21) (21) 1 (21) (J) (16) (16) (16) (16) (16) (if,) Oil Shale Plants (50,000 b b l / d plant) Powerplant Units - Coal Fired ( 8 0 0 MW u n i t ) - Oil Fired ( 8 0 0 MW u n i t ) - N a t u r a l Gas F i r e d ( 8 0 0 MW u n i t ) - HYDRO ( C a p a c i t y i n 1 0 0 0 MW) - CO'-mu.lTION ENGINE i 5 0 0 ?iw p l a n t ) - NUCLEAR (1000 2-21 N U M B E R 1 OF NEW F A C I L I T I E S R E Q U I R E D TO MEF.T DEMAND I N C R E A S E S OVER 1 9 7 2 MW p l a n t ) REFINERIES (100,000 b b l / d ) 117.5 117.5 117.5 117.5 117.5 117 454 281 337 269 539 504 184 184 184 184 184 184 40 11 25 1? 62 (,? 1 The n u n b e r o f t y p i c a l f a c i l i t i e s h a s b e e n e s t i m a t e d b y d i v i d i n g t h e d i f f e r e n c e i n e n e r q y p r o d u c t i o n l e v e l b e t w e e n 1972 -uid i O H j by t h e a v e r a g e s i z e f a c i l i t y . I t i s n o t p o s s i b l e t o " a v e r a g e " o i l a n d q a s w e i i s d u e t o h i q h r e g i o n a l <h f f o r c " For e x a m p l e , i n 196B, A l a s k a p r o d u c e d 1400 b b l / w e l l / d a v w h i l e Kansas p r o d u c e d 5 . 6 b b l / w " i 1 / d a y . The -number o f nines w o u l d be t h e m i n i m u r . n u m b e r . New l a r g e m i n e s o f t h e s i z e s s h o w n w o u l d p r o v i d e t h e m a x i m u m b e n e f i t t o t h e o p e r a t o r s n t v i m i n e r s ; however, t h e a v e r a g e m i n e s opened t e n d t o be s m a l l e r t h a n i s shown h e r e . 2 Tins 3 Numbers category in includes parentheses combined-cycle are reductions. plants for intermediate load requirements. 264 APPENDIX E : ELECTRIC GENERATING F A C I L I T Y CONSTRUCTION AND DEMAND T h e f o l l o w i n g t w o t a b l e s a r e c o m p i l e d f r o m FPC d a t a r e g a r d i n g t r e n d s i n e l e c t r i c e n e r g y p r o d u c t i o n (consumption) and g e n e r a t i n g p l a n t c o n s t r u c t i o n d u r i n g t h e l a s t h a l f o f 1974. ELECTRIC ENERGY PRODUCTION (Billion Year ending July Year ending August Year ending Year ending Year 31 31 September October e n d i n g November 31 31 31 kWhr) 1973 1974 1,929 1,970 2.2 1,943 1,966 1.2 1,952 1,962 0.5 1,962 1,960 -0.1 1 , 966 1,961 -0.2 I N S T A L L E D GENERATING (Thousands o f 1973 July Percent CAPACITY Kw) 1974 Percent 443,378 474,143 6.9 August 447,662 480,922 7.4 September 449,454 484,145 7.7 October 451,310 485,733 7.6 November 454,226 486,508 7.1 Federal No. Change Power C o m m i s s i o n News R e l e a s e , 2 1 3 6 9 , May 6 , 1 9 7 5 Change 265 APPENDIX F : REASONS FOR DELAY IN POWER PLANT DEVELOPMENT REASONS FOR DELAY FEA's J u s t i f i c a t i o n Paper f o r the P r e s i d e n t ' s energy f a c i l i t y s i t i n g l e g i s l a t i o n defines the "delays i n energy facility s i t e d e s i g n a t i o n and p r e c o n s t r u c t i o n a p p r o v a l s (as) t h e most i m p o r t a n t p r o b l e m s t h a t m u s t be r e s o l v e d t o a c h i e v e t h e N a t i o n ' s energy goals." However, i t has been t h e f i n d i n g o f the two most r e c e n t major f e d e r a l s t u d i e s on the s u b j e c t t h a t t h i s i s n o t t h e case, and r e c e n t C o n g r e s s i o n a l h e a r i n g r e c o r d s are r e p l e t e w i t h t e s t i m o n y which s i m i l a r l y c o n t r a d i c t FEA's a s s e r t i o n s . I n 1 9 7 3 , C o m m i s s i o n e r D o u b o f t h e AEC r e p o r t e d t h e r e s u l t s o f a F e d e r a l Power Commission s t u d y on t h e r e a s o n s f o r d e l a y i n n u c l e a r power p l a n t s . I n t h e 28 p l a n t s r e v i e w e d , l a b o r a n d e q u i p ment problems were r e s p o n s i b l e f o r most o f the d e l a y s : NUMBER OF PLANTS AFFECTED CAUSES Poor Productivity Late Delivery Change in Legal Component of Shortage of Labor Major Regulatory Equipment Strikes of Equipment Requirements Failure Construction of Labor Construction Labor Challenges Strike of Rescheduling of Labor 84 9 68 8 23 6 15 5 18 5 18 9 5 Associated Weather 16 4 Factory PLANT/MONTHS OF DELAY Facilities 12 9 Source: " N u c l e a r P o w e r p l a n t S i t i n g And L i c e n s i n g , " H e a r i n g s b e f o r e J o i n t Committee on A t o m i c Energy, 1974. 266 Appendix F: p. 2 A more r e c e n t a similar situation a n a l y s i s o f p r e l i m i n a r y FPC d a t a i n t h e case o f a l l power p l a n t s : indicates NUMBER OF U N I T S MW CAPACITY Late D e l i v e r y of Equipment, Equipment F a i l u r e , and F a u l t y I n s t a l l a t i o n o f Equipment 71 25,125 Initial 13 2,446 28 5,432 Problems Related t o C o n s t r u c t i o n Labor, M a n u f a c t u r e r s , Employees, and P r o ductivi ty 44 27,600 Prolonged Procedures Local C e r t i f i c a t i o n for State 34 8,718 Prolonged Procedures Certification for Federal 35 29,451 CAUSES OF DELAY Operation Rescheduling Changes Legal Fiscal Other in of Problems Associated Regulatory Facilities and 28 31,047 Challenges Requirements 43 26,295 Problems 53 29,846 71 44,100 Reasons Source: FPC, Generation Construction, March 1975 267 Appendix F : p. 3 The s t a t i s t i c s u n d e r s c o r e t h e p o i n t t h a t n o n e o f t h e F e d e r a l s i t i n g l e g i s l a t i o n w h i c h has been proposed a d d r e s s e s t h e bona f i d e p r o b l e m s a s s o c i a t e d w i t h e n e r g y f a c i l i t y siting and d e v e l o p m e n t , and t h e d a t a i t s e l f i s u n d e r s c o r e d a g a i n by a r e c e n t FEA a n a l y s i s o f t h e r e a s o n s f o r c a n c e l a t i o n a n d d e l a y o f n u c l e a r power p l a n t s . T h a t s t u d y has f o u n d t h a t by J a n u a r y , 1 9 7 4 , 69% o f t h e 190 n u c l e a r u n i t s p l a n n e d a n d o n o r d e r had been c a n c e l l e d , p o s t p o n e d , o r o t h e r w i s e r e s c h e d u l e d . Alt h o u g h a p p r o x i m a t e l y 50% o f t h o s e p l a n t s r e s c h e d u l e d w e r e d e l a y e d f o r f i n a n c i a l r e a s o n s , 33% w e r e r e s c h e d u l e d f o r r e a s o n s u n r e l a t e d t o f i n a n c i a l c o n s i d e r a t i o n s , a n d 18% w e r e r e s c h e d u l e d only f o r reasons of adjusted load growth.* * A n a l y s i s o f N u c l e a r Power P l a n t D e l a y s A n n o u n c e d i n 1974, February, R i c h a r d H. W i l l i a m s o n , F e d e r a l E n e r g y A d m i n i s t r a t i o n , 1975 . 268 REFERENCES 1 I n s t i t u t e o f E l e c t r i c a l and E l e c t r o n i c s (Ad Hoc) E n e r g y F o r e c a s t W o r k i n g G r o u p ; 2 Federal Energy A d m i n i s t r a t i o n , November, 1974, pp. 21, 22. 3 Ibid, p. 25. 4 Ibid, p. 25. 5 proposed F i n a l E n v i r o n m e n t a l Statement on the L i q u i d M e t a l Breeder Reactor, Wash-1535, U.S. Atomic Energy Commission, V o l . 4, p p . 11.2-53,55. 6 Project Engineers (I.E.E.E.) January, 1975. Independence Report, Fast Ibid. 7 "Energy, 8 Herman D a l y , E l e c t r i c December, 1974. 9 Op. 1 0 J e r r y V. H a l v o r s e n , S t a t u s R e p o r t , Energy Resources and Technology, "Improved Energy C o n v e r s i o n " , Atomic I n d u s t r i a l Forum, Inc., January, 1975. 1 1 Robin June, 1 2 cit., Ecology, Vol. Mackay, 1975. SCIENCE, 1, and Economics," p. Power, H o w a r d Odum, Employment, Economic 1973. Growth, 1-11. "Generating 23 M a y , Dr. Power at High Efficiency", POWER, 1975 F e d e r a l Energy A d m i n i s t r a t i o n , November, 1974, p . A - 5 2 . Project Independence Report, 1 4 E L E C T R I C A L WORLD, 1 5 Federal Energy A d m i n i s t r a t i o n , P r o j e c t Independence B l u e p r i n t Task Force R e p o r t - F a c i l i t i e s , November, 1974, p . V I I - 2 . 1 6 Louis Power 21 A p r i l , H. R o d d i s , J r . , Supply Planning 1975. Remarks a t Committee, Final A m e r i c a n P u b l i c Power A s s o c i a t i o n W a s h i n g t o n , 28 J a n u a r y , 1975. Federal Energy A d m i n i s t r a t i o n , D r a f t Environmental Impact Statement E n e r g y I n d e p e n d e n c e A c t o f 1 9 7 5 a n d R e l a t e d T a x P r o p o s a l s , DES 7 5 - 2 , March, 1975. 1 8 Ibid. Federal 20 2 1 Power C o m m i s s i o n News R e l e a s e , ibid. Roddis, op. cit. No. 21369, 6 May, 1975. 269 REFERENCES (Cont.) 22 .A l i s t o f S t a t e s w i t h e x i s t i n g p o w e r p l a n t s i t i n g l a w s i s c o n t a i n e d i n Table 20. Figures for existing generating c a p a c i t y by s t a t e were d e r i v e d from the Edison E l e c t r i c I n s t i t u t e S t a t i s t i c a l Yearbook, 1973. 23 Remarks by F r a n k Washington D.C., 24 Remarks by John S a w h i l l b e f o r e t h e W a s h i n g t o n D . C . , O c t o b e r 2 8 , 19 74 25 FEA, A R e p o r t o n I m p r o v i n g Power P l a n t s , M a r c h , 1975, op. Zarb b e f o r e t h e J u n e 1 1 , 1975 26 Frank Zarb, 27 Frank Zarb, ibid. 28 Frank Zarb, ibid 29 AEC, P r o p o s e d F i n a l 1974, p . 2 . 1 - 2 2 30 Huettner, Economies 31 FEA, Load Management Atomic Conference, Industrial the P r o d u c t i v i t y p.l of Forum, Electrical cit. Environmental Statement on t h e LMFBR, Dec., D a v i d A . , and Landon, John H . , " E l e c t r i c Utilities: and Diseconomies o f S c a l e , " Working Paper "The Need f o r Energy Facility Legislation", January 1975 270 C A P I T A L C O S T S A N D A L T E R N A T I V E S TO I N C R E A S E D E L E C T R I C G E N E R A T I N G RESERVES I n c o m p a r i n g the costs of large-scale p o w e r p l a n t s (800-1200MWe) a n d s m a l l scale u n i t s (below 5 0 0 M W e ) i t is i m p o r t a n t t o consider the reserve capacities associated w i t h each. Obviously i f y o u a d d a single l a r g e u n i t t o a n y system, r a t h e r t h a n a couple of s m a l l u n i t s , y o u s t a n d m o r e of a chance of any shortage i f t h e p o w e r p l a n t f a i l s . T h a t a r g u m e n t i s i m p o r t a n t , b u t has been compounded by the f a c t t h a t l a r g e p o w e r p l a n t s h a v e g e n e r a l l y p r o v e n less r e l i a b l e t h a n s m a l l p o w e r p l a n t s . T h e electric u t i l i t y i n d u s t r y has r e l u c t a n t l y a d m i t t e d t h i s f a c t ( E l e c t r i c a l W o r l d , November 1975), b u t is presently a r g u i n g t h a t t h i s is only because the p l a n t s are i m m a t u r e , t h a t e v e n t u a l l y they w i l l p r o v e as r e l i able as t h e i r s m a l l e r counterparts. I n t h e meantime, t h i s h i s t o r i c a l d a t a has f o r c e d t h e u t i l i t i e s to p l a n e x t r a reserve capacity (above m a x i m u m peak demands) to compensate f o r t h e unrel i a b i l i t y of l a r g e new plants. A s the F P C stated i n J u n e 1974, " t h e t r e n d t o w a r d l a r g e r g e n e r a t i n g u n i t sizes, a n d the r e l a t i v e l y poor a v a i l a b i l i t y records of m a n y large u n i t s , operate t o increase reserve m a r g i n r e q u i r e m e n t s over t h a t w h i c h i s needed w h e n smaller, m a t u r e u n i t s p r e d o m i n a t e on a system." A s a result, t h e F P C noted t h a t t h e u t i l i t y reserve capacity p l a n n e d f o r t h e n e x t decade tended t o w a r d " t h e upper end of the 15 t o 25 percent b a n d c u r r e n t l y observed." I f w e t a k e F E A ' s p r o j e c t e d capacity figures f o r 1985, i t i s easy t o c a l c u l a t e the a d d i t i o n capacity involved. W i t h a p r o j e c t e d t o t a l g e n e r a t i n g c a p a c i t y of 922 GWe, i f we assume a 2 5 % reserve m a r g i n is included, t h i s w o u l d i n v o l v e 738 G W e of base capacity a n d 184 G W e of r e s e r v e : a 15% reserve c a p a c i t y w o u l d leave 801 G W e of base w i t h 121 G W e of reserve. I f w e assume a cost of $1 b i l l i o n per G W e ( 1 G W e = 1 0 0 0 M W e ) the a d d i t i o n a l c a p i t a l cost of t h e e x t r a 10% reserve capacity w o u l d be $63 b i l l i o n . P r o j e c t e d t o t h e y e a r 2,000 t h e cost w o u l d be a p p r o x i m a t e l y $168 b i l l i o n . These costs are a p p r o x i m a t e as they are based on t h e c u r r e n t costs of nuclear reactors, a n d w h i l e t h e a c t u a l m a r g i n a l costs of reserve c a p a c i t y m i g h t be lower, the projected costs of nuclear reactors ordered today a n d c o m i n g on l i n e i n 1985 m a y be t w i c e as high. So i t is probably a good enough first r u n estimate. I n a d d i t i o n to t h i s i t is i m p o r t a n t to note t w o o t h e r possibilities f o r m e e t i n g p r o j e c t e d ( n o t reduced) electric energy demands w i t h less i m p a c t a n d cost. F i r s t of a l l , the D o w - M i d l a n d E n e r g y I n d u s t r i a l Center Study i n d i c a t e d t h a t i n d u s t r i a l cogeneration of e l e c t r i c i t y w i t h i n d u s t r i a l steam supply sources, c o u l d reduce our energy resource r e q u i r e m e n t s by t h e e q u i v a l e n t of 680,000 b b l / d a y by 1985, a t a c a p i t a l savings of $20-50 b i l l i o n over the n e x t ten years. F u r t h e r m o r e , t h i s w o u l d be a t c u r r e n t c o n s u m p t i o n levels, a n d w i t h the necessary lead times reduced to about t w o years. A t the same t i m e E R D A has e s t i m a t e d t h a t " i f t h e p r o d u c t i v i t y of L W R ' s ( l i g h t w a t e r nuclear reactors) w e r e i m p r o v e d f r o m capacity f a c t o r s of 5 7 % closer to t h e i r expected levels of 70%, there w o u l d be a n e q u i v a l e n t o i l savings of 40,000 b b l / d a y f o r each percentage i m p r o v e m e n t . " T h a t comes t o a possible energy savings of 520,000 b b l / d a y , a n d i f added to t h e p o t e n t i a l energy savings of i n d u s t r i a l cogeneration, indicates of p o t e n t i a l energy resources savings equiva l e n t to 1,200,000 b b l / d a y by 1985 w i t h o u t a d d i n g a d d i t i o n a l c e n t r a l s t a t i o n g e n e r a t i n g capacity a n d w i t h o u t any r e d u c t i o n i n e l e c t r i c a l energy demand. N o r is t h e development of any new technology i n v o l v e d , a l t h o u g h t h e successful o p e r a t i o n of e x i s t i n g nuclear reactors is presumed. A t a m i n i m u m I t h i n k i t possible t o conclude t h a t r e l i a b l e electric energy supplies f o r the n e x t ten years do not necessarily have t o depend on the addit i o n of increased reserve m a r g i n s ; a n d i n f a c t other a l t e r n a t i v e s appear m o r e a t t r a c t i v e f r o m the s t a n d p o i n t of b o t h c a p i t a l i n v e s t m e n t a n d e n v i r o n m e n t a l i m p a c t . Obviously, i f the p o t e n t i a l f o r energy conservation i m p r o v e m e n t s , m a n y of w h i c h h a v e been proven to produce greater employment a t less cost t h a n e q u i v a l e n t increases i n energy p r o d u c t i o n , are considered, energy p r o d u c t i o n is f u r t h e r reduced, less c a p i t a l is required, more c a p i t a l is l i k e l y t o be made a v a i l a b l e f o r i n v e s t m e n t i n other sectors of the economy, a n d m o r e jobs a r e l i k e l y t o be created. Several good references on t h i s i n c l u d e : E n e r g y I n d u s t r i a l C e n t e r S t u d y , D o w C h e m i c a l Company et al., J u n e 1975 u n d e r a g r a n t f r o m the N a t i o n a l Science F o u n d a t i o n ; I n v e s t m e n t P l a n n i n g i n t h e E n e r g y S e c t o r , K a h n et. al., M a r c h 1976, p r e p a r e d f o r E R D A a t L a w r e n c e Berkeley L a b o r a t o r y ; 271 " E l e c t r i c i t y Consumption and I n v e s t m e n t Finance i n C a l i f o r n i a " , a d r a f t r e p o r t by W.R.Z. W i l l e y of the E n v i r o n m e n t a l Defense F u n d , B e r k e l e y ; " C o n s e r v a t i o n a n d Peak P o w e r : Cost and D e m a n d " , Goldstein a n d Rosenfeld, J a n u a r y 1976, L a w r e n c e Berkeley L a b o r a t o r y ; "Economies and Diseconomies of Scale i n Nuclear T u r b i n e Generators", Messing, E n v i r o n m e n t a l Policy I n s t i t u t e , August, 1975; A R e p o r t o n I m p r o v i n g t h e P r o d u c t i v i t y of E l e c t r i c P o w e r p l a n t s , F E A , M a r c h , 1975. SUMMARY A proposal to address the n a t i o n a l issue on a large-scale campaign. public appeal BACKGROUND The n a t i o n a l nuclear debate has been approached by the anti-nuclear side by u s i n g e m o t i o n a l " f e a r " statements to persuade the voters t h a t nuclear energy is not safe. T h e i n d u s t r y has been c o u n t e r i n g i n a t r a d i t i o n a l manner q u i t e common to the technically-educated by p r o v i d i n g strong " t e c h n i c a l " evidence to the same voter. U n f o r t u n a t e l y , the voter does not have the technical backg r o u n d to accept our a r g u m e n t s w i t h confidence. W h i l e these " t e c h n i c a l " cases must continue to be made to the public, there is s t r o n g reason to question t h i s mode of o p e r a t i o n as being adequate to " w i n " our case. F o r t h i s reason, we f e l t i t i m p o r t a n t to b r i n g the issue f o r w a r d f o r e x a m i n a t i o n and present the course of a c t i o n a n d possible other courses w h i c h m i g h t be taken. PROPOSAL F o r m a special office of A I F to specifically deal w i t h t h e n a t i o n a l public nuclear campaign. T h e e f f o r t intended should not be misconstrued as a massive public relations campaign. I t m u s t be a nuclear acceptance c a m p a i g n w h i c h w i l l be geared to m o t i v a t e a n d persuade the public to observe the p o s i t i v e values of nuclear energy and i t s safe use, a n d t h e a l t e r n a t e consequences i f not used; i.e., the loss of jobs w h i c h the scarcity of energy w o u l d cause; the extreme social unrest w h i c h w o u l d result and the h i g h cost to the t a x payers w h o s t i l l have jobs to support t h e u n e m p l o y e d ; the very real and most serious t h r e a t to n a t i o n a l security by f o r e i g n dominance caused by our basic reliance of f o r e i g n m i d d l e eastern o i l w h i c h has no credible l i n e of defense as a reliable source of energy to the U n i t e d States, Europe, and Japan. A l l of these d r a m a t i c concerns must be e m p h a t i c a l l y b r o u g h t to the d i r e c t a t t e n t i o n of the grass roots voters i n a w a y t h a t they u n d e r s t a n d a n d w i l l be concerned t o w a r d f a v o r i n g nuclear energy. The special campaign g r o u p w o u l d be specifically selected f o r t h e i r expertise i n managing, developing a n d i m p l e m e n t i n g t h i s effort u s i n g advanced p o l i t i c a l campaign management technology. T h e office w o u l d be dedicated only t o t h i s e f f o r t a n d w o u l d consist of contracted f o r outside t a l e n t of the type most f a m i l i a r w i t h r u n n i n g a p o l i t i c a l campaign. The office w o u l d have a d e f i n i t i v e l i f e span to t e r m i n a t e a f t e r the November 1976 elections unless f u r t h e r state i n i t i a t i v e s were evident. T h e e f f o r t w i l l not supplant the i n d i v i d u a l state efforts, but w i l l complement t h e m w i t h m u c h h a r d e r h i t t i n g i m p a c t of n a t i o n a l events and media use. CONCLUSION T h e r e is s t i l l reasonable t i m e to organize and i m p l e m e n t a s u b s t a n t i a l l y beneficial e f f o r t n o w to assist the outcome of the C a l i f o r n i a i n i t i a t i v e vote on June 8, 1976, as w e l l as those w h i c h w i l l be on the November ballot. T h e effort m u s t have a p p r o v a l to proceed by m i d - M a r c h to become f u l l y organized by A p r i l 1. T h i s e f f o r t m u s t be supported by a l l segments of the u t i l i t y i n d u s t r y both m a n u f a c t u r e r s a n d users to be effective. T h i s m u s t also be recognized by the non-nuclear use u t i l i t i e s , since any loss of the u r a n i u m f u e l o p t i o n w i l l only reflect more h e a v i l y upon the already stressed coal developments. U p o n concurrence of the need to proceed, the A I F task force to organize the nuclear public appeal c a m p a i g n w i l l move p r o m p t l y to f o r m u l a t e and i m p l e m e n t such an effort. Support f o r nuclear power i n C a l i f o r n i a is c o n t i n u i n g to erode as the result of the c o n t i n u i n g barrage of well-orchestrated f e a r tactics being deployed by anti-nuclear forces. F r o m November. 1975, to M a r c h , 1975, F i e l d Research Corporation's polls showed a ten-percentage-point drop a m o n g those people w h o h a d 272 intended to vote against the nuclear i n i t i a t i v e . T h i s same anti-nuclear sentiment has spread across the country. A l t h o u g h only California, Oregon, and Colorado have so f a r qualified to place i n i t i a t i v e s on the ballot f o r June or November, another 9 to 14 states are possible candidates f o r s i m i l a r i n i t i a t i v e s by t h i s Fall. The C a l i f o r n i a based anti-nuclear group, Project Survival, has identified as many as 20 target states f o r their anti-nuclear, anti-growth, anti-energy f a c i l i t y activism. However, C a l i f o r n i a is critical. I f i t s proposal is passed, i t w i l l send t r e m o r s f a r beyond California. I f the i n i t i a t i v e passes, a "domino effect" could reverberate t h r o u g h states w i t h s i m i l a r pending initiatives. I t could deter f u r t h e r Congressional and Executive support f o r nuclear power. I t could influence the w o r l d nuclear developments. And, of course, i t could cause severe economic dislocations. The recent public attention given to the f o u r engineers who resigned f r o m i n d u s t r y and the Nuclear Regulatory Commission is evidence of the m a x i m u m m a n i p u l a t i o n of the media by the anti-nuclear forces. There is substantial evidence t h a t the resignations and public statements were carefully planned by the anti-nuclear factions f o r m a x i m u m publicity effect. Press releases, presented w i t h moralistic overtones and religious f e r v o r , dealt w i t h man's i n a b i l i t y to be responsible f o r every imaginable nuclear consequence and exaggerated dangers. The movement sells " f e a r . " I t w a r n s of invisible k i l l e r s and pending catastrophe. I t also advocates property destruction and sabotage as i n Lovejoy's Nuclear W a r , a film w h i c h has been shown to thousands of environmental and other activist organizations across the country. The broad-side nuclear attack, w h i c h has been so intensified w i t h i n the last t w o years, is only the c u t t i n g edge of a much broader attack on the l i f e of the e n t i r e electric u t i l i t y and energy industry, perhaps even the very q u a l i t y of h u m a n life. The nuclear controversy cannot be judged i n isolation. Already there is heated debate over Western coal development and argument over every conceivable type of d r i l l i n g , m i l l i n g , mining, transporting, and method of energy production. The problem w i t h the " a n t i s " is t h a t they w i l l not stop w i t h n u c l e a r — i t j u s t happens to be the most tangible target they have chosen f o r the moment. The success of such tactics can be seen i n private, i n d u s t r y polls w h i c h f u r t h e r demonstrate the eroding support f o r nuclear. I n F e b r u a r y , 1974, 68 percent of the C a l i f o r n i a voters said they w o u l d vote against the nuclear proposition. By May, 1975, this had dropped to 55 percent. Today only a t h i r d are decidely against it. A n d w h i l e almost another t h i r d are undecided, i t should be noted t h a t " u n c o m m i t t e d " voters usually side w i t h the emotional issues. I n addition, i t is i m p o r t a n t to recognize t h a t a nuclear ban is only the verbalized goal of the environmental movement. There are l a t e n t or non-verbalized objectives t h a t need clarification. For example, a vote against nuclear power to the People's Lobby i n C a l i f o r n i a is also a vote against technology, excessive m a t e r i a l consumption, economic and energy growth, and many other aspects of the current American l i f e style. Concurrently, i t is a vote against big business, bureaucracies, and "bigness" i n general. Clearly, the voters of C a l i f o r n i a or any other state do not realize the cosmic implications of their vote. Nuclear is only perceived as the Achilles heel of a system whose goal of sustaining g r o w t h and prosperity i n t o the decades ahead is being questioned. Thus, more is at stake t h a n one technology. A l l sources of energy and many emerging technologies, along w i t h privately-owned industry and a comfortable standard of l i v i n g , are being debated. They are only selling f e a r ; the energy companies are selling hope. U n l i k e the anti-nuclear forces who are well-coordinated i n a n a t i o n a l coalit i o n w i t h a u n i f o r m strategy w h i c h is adapted to local needs, the pro-nuclear forces are fragmented and sometimes even have contradictory goals and strategies. T o help p u l l this direction together, a strong, unified n a t i o n a l campaign is needed—a p o l i t i c a l campaign, f o r t h i s is a p o l i t i c a l issue. T h i s should be a self-contained, short-term effort w h i c h lasts only long enough to acquaint people w i t h the real voting issues. Time, money, and people are l i m i t e d and need to be f u l l y maximized. Just as the anti-nuclear, anti-growth, anti-technology forces have sold fear, the i n d u s t r y needs to find levers w i t h equal emotional intensity—massive unemployment, no growth, poorer l i v i n g standards, r u n a w a y costs, and foreign dominance. For j u s t as the environmentalists use t h e i r mushroom-cloud posters to evoke concern, so do these basic economic tenets. A n a t i o n a l effort is necessary because w h a t happens i n Connecticut or Maine can effect Arizona or California. The effect of the " f r e e " media on the c u r r e n t C a l i f o r n i a campaign is obvious. Since t h i s needs to be counter-balanced by a 273 well-coordinated strategy f o r g e t t i n g spokesmen i n the n e t w o r k news, a n a t i o n a l campaign o r g a n i z a t i o n w h i c h can r e c r u i t a n d manage speakers, acquire f r e e media opportunities, and oversee a unified, coherent n a t i o n a l i n d u s t r y case is essential. T h e a t t e m p t s to educate the public to the i n t r i c a c i e s of n u c l e a r — w h i l e an i m p o r t a n t p a r t of a c o n t i n u i n g , large-scale e f f o r t — i s n o w insufficient to mobilize a n d persuade the citizens to cast t h e i r votes i n f a v o r of nuclear power. T h i s requires a n immediate, professionally-managed, p o l i t i c a l campaign, and a professional c a m p a i g n manager to look a t the problem—developed a n d defined by research—to b u i l d a strategy f o r i t s solution. Research defines w a y s to p r o v i d e m a x i m u m i m p a c t w i t h the r i g h t issue to the r i g h t audience t h r o u g h the correct media. Thus, i t is a classical m a x i m i z a t i o n p r o b l e m w h i c h coordinates research w i t h media and other specialty consultants. T h e i n d u s t r y does not have the l u x u r y of time. T h e need f o r a n a t i o n a l unified campaign w h i c h m a x i m i z e s the use of funds, personnel, a n d t i m e is immediate. T h i s battle, i f lost, w T ill not only be a defeat f o r t h e electric u t i l i t y i n d u s t r y , b u t a defeat f o r the hopes of m a n y A m e r i c a n s a n d m a n y people i n the emerging n a t i o n s of the w o r l d . P r e l i m i n a r y O r g a n i z a t i o n Plan P u b l i c N ' i c l c a r Acceptance Campaign Board of Control.—This s m a l l group of p o l i t i c a l l y - s e n s i t i v e people w i l l be responsible f o r general policy of t h e p r o g r a m a n d i m m e d i a t e a p p r o v a l of actions the p r o g r a m manager wishes t o t a k e on a q u i c k response t i m e f r a m e . T h e makeup of t h e g r o u p is r e q u i r e d because of t h e consequences of t h e actions t o be t a k e n w h i c h m i g h t reflect upon the companies represented. T h e c o n t r o l board c h a i r m a n , M r . T u r n e r , w o u l d be responsible f o r c o n t r o l of cash flow a n d proper u t i l i z a t i o n of e x i s t i n g A I F c a p a b i l i t i e s to the campaign. 274 Contributions to Americans for Energy Independence Unions: U n i t e d Steelworkers of America (J. C. O'Brien) Utilities—large: American Electric Power Service Corp Commonwealth Edison Consolidated Edison of New Y o r k D u k e Power Co M i d d l e South Services Pacific Gas & Electric Philadelphia Electric Public Service Gas & Electric Southern California Edison Southern Services Wertheim & Co., Inc Electrical manufacturers: General Electric Westinghouse Stockbrokers: B l y t h , Eastman & D i l l o n K i d d e r Peabody K u h n Loeb & Co M e r r i l l , Lynch, Pierce, Fenner & S m i t h Paine, Webber, Jackson & Curtis Subcontractors: Allied Chemical Babcock & Wilcox Bechtel Burns & Roe, I n c Chicago Bridge & I r o n Cutler-Hammer General A t o m i c (Gulf Atomic) Gibbs & H i l l M a i n , Chas. T., Inc Stone & Webster, Inc Utilities—small: Baltimore Gas & Electric Co Boston Edison Carolina Power & L i g h t Central Illinois L i g h t Cleveland Electric I l l u m i n a t i o n Co D e t r o i t Edison Florida Power & L i g h t Co General Public U t i l i t i e s I o w a Power & L i g h t Co L o n g Island L i g h t i n g Co. ( L I L C O ) New E n g l a n d Electric: Granite State Electric Co Massachusetts Electric Co Narragansett Electric Co N e w Y o r k State Electric & Gas Corp Northeast Utilities P o r t l a n d General Electric Co Puget Sound Powers & L i g h t Co Public Service I n d i a n a Public Service of New Hampshire Southwestern Public Service Co Texas Electric Service Toledo Edison Wisconsin Electric Miscellaneous: American Manpower & Aging Advisory Service Heinemann Electric Co K r a m e r Associates, Inc Small Producers for Energy Independence $500 10, 000 6, 000 6, 000 6, 000 5, 000 6, 000 6, 000 6, 000 6, 000 5, 000 1, 500 25, 000 25, 000 1, 2, 5, 5, 5, 000 000 000 000 000 2, 5, 4, 2, 5, 1, 2, 2, 1, 2, 000 000 000 000 000 000 000 000 000 000 2, 2, 2, 2, 2, 1, 2, 2, 2, 2, 000 000 000 000 000 000 000 000 000 000 80 1, 100 820 2, 000 4, 000 2, 000 2, 000 000 500 2, 000 2, 000 2, 000 2, 000 350 300 250 6, 500 275 AN OVERVIEW OF T H E CONCLUSIONS There has been a slight increase i n support f o r nuclear power since the A p r i l survey w h i c h appears to have been a low point—perhaps caused by the several months of very negative publicity t h a t nuclear power had experienced i n the first quarter of this year. However, nuclear power is no more popular now t h a n i t was i n the surveys of last w i n t e r and f a l l . Support f o r alternatives is much the same today as i t was i n the spring. Opponents of nuclear power plants s t i l l cite the many dangers they fear, while proponents find nuclear power the most economical source of badly needed power. Consumers f e l t t h a t they could make substantial reductions i n their own energy use, i f they h a d incentives to do so. The greatest incentive to do so w o u l d simply be a convincing case t h a t a real energy crisis does, i n fact, exist. The survey found t h a t i n t e r n a t i o n a l energy and economic competition provide yet another rationale f o r nuclear development i n the minds o f consumers. T h i s stemmed f r o m a feeling t h a t America needs more energy both to insure domestic economic g r o w t h and to compete w i t h foreign nations. People also f e l t American technical leadership i n the nucelar field could help make nuclear development safer for everyone. THE BASIC QUESTION Support f o r nuclear power has increased since the spring. W h i l e support is up, i t has failed to reach the level i t achieved i n the f a l l and w i n t e r of 1974. Do you generally favor or oppose b u i l d i n g more nuclear power plants? [In percent] Summer 1975 Spring 1975 Winter 1974/75 Fall 1974 Favor Don't know Oppose 53 45 54 59 18 21 16 14 29 35 30 27 Considering the relationship between support and opposition and perceptions of danger, i t may be t h a t the relative c a l m of the past f e w months has helped fear to abate slightly. The spring survey we should remember followed several months of heavy anti-nuclear publicity. Women continue to be must less favorable to nuclear than men. WOMEN ONLY [In percent] Today... Sping 1975 Favor Not sure Oppose 39 34 27 26 34 40 However, women are now slightly i n favor of nuclear where formerly they were i n opposition. Among men, the m a r g i n of support has increased. MEN ONLY [In percent] Today Sprng 1975. Favor Not sure Oppose 63 57 13 15 24 29 276 Blacks, who f o r m e r l y were opposed to nuclear power by a 37 to 32% margin, now f a v o r i t by a 40 to 33% margin. Gains i n support can be seen i n every economic grouyp, w i t h the most s t r i k i n g improvement i n the $7000-10,000 category. Increases i n support are also greater among the less well-educated. W h a t this a l l shows is t h a t due to the complexity of the issue, and the f a c t t h a t most people have very l i t t l e knowledge o f nuclear power, the scales can be tipped easily by unfavorable p u b l i c i t y — a scare story, a d r a m a t i c headline. REASONS FOR SUPPORT AND OPPOSITION Reasons f o r positions are v i r t u a l l y identical t o those given i n the spring survey and suggest no reasons t o reconsider any of the analysis presented then. W h y do you favor nuclear power? [Percent of supporters] Summer 1975 Spring 1975 Cheaper, economical 21 19 Need more power, energy crisis Need to save resources Nuclear is cleaner It's safe, reliable Just favor it, good Energy independence Good until solar is ready Other/don't know 21 9 8 4 15 4 1 17 16 13 7 20 5 3 17 W h y do y o u oppose nuclear power? Percent of opponents Dangerous, too dangerous N o t safe yet Danger of pollution Radioactive waste R a d i a t i o n i n general Explosion Other dangers 32 11 7 5 4 5 10 T o t a l danger 74 THE ALTERNATIVES T h i s section explores consumer knowledge of and attitudes t o w a r d three alternatives to nuclear power : solar energy, coal usage and s t r i c t energy conservation. Americans believe t h a t solar energy can t r u l y provide some k i n d of solution to energy porblems. T h i s belief rests on both a relatively low estimate o f i t s costs and on optimistic estimates of the a v a i l a b i l i t y of solar energy f o r c u r r e n t use. Americans also feel t h a t coal w i l l play a role i n solving the problem, and recognize t h a t we cannot reject both coal usage and nuclear power and s t i l l hope to effectively solve our difficulties. F i n a l l y , Americans feel they personally could make much greater conservation efforts i f they were absolutely convinced t h a t an energy crisis exists. Three possibile solutions to the energy problem have been proposed t h a t do not involve nuclear p o w e r : construction of solar energy facilities, more extensive use of coal, and s t r i c t energy conservation. D o you t h i n k i n the n e x t 25 years each of these can do a lot to solve the energy crisis, something to solve the problem, or very l i t t l e t o solve the problem ? Percent saying each can do a "lot" Solar power Coal S t r i c t conservation 54 31 36 277 Thus, coal is rated very low by most respondents. Solar power, which informed opinion seems to t h i n k is 50 years i n the future, is rated very high. Breakdowns of these three ratings s h o w : Better educated and higher income people are more likely to feel t h a t solar power can play a significant role t h a n are the less educated. Support f o r coal is much more u n i f o r m among educational and income groups. Better educated, higher income and younger people are a l l slightly more inclined t o feel t h a t s t r i c t conservation dan play a p a r t i n solving the energy crisis. SOLAR POWER Over 55% o f the people i n the survey were u n w i l l i n g to venture a guess on the costs of a home solar heating unit. Of those who did, $3500 was the average cost. Do you t h i n k such a u n i t is available f o r your home r i g h t now? Overall: Percent Yes N o t sure No 35 25 40 Younger people are more inclined to believe t h a t solar powTer units are available. Men are more inclined t h a n women to believe solar is practical, and liberals have more f a i t h i n solar t h a n conservatives. COAL Previous n a t i o n a l Cambridge Reports have showTed Americans do not believe i t is necessary to relax air pollution standards to resolve current energy problems. On this survey we asked a different question, w h i c h shows clearly how much current reaction to the energy problem depends on a lack of belief i n the very crisis. I f you were certain an energy crisis existed, would you favor or oppose relaxing controls on a i r p o l l u t i o n standards so t h a t more coal could be burned? [In percent] Overall Support nuclear Not sure Oppose nuclear Favor Not sure Oppose 51 55 47 44 16 14 26 13 33 31 27 43 Thus, nuclear power opponents are also more inclined to resist relaxing a i r pollution standards to permit coal burning. There is a clear "anti-energy" coalition i n the population t h a t i s u n w i l l i n g t o make any concessions to solving the problem. W e can't have i t both w a y s ; we either have to b u r n more coal or we have to build nuclear power plants. People wTho oppose both are deceiving the public. [In percent] Overall Support nuclear Not s u r e . . Oppose nuclear Favor Not sure Oppose 56 68 44 38 18 11 38 18 26 21 18 45 Those who support and oppose nuclear are sharply divided on this question. B u t it's i m p o r t a n t to note t h a t over a t h i r d of those opposed to nuclear s t i l l agree w T ith the statement. 278 CONSERVATION A good deal of potential f o r a d d i t i o n a l conservation exists. I f y o u were convinced there is an energy crisis would y o u be w i l l i n g t o c u r t a i l y o u r own energy use to help solve the problem? Percent Yes N o t sure No 90 5 5 D o y o u t h i n k y o u could cut your energy use b y at least one-third? Perceni Yes N o t sure No 52 19 29 T h e young and the well-to-do fell very strongly t h a t t h e y could cut their energy usage. H o w w o u l d they do it? The results are interesting. I f y o u can cut b y a t h i r d : W h a t would y o u cut i n your home to save t h a t m u c h energy? Where specifically w o u l d y o u cut? Percent C u t d o w n on electrical appliances C u t lighting, turn-off lights Lower thermostat i n winter Stop air conditioning i n the summer C u t down on television t i m e D r i v e less Other Don t know CREDIBILITY of those who feel they could cut 23 15 19 11 7 6 6 13 OF SOURCES OF INFORMATION People rated i n f o r m a t i o n sources on a scale f r o m " v e r y t r u s t w o r t h y " t o " n o t t r u s t w o r t h y at a l l " . The results are: (Results are compressed i n t o three categories here.) [In percent] Trustworthy Unsure Untrustworthy 60 67 32 17 61 46 56 67 39 21 17 24 16 19 22 22 18 25 19 16 44 67 20 32 22 15 36 Nader... Cronkite Westinghouse president Mobil president A-bomb scientist Nuclear company Solar company University scientist Corporate scientist Notable is the great f a i t h Americans place i n "science". The nameless scientists both beat Nader. However, a scientist gives up considerable c r e d i b i l i t y when he goes t o w o r k f o r a corporation. ENERGY AND THE INTERNATIONAL SITUATION Some people say t h a t America is being too cautious about nuclear power and t h a t other countires l i k e Japan, France and the Soviet U n i o n are going ahead f u l l speed and w i l l get ahead o f us. Others say w e should delay nuclear power plant construction no m a t t e r w h a t other countries do. W h i c h of these opinions is closer to your opinion? Percent Keep up Don't know Delay construction 60 16 24 279 80% of those i n favor of nuclear power also favored keeping up w i t h other countries; 41% of undecideds favored it, and 25% of nuclear opponents favored this course. Older respondents and the well-to-do are most inclined to say "keep up". Of the 24% who favored a delay we asked, Some people fear a delay m i g h t mean t h a t i n 10 or 20 years other countries w i l l have cheaper energy and w i l l thus have economic advantages over us. W o u l d you favor or oppose a delay i n nuclear plant construction even i f i t meant a iower standard of l i v i n g i n the U.S. compared to some foreign countries? Percent S t i l l favor delay Not sure Oppose delay i f 46 24 31 Thus, a hard-core of 10-15% oppose nuclear power even i f foreign countries go ahead a n y w a y and our delay means a lower standard of l i v i n g . Over h a l f the people i n this hard-core are under 35 years of age. The well-to-do and belter educated respondents are also more inclined to stick w i t h the "delay" position even when economic hardship is raised as an issue. Some people argue t h a t i f other countries are going to b u i l d nuclear power plants anyway, America ought to t r y to move quickly i n order to develop the safest possible designs and to take a leadership role i n development. Do you t h i n k this is a v a l i d position? Percent Yes Not sure No 65 15 20 This position is very strongly endorsed. I t represents an excellent argument, p a r t i c u l a r l y i f i t can be coupled w i t h a "scientific" campaign showing the technology t h a t goes i n t o the nuclear products the U.S. sells. NUCLEAR ANI) ECONOMIC GROWTH We tested the relationship people see between expanded energy supplies and economic progress. Some people have argued t h a t we can have economic g r o w t h here at home— even i f we don't increase energy supplies—by conserving and using the energy we have more wisely. Other people say this is unrealistic and t h a t we need to increase energy supplies i n order to have f u r t h e r economic growth. W h i c h is closer to your opinion? [In percent] Overall Support nuclear Do not know Oppose nuclear Need energy growth Do not know Can simply conserve 41 54 31 31 14 10 28 12 45 36 40 57 Thus, a f u n d a m e n t a l difference exists between nuclear supporters and opponents i n terms of the overall f u t u r e they see f o r energy g r o w t h i n our society. Not only are they divided over the safety and the economics of nuclear power, but they are also divided over the need for power i n general. The constituencies on both sides are s i m i l a r to those we saw i n the discussion of economic g r o w t h i n our W i n t e r 1974/75 Cambridge Report. The pro-conservation position is strongest among the y o u n g — w i t h a p l u r a l i t y of those under 35 supporting i t — a n d among the well-to-do and the w e l l educated. I f we don't increase economic growth, some people say there w i l l be increasing unrest i n our society because the people at the bottom of the economic ladder w i l l no longer be able to get ahead and w i l l have to l i t e r a l l y fight f o r a larger share of things. Other people say this won't really be a probem because there is plenty 280 to go around i n our society, and a l l we need to do is d i s t r i b u t e i t more equally. D o you t h i n k g r o w t h is essential or do you t h i n k we could solve the problem by simply d i s t r i b u t i n g more equally ? II n percent] Growth essential Not sure Distribute equally 52 12 36 41 57 58 52 58 49 9 10 10 13 14 19 50 32 32 33 29 32 59 46 38 11 21 10 30 33 51 Overall Age: 18 to 25 26 to 35 36 to 45 46 to 55 56 to 65 Over 65 Nuclear: Supporters Not sure Opponents The young and opponents of nuclear power are the only t w o groups where p l u r a l i t i e s actually believe equal d i s t r i b u t i o n rather t h a n g r o w t h is the l i k e l y solution to economic problems. CONCLUSIONS The Summer 1975 Cambridge Report 4 now being prepared contains m a j o r examinations of attitudes t o w a r d the energy problems w h i c h w i l l complement the analysis here on these proprietary questions. These questions have shown t h a t f a i t h i n solar energy is backed up by relatively low estimations of cost, and highly optimistic estimates on the availa b i l i t y of solar heating f o r the home. Furthermore, the analysis shows t h a t i f people believe there really is an energy crisis, they w i l l support the increased b u r n i n g of coal—even i f i t means relaxing a i r pollution standards—and they w i l l make greater personal efforts to conserve energy, though the choices of those consumption cuts are unrealistic. When confronted w i t h the t h r e a t of i n t e r n a t i o n a l competition, most Americans feel t h a t we should keep up w i t h foreign countries and even take a leadership role i n nuclear development. On the other hand, the survey indicates t h a t nuclear power opposition is not based solely on the pros and cons of nuclear power. Substantial opposition is related to the whole " a n t i - g r o w t h " syndrome i n America. A large number of people feel t h a t America should devote less effort to developing new energy, and more to d i s t r i b u t i n g w h a t we have. T h i s is not the k i n d of opposition t h a t can be changed by showing the safety aspects of nuclear power. I t represents, instead, a f u n d a m e n t a l difference of opinion about the f u t u r e course of American society. On the side of pure public relations, the survey indicates the tremendous f a i t h most Americans have i n science. A believable scientific presentation—that the average person can understand—would do a lot to relieve public doubts about nuclear power. COMMENTS BY GREGORY A . THOMAS, WASHINGTON REPRESENTATIVE, SIERRA CLUB The proposal to create an Energy Independence A u t h o r i t y poses i n sharp relief the question whether taxpayers or consumers should pay the costs of new domestic energy development. Since i t is axiomatic t h a t those who pay w i l l call the tune, the complexion of our energy f u t u r e , and the concomitant environmental stresses, hang i n the balance. Lest i t be supposed t h a t these t w o groups are sufficiently congruent to choose s i m i l a r futures, the Committee should consider the f o l l o w i n g : Accountability f o r the p i v o t a l choices concerning the pace, the amount, the source and the cost of energy development is at the core of the matter. Comp a r i n g the probable behavior of an Energy Independence A u t h o r i t y w i t h the proven behavior of energy consumers, s t a r k l y different f u t u r e s are p r o j e c t e d : an Energy Independence A u t h o r i t y would be u t t e r l y insulated f r o m economic 281 accountability, and largely buffered f r o m political accountability as well. A fivemember governing board would be appointed by and serve at the pleasure of the President, not as an executive agency of the United States (see Sec. 8 0 4 ( b ) ) , but as an essentially independent quasicorporation (see Sec. 201 ( a ) ) . Since i t s funding, and therefore its activities, would operate largely or entirely off-budget, Congressional oversight would be occasional, haphazard and probably ineffectual. The guidelines i n the b i l l assure t h a t this entity would not emulate the performance of a p r i v a t e enterpreneur i n a competitive energy market. The requirement of Sec. 304(a) t h a t " F i n a n c i a l assistance w i l l be provided i n a manner which, to the extent possible, does not enhance unduly the recipient's competitive position", is pure fiction. Federal subsidies w i l l do nothing i f not "enhance" a recipient's competitive position and thereby lessen his responsiveness to consumer pressures. There is no disguising t h a t this b i l l w i l l substitute f o r free competition and free consumer choices the largely unaccountable administrative decisions of a government corporation. The type of energy f u t u r e w h i c h consumers w o u l d choose i n the absence of federal subsidies is distinguished principally by the p o w e r f u l dynamic for conservation which w o u l d be b u i l t in, p a r t i c u l a r l y i f a l l the environmental as w e l l as economic costs of new energy development are absorbed by the consumer. Volu n t a r y energy consumption is demonstrably elastic w i t h price. This difference is considerable. Estimates of the efficacy of conservation to substitute f o r new energy supplies range f r o m the most recent estimate of the F E A that demand can be reduced as of 1985 by the equivalent of 2.9 m i l l i o n barrels of o i l per day ( w h i c h is almost h a l f of current imports) to those of Denis Hayes f o r the W o r l d w a t c h I n s t i t u t e (under contract to the F E A ) which presents a cogent case t h a t all our energy needs f o r the next 25 years could be satisfied out of existing energy waste. Compulsory taxpayer financing of an Energy Independence A u t h o r i t y w i l l not begin to tap this potential. I n fact, the A u t h o r i t y clearly w o u l d be structured to promote energy development at the expense of conservation. Note t h a t the purpose of the A u t h o r i t y is to f u n d projects w h i c h would not otherwise "receive sufficient financing upon commercially reasonable terms f r o m other sources to make the project commercially feasible" (Sec. 3 0 3 ( a ) ) . I r o n i c a l l y , energy conservation measures, w h i c h are now and w i l l become increasingly cost-effective, are thereby excluded f r o m the coverage of this legislation. A t the same time, the A u t h o r i t y w o u l d seek to increase the near-term ( a t the expense of long-term) supplies of energy, thereby i n h i b i t i n g conservation efforts. Indeed, this " c a p i t a l s i n k " would funnel investment away f r o m conservation measures to developmental projects notwithstanding the widely acknowledged fact t h a t energy conservation w i l l provide a f a r better return. The F E A has estimated t h a t between 160 billion and 325 b i l l i o n dollars could be invested i n the next 10 years i n energy conservation measures which would a l l o w f u l l recovery of the investment w i t h i n the useful l i f e of any permanent equipment installed. S i m i l a r l y , the Energy Research and Development A d m i n i s t r a t i o n , i n its recently released N a t i o n a l Plan, "Creating Energy Choices For the F u t u r e " has determined t h a t conservation is the lowest cost, most immediately available and most environmentally a t t r a c t i v e strategy f o r approaching energy independence. The same observations are i n order wjjfch regard to the only renewable resource option at our disposal—solar energy.\A recent study by the Jet Propulsion Laboratory a t the C a l i f o r n i a I n s t i t u t e of Technology has projected t h a t a $1 b i l l i o n federal research and development effort between now and 1985 would yield commercial solar cells capable of p r o v i d i n g electric power, on any scale, at about 50 cents per peak w a t t . The long-term i>otential would be i n the range of 10-30 cents per peak w a t t . These numbers are to be compared w i t h the current cost of nuclear p o ^ e r ( t a k i n g account of low load factors) i n excess of $2 per installed w a t t t o d a j p k g a i n , the A u t h o r i t y , as a lender of last resort, w i l l probably not be available to f u r t h e r such cost-effective, environmentally benign energy systems. The net result is grossly anomalous. Energy production options which are the most inefficient i n the way they use capital (and therefore, cannot a t t r a c t investment i n a competitive m a r k e t ) would be benefited and rewarded by the E I A . Those which offer the greatest promise would t>e excluded. The anomaly w i l l heighten as the efficiencies decrease w i t h a d i m i n i s h i n g resource base and as the investment costs of substitute units of energy escalate. This w i l l not hold for investments i n solar or conversvation technologies where each u n i t of energy captured is independent of the next. 282 The charter of the E I A calls f o r a crash program to exploit non-renewable resources w i t h o u t regard f o r the long-term consequences, i n p u r s u i t of a phantom goal of independence f r o m the rest of the world. The A d m i n i s t r a t i o n and the energy i n d u s t r y are fond of r e f e r r i n g to the E I A and s i m i l a r schemes as an "insurance program". I t is somewhat humorous to note, however, t h a t these t w o promoters cite diametrically opposing " r i s k s " to be insured against. The i n d u s t r y claims t h a t i t needs federal loan guarantees to spread t h r rL-k t h a t the new energy products w i l l not be able to compete w i t h conventional fuels. T h i s w i l l only happen, of course, i f the oil exporting nations depress t h e i r prices. On the other hand, the federal government claims t h a t i t needs the E I A to protect against the risk t h a t these countries may f u r t h e r escalate t h e i r prices and thereby damage our h i g h l y energy dependent economy. I n short, the (Energy Independence Aut h o r i t y is alleged to be equally justifiable or unjustifiable, depending on y o u r logical preferences, regardless of w h a t the f u t u r e may hold. F a r more certain than the need f o r the E I A w o u l d be its devastating environmental costs. I f we take seriously the energy consumption figures on w h i c h Vice-President Rockefeller relies i n support of S. 2532, "between now and 1985, our energy needs w i l l grow by 36 percent.'jjjn order to also achieve "energy independence" w i t h i n this period, the level of domestic energy production w i l l have to increase by 70 percent over today's levels^ M a k i n g the charitable assumpt i o n t h a t domestically produced o i l and gas w i l l continue to contribute at present levels u n t i l 1985, coal, nuclear and hydro sources ( w h i c h comprises about h a l f of current energy supplies) w i l l have to increase by 140 percent over current levels by 1985. Roughly speaking, t h a t means t h a t f o r every two coal-fired generating stations i n existence today, there w i l l be three more i n existence 10 years f r o m now. S i m i l a r l y , the 56 c u r r e n t l y operating nuclear plants would grow to 134 such nts i n 1985. ) f course, the actual m i x w i l l probably look quite differently. Much of the nuclear capacity, f o r instance, w i l l probably not materialize, i f the c u r r e n t l y unfavorable trend w i t h respect to nuclear economics c o n t i n u e d The use of coal w i l l have to take up the slack. A t the extreme, this could require an increase i n the mining, transportation, and combustion or synthetic conversion of coal of over TV2 times the annual rate. I f this translates into 7% times the current annual insult i n terms of land disturbance, water and air pollution, t h e r m a l pollution, and associated environment residuals, the d i m i n u t i o n i n the q u a l i t y of l i f e i n this country would be t r u l y dramatic. W h i l e this type of a linear analysis may present the worst case, neither Vice-President Rockefeller nor anyone else has come f o r w a r d w i t h a clearer picture of the probable environmental costs which would have to be endured. Moreover, at t h a t rate of u t i l i z a t i o n , even assuming t h a t i t d i d not increase beyond 1985, the seemingly vast reserves of coal i n the United States would be u t t e r l y exhausted i n about the next century and a half. The value of achieving the objective of energy independence does not compare favorably w i t h this cost. Energy independence by 1985, no m a t t e r how vigorous the n a t i o n a l effort, is not feasible anyway according to the F E A . Even i f i t were, alternatives to the E I A approach w o u l d be f a r more attractive. The Congress has already provided f o r the accumulation of a strategic petroleum reserve over the next 10 years i n the recently enacted Energy Policy and Conservation Act of 1975. The Interagency Task Force on Synthetic Fuels Commercialization has indicated that this w i l l be a more cost-effective (and more certain) w a y to satisfy national security objectives than a synfuels commercialization program w h i c h would be stimulated by the pending bill. The comparative merits of conservation measures i n achieving energy independence have already been mentioned. I n addition to being unrealistic and expensive, i t is not at a l l clear t h a t energy independence is a w o r t h y goal i n the long run. I n the first place, i t is simply a reversion to the " d r a i n America first" policy which, i n large measure, is responsible f o r the current domestic resource crisis which has given rise to the E I A proposal i n the first place. Perhaps more i m p o r t a n t l y , observers are entitled to wonder i f the type of economic interdei>endence w h i c h the w o r l d energy m a r k e t reflects is not overall a significant stabilizing influence. The recycling of petrodollars i n t o the United States at a desperate pace has given the oil e x p o r t i n g countries the k i n d of stake i n our economic well-being t h a t may well, i n the end, serve as the greatest deterrent t o the imposition of f u t u r e sanctions against our economy. Moreover, the dependence of t h i s nation upon the rest of the world, 283 p a r t i c u l a r l y i f widely distributed would i n h i b i t the k i n d of adventurism of which the Vietnam involvement stands as the paradigm example. F i n a l l y , the notion t h a t freedom f r o m energy imports w i l l result i n the independence of the American economy f r o m the vagaries of the international arena does not bear c r i t i c a l scrutiny. I n a resource short-world—and ours is becoming increasingly so—energy is only one of many essential commodities w h i c h bind our destiny closely w i t h the f o r t u n e of the planet as a whole. I n contrast to the objective of energy independence at any price, I w o u l d l i k e to posit an objective more w o r t h y of the efforts of this Committee and the attention of this nation's energy planners. There is a legitimate and essential role to be played by the federal government in easing the transition between our present predicament—characterized by exponential energy g r o w t h d r a w i n g upon a diminishing resource base—and our most likely future, characterized by a limited energy budget d r a w i n g upon renewable resources. The only long-term energy option of w h i c h we can be highly confident is the u t i l i z a t i o n of sun power i n a l l its manifestations: solar electrification, solar heating and cooling, ocean thermal gradients, w i n d energy, byconversion, and even hydro-electric power. Competing sources, which maybe nearly inexhaustible i n fact, face an uncertain future. The same problems which have stalled, and may u l t i m a t e l y overwhelm, conventional nuclear power loom even larger i n the ease of the breeder reactor. I t is of course, i)ossible t h a t the safety, waste management and safeguards problems w h i c h attend this technology w i l l be solved w i t h time. However, as time goes by (we are now 25 years into the nuclear era), there is less reason for confidence t h a t these problems can be simply "engineered" away. I t may be t h a t the development of human institutions w i t h which this technology w o u l d be compatible w i l l end up being the c r i t i c a l l i m i t ing^f actor. ^ T h e other competitor is the fusion reactor which, despite periodic announcements of technical break-throughs, has yet to sustain a reaction f o r more than the minutest f r a c t i o n of a second. I t is by no means certain that the device w i l l ever produce a net flow of energy. Significantly, the f u r t h e r development o£these technologies w i l l not be advanced by the Energy Independence A u t h o r i t y Section 304(b) specifically excludes t h a t function. And, irrespective of the eventual fate of these technologies, solar energy w i l l always remain the " f u e l " of choice f o r the future. I t is clean, and, i n a most relevant sense, i t is free. Characteristic of l i f e i n a solar economy w i l l be t h a t the amount of solar energy available f o r conversion to useful w o r k is constant f r o m one day to the next. Quantitative g r o w t h i n the usual economic sense w i l l be s t r i c t l y l i m i t e d by our technical ingenuity i n capturing and converting this energy source. T h i s stands i n stark contrast to our current energy situation, based upon stored energy w h i c h has been accumulating i n the earth f o r many millions of years. Today, we are essentially l i v i n g on a savings account. Tomorrow, we shall get by on a fixed annuity. I t is this transition and its social and economic ramifications w i t h w h i c h federal energy planners should be p r i m a r i l y concerned and i t is i n this context t h a t the i r r a t i o n a l i t y of the E I A scheme becomes most apparent. A r a t i o n a l t r a n s i t i o n strategy would endeavor to moderate rather than stimulate our energy appetite, looking f o r w a r d to the day when g r o w t h w i l l no longer be sustainable. I t w o u l d attempt to extend as long as possible the period of time d u r i n g which petrochemical stocks are available, p a r t i c u l a r l y f o r the most essential and irreplaceable uses such as pharmaceuticals. I t would seek to maximize the efficiency w i t h which energy is used i n the economy. Perhaps more t h a n any other concept, a r a t i o n a l t r a n s i t i o n a l strategy must recognize t h a t the demand f o r and the supply of finite resources occur i n different temporal realms. The coal which the E I A would extract and burn at a feverish rate is not uniquely ours to exhaust. The quality of l i f e w i l l always depend to some extent upon the a v a i l a b i l i t y of petrochemicals. F i n i t e resources i n the face of i n f i n i t e demand present an ethical question of immense proportions f o r this generation. The immediate gratification of desires can only be purchased at the expense of f u t u r e generations whose claim upon the treasures of this planet, which we hold i n trust, is the equal of our own. The E I A w o u l d operate cross-grain w i t h this perspective. I t would accelerate the ongoing harvest of resources when they should be husbanded carefully. Instead of r e q u i r i n g t h a t we learn to do more w i t h less i n terms of our resource base, i t would fire the very appetites which we are less able to afford w i t h the 284 passage of time. I n doing so, i t would create disincentives to energy conservation; the very strategy which ought to be pursued first and i n preference to a l l developmental approaches. I n contrast to t h i s bill, the Federal government must not be handed a carte blanche to pursue a l l energy development schemes i n d i s c r i m i n a n t l y on the theory t h a t whatever can be done i n a technical sense should be done. Nor should the choice among commercial options be dictated by market forces alone, unless and u n t i l a l l costs of energy production, environmental and economic, present and f u t u r e , become reflected i n the price to the consumer. Rather, the Congress should n a r r o w l y circumscribe the types of projects and technologies w h i c h w o u l d be eligible f o r Federal assistance to exclude environmentally destructive options. Conservation measures and solar applications should be preferred ; nuclear fission technologies and the production of synthetic fuels f r o m o i l shale, f o r instance, should be excluded or delayed u n t i l the attendant environmental problems are satisfactorily resolved. Since coal w i l l , i n a l l likelihood, remain the f u e l of chief reliance d u r i n g the t r a n s i t i o n to a solar economy, vigorous efforts should be made by the federal government to accelerate the development of technologies w h i c h would p e r m i t i t to be utilized as cleanly as possible. Fluidized bed combustion, low B t u gasificat i o n and advanced scrubbing techniques are among the candidates f o r such attention. Such research and development i n i t i a t i v e s (supplemental to those now underw a y i n the Energy Research and Development A d m i n i s t r a t i o n ) are specifically excluded f r o m the b i l l by Sec. 304(b). T h i s misorientation is f u r t h e r i l l u s t r a t e d by Sec. 304(a) (2) of the b i l l which singles out commercial deployment of nuclear f a c i l i t i e s f o r special attention by the A u t h o r i t y . Yet, the greatest l i m i t a t i o n on the potential of nuclear energy to contribute to our energy f u t u r e is not the need f o r more capital, but the c r i t i c a l need to address and resolve the elusive environmental problems which continue to plague t h a t f u e l cycle. There is another sound reason for focusing federal p a r t i c i p a t i o n at the developmental rather than the commercialization phase. I f federal subsidies, direct or indirect are required to commercialize an energy source, t h a t is a strong indication t h a t the economy is not yet ready f o r the i n t r o d u c t i o n of the product. The r i s k which the federal government is being asked to absorb i n the E I A proposition is the risk t h a t a project which cannot now a t t r a c t c a p i t a l w i l l produce a f u e l w h i c h w i l l not be able to compete successfully w i t h conventional sources. T h i s risk, f a r more than project size, makes these investments u n a t t r a c t i v e to the energy industry. The uneconomic nature of these projects is also a strong indication t h a t more w i l l be required of the federal government t h a n loan guarantees i n order to get these forms of energy i n t o the gas tank, the pipeline, and the l i g h t switch. Substantial m a r k e t i n g subsidies are p a r t of the package which Congress is here asked to buy. Yet, notably, not a w o r d concerning the magnitude, d u r a t i o n or a d m i n i s t r a t i o n of these additional subsidies is to be f o u n d i n the b i l l or i n the A d m i n i s t r a t i o n ' s supporting materials. F i n a l l y , some mention of the a d m i n i s t r a t i v e provisions of this b i l l is also warranted. T i t l e V I , which seeks to expedite federal a d m i n i s t r a t i v e proceedings i n v o l v i n g energy projects, w o u l d quite simply place r a p i d development ahead of the other essential values which such proceedings are designed to consider: including environmental q u a l i t y and consumer interests. A t best, i t w o u l d cut months rather than years f r o m the lead time required f o r an energy project, and would erect at the same time a whole new bureaucracy, r e q u i r i n g delicate and time-consuming judgments by the E I A . C l a i m i n g t h a t the national security objectives of the b i l l require hasty solutions, this b i l l calls f o r massive energy projects w h i c h require very long periods to bear f r u i t , w h i l e i g n o r i n g p r o x i m a t e solutions such as diversification of foreign sources, stockpiling of oil, reserving production f r o m the national petroleum reserves, and, once again energy conservation. I n sum, we fined t h a t the E I A would succeed most i n ways w h i c h w o u l d not be tolerated by our environment w h i l e f a i l i n g entirely to advance the least debatable solutions to the nation's long-term energy dilemma. F o r these reasons, we urge the Committee to reject this bill. The C H A I R M A N . T h a n k you, M r . Browder. O u r final witness is M r . Joseph Cury. 285 STATEMENT OF JOSEPH H. CURY, CONSUMER POWER, JACKSONVILLE FLA. M r . C U R Y . Senator Proxmire, Senator Stevenson, i t is an honor to be given the opportunity to speak to you on behalf of the everyday people of this country. The people who i n the long r u n pay f o r everyt h i n g one way or another. I own and operate a grocery store not connected w i t h any chain. I am president of Consumer Power, a group of electricity consumers i n Jacksonville who have been f i g h t i n g construction of a factory which would manufacture floating nuclear plants on Blount Island i n Jacksonville. Westinghouse and its offshore power system of Jacksonville is going to profit f r o m this $100 billion boondoggle, who dream of someday building floating nuclear powerplants. The story I am going to tell you w i l l astound you and the entire nation. I t w i l l show how a major corporation w i l l promise anything to get subsidized by a city and State. Then, when they fail, they t u r n around and come back to Washington for a Federal bail-out. T o give $100 b i l l i o n f o r experimental projects like floating nuclear powerplants is like sending good money after bad. Our local paper, the " F l o r i d a Times," owned by the Seaboard Coastline Railroad, w i t h very, very heavy vested interest i n the nuclear power project there, d i d not want the t r u t h known to the public or anyone else about floating nuclear powerplants. Numerous out-of-town newspapers and magazines eventually told the story, a true story, to the public. First came a writer named Dudley Clendenon, f r o m the "Saint Petersburg Times," who broke the story, then the "U.S. News and W o r l d Report," the " R o l l i n g Stone" magazine, "Columbia Journalism Review," and many others which you have been furnished, by promising to build a $250 million factory and become our largest employer, our independent authorities, and we are very f a m i l i a r i n Jacksonville w i t h independent authorities, gave them an island valued at $27 million. They issued $180 m i l l i o n i n revenue bonds to give them operating cash and now they are i n the process of t r y i n g to build them a bridge. This is for offshore power system, f o r $166 m i l l i o n at taxpayers expense. Since their a r r i v a l at Jacksonville, taxes have almost doubled. U t i l i t y rates and bridge tolls have doubled. A n d the only people who have benefited f r o m this project were people w i t h special interest. We have had the independent authorities i n Jacksonville f o r almost 8 years. They answer to no one, they come under no budget controls. A n d this was brought up yesterday. I n my mind, the Energy Independence A u t h o r i t y is another example of a pork barrel project that is being pushed hard by the vested interests who want to make a big profit at the public's expense. This is the granddaddy of all pork barrel projects. Speaking f o r the taxpayers, who have already spent years fighting a smaller version of the Energy Independence A u t h o r i t y i n Jackson- 286 ville, I urge you to reject this proposal f o r this Federal subsidy to b i g business. I n Jacksonville, offshore power systems convinced the city fathers to buy $2.2 b i l l i o n w o r t h of f l o a t i n g experiments. I and a few associates w i t h the help of a city attorney managed t o stop this fiasco, which w o u l d have i n the end have cost the C i t y o f Jacksonville the equal of its entire assessed valuation of almost $6 billion. W h e n Jacksonville refused t o be the guinea p i g , the o r i g i n a l customer, Public Service and Gas of New Jersey, delayed t h e i r order f o r 7 years. These major corporations risk very little. Then they want the public t o risk a lot. They used taxpayers hard-earned dollars. T h i s Independence A u t h o r i t y B i l l w i l l be p l a y i n g r i g h t i n t o the hands of mismanaged corporations, such as Lockheed, Westinghouse, Penn Central. These corporations use State and local officials to obtain taxpayers' money to f u r t h e r subsidize their corporate mistakes. T h e F l o r i d a Cabinet and the Governor learned the h a r d way. They have been embarrassed by this project. Y o u have had i n y o u r possession documented proof that the A t t o r n e y General of F l o r i d a is raising serious questions about the f l o a t i n g nuclear project. Gentlemen, do not mortgage yourselves like we d i d i n Jacksonville and be forced to subsidize these corporations who cannot make i t on their own. The American people cannot afford this l u x u r y , the people need money to buy groceries, not to bail out giant corporations. Gentlemen, one t h i n g puzzles me. I f I mismanage my business, and I make bad mistakes, I j u s t go broke and lose everything, and I have done this. A n d I have got to start f r o m the bottom again, w i t h o u t a subsidy. A giant corporation t h a t has made very, very bad engineering and economic calculations does not. They simply come back to Washington and get bailed out. I w i l l be glad to answer any questions. T h a n k you. [Presentation of M r . C u r y f o l l o w s : ] STATEMENT OF JOSEPH H. CURY, CONSUMER POWER, JACKSONVILLE, FLA. M r . Chairman and Members of the Committee: I t is an honor to be given the opportunity to speak to you on behalf of the everyday people of t h i s country. The people who i n the long r u n pay f o r everything one way or another. I am president of Consumer Power, a group of electricity consumers i n Jacksonville who have been fighting construction of a factory w h i c h w o u l d manuf a c t u r e floating nuclear plants on B l o u n t I s l a n d i n Jacksonville. The f a c t o r y is being b u i l t by a subsidiary of Westinghouse called Offshore Power Systems, better k n o w n as OPS. There are t w o reasons t h a t our experience w i t h OPS i n Jacksonville is relevent to your consideration of legislation to create the Energy Independence A u t h o r i t y . F i r s t , the Energy Independence A u t h o r i t y w o u l d very l i k e l y be used to subsidize the purchase of floating nuclear power plants f r o m OPS i n Jacksonville. Presently OPS is i n bad shape financially because most of the orders i t once had f o r floating nuclear power plants have been cancelled. The f e w surv i v i n g orders have been delayed f o r several years. Hence OPS is banking on the Energy Independence A u t h o r i t y to save i t f r o m bankruptcy by buying sev- 287 e r a l floating nuclear power p l a n t s a n d leasing t h e m back t o electric u t i l i t i e s t h a t w i l l n o t buy t h e m w i t h t h e i r o w n money. M y g r o u p believes t h a t OPS should not be b a i l e d o u t by the f e d e r a l government. I f OPS made h i g h r i s k business decisions t h a t a r e n ' t p a y i n g off, OPS should suffer the consequences r a t h e r t h a n a s k i n g t h e t a x p a y e r f o r a subsidy. T h a t ' s the w a y I r u n m y business a n d t h a t ' s t h e w a y t h e f r e e enterprise system is supposed to w o r k . T h e second reason t h a t o u r experience w i t h OPS is r e l e v a n t to y o u r considera t i o n of the E n e r g y Independence A u t h o r i t y is t h a t OPS w o u l d never h a v e been s t a r t e d i f the l o c a l vested interests i n J a c k s o n v i l l e h a d n o t seen a chance to use the public's money f o r p r i v a t e gain. OPS i n J a c k s o n v i l l e is <• classic porkb a r r e l project. I have s u b m i t t e d to the Committee f o r t h e recora a r t i c l e s f r o m The St. Petersburg Times, U.S. News & World Report, The Rolling Stone, Columbia Journalism Review, a n d other p u b l i c a t i o n s describing t h e shady dealings t h a t w e n t on w h e n OPS came t o Jacksonville. A s y o u can see f r o m r e a d i n g these articles, one of t h e reasons t h a t c e r t a i n i n f l u e n t i a l local interests supported p l a n s f o r t h e OPS f a c t o r y was t h a t they w a n t e d to use i t as a p r e t e x t t o get a $137 m i l l i o n b r i d g e b u i l t near t h e i r p r o p e r t y . I n m y m i n d , t h e E n e r g y Independence A u t h o r i t y is another example of a p o r k b a r r e l p r o j e c t t h a t is being pushed h a r d by some vested interests w h o w a n t to m a k e a b i g p r o f i t a t the public's expense. T h i s is the grand-daddy of a l l porkb a r r e l projects, and, speaking f o r taxpayers w h o have already spent years fighting a s m a l l e r v e r s i o n of t h e E n e r g y Independence A u t h o r i t y i n Jacksonville, I urge y o u t o reject the proposal f o r t h i s f e d e r a l subsidy t o B i g Business. W e have a l r e a d y seen local taxes rise and bridge tolls double t o help pay f o r OPS i n Jacksonville. Please don't ask us to also pay increased f e d e r a l taxes t o subsidize OPS a n d h u n d r e d s of o t h e r boondoggles l i k e i t a l l over t h e c o u n t r y . Gentlemen : d o n o t l e t yourselves get locked in, l i k e w e d i d i n Jacksonville a n d forced t o subsidize these corporations w h o c a n ' t m a k e i t on t h e i r own. T h e A m e r i c a n people c a n ' t a f f o r d t h i s l u x u r y . T h e people need money t o b u y groceries, n o t t o b a i l o u t g i a n t corporations. T h a n k you. [From U.S. News & World Report, Sept. 1, 1975] A CITY THAT REACHED FOR RICHES AND GOT HEADACHES INSTEAD W H A T B E F E L L J A C K S O N V I L L E C A N BE A L E S S O N FOR O T H E R C I T I E S . J A C K M C W E T H Y , A N A S S O C I A T E EDITOR OF T H E M A G A Z I N E , REPORTS F R O M T H E S C E N E Jacksonville, F l a . — T h i s is the story of w h a t can happen t o a n A m e r i c a n c i t y t h a t r o l l s out the r e d carpet f o r a h i g h - r i s k i n d u s t r y — a n d sees i t s d r e a m of riches end i n f r u s t r a t i o n and controversy. I t was i n 1972 t h a t J a c k s o n v i l l e set out to a t t r a c t a new a n d exotic company of t h e nuclear age. C i t y f a t h e r s envisioned a day w h e n 10,000 new jobs w o u l d be created a n d cash registers w o u l d r i n g f r o m one end of t o w n t o the other. I n p u r s u i t of t h i s goal, l a v i s h — a n d , some say, questionable—expenditure of m i l l i o n s i n c i t y f u n d s w a s made. C r i t i c s c l a i m Jacksonville came close to being plunged i n t o b a n k r u p t c y . T h e story centers on Offshore Power Systems—known locally as OPS. I t is a Westinghouse subsidiary f o r m e d to b u i l d floating nuclear power plants. A m u l t i b i l l i o n - d o l l a r m a r k e t was forecast f o r scores of units. They w e r e to be b u i l t i n Jacksonville, t h e n t o w e d out and anchored off t h e U.S. coastline to send power h u n d r e d s of miles i n l a n d . N o w demand f o r the p l a n t s has a l l b u t vanished. So have t h e dreams of quick p r o s p e r i t y f o r Jacksonville. "Like motherhood." One local official sums u p w h a t happened : " T h e chamber of commerce—and these are t h e people w h o r u n t h i s c i t y — j u s t w e n t crazy over t h i s OPS t h i n g . Just about every businessman i n t o w n t h o u g h t he w a s going t o get rich. I t became an issue l i k e m o t h e r h o o d a n d the A m e r i c a n flag—you d i d n ' t dare say y o u were against any p a r t o f the package our c i t y w a s o f f e r i n g . " Since Offshore Power Systems a r r i v e d three years ago, J a c k s o n v i l l e h a s : F o r a l l p r a c t i c a l purposes, given the firm 850 acres of choice i n d u s t r i a l land. Promised t o b u i l d a 137-million-dollar bridge to p r o v i d e access to the P l a n t ' s location. 288 Offered to buy, through the m u n i c i p a l power company, t w o floating plants at a cost c r i t i c s insist the city could i l l afford—2.2 b i l l i o n dollars. Spent more t h a n a m i l l i o n dollars f o r the purchase of enriched u r a n i u m f u e l f o r Jacksonville's t w o floating power plants, which, i t now appears, w i l l never be b u i l t . Launched the construction of a vocational-education center, at a cost of 11 m i l l i o n dollars, t h a t was to t r a i n thousands of OPS employees. Offered to sell 180 m i l l i o n dollars i n low-interest, tax-exempt revenue bonds to provide the company w i t h ready cash. The background.—Offshore Power Systems is dead i n the w a t e r at the moment. I t s one remaining customer has delayed a l l order five years. W h a t happened to Jacksonville's dream ? To go back to the beginning— I n 1972, OPS was scouting f o r a suitable place to locate. More t h a n 70 coastal cities f r o m Boston to Galveston were hotly bidding to a t t r a c t the firm. A t t h a t time, OPS was a j o i n t venture of Westinghouse and Tenneco. Westinghouse was to provide nuclear expertise and Tenneco—a conglomerate specializing i n m a r i n e construction and energy systems—was to help w i t h i t s shipbuilding know-how. Promising location.—The new j o i n t venture settled on Jacksonville because the city offered an excellent site f o r the m a n u f a c t u r e of floating nuclear plants and was showing w h a t one OPS official described as a " w o n d e r f u l l y cooperative attitude." Offshore Power officials came to Jacksonville confident t h a t once the company's 300-million-dollar m a n u f a c t u r i n g f a c i l i t y was i n f u l l production, i t w o u l d employ f r o m 10,000 to 14,000 people. I t would be selling power plants f o r about a h a l f b i l l i o n dollars each. These were to be floating off the assembly l i n e at a r a t e of f o u r units a year. Proponents of the project calculated t h a t OPS and i t s employees w o u l d add nearly 8 m i l l i o n dollars a year to city t a x revenues. They also envisioned a 160million-dollar p a y r o l l t h a t would be spent largely i n the Jacksonville area. Civic leaders went a l l out to smooth the way f o r the firm. A s described by one local a t t o r n e y : " W h e n OPS came to Jacksonville, t h e i r people j u s t jumped i n t o the government decision-making process. They joined the r i g h t clubs, rubbed shoulders w i t h the r i g h t businessmen and, after that, this city was theirs." A site was needed where OPS could assemble the world's first f a c i l i t y f o r manufacture of the floating nuclear-power plants. The Jacksonville Port A u t h o r i t y recommended B l o u n t Island—located midstream i n the St. Johns River, h a l f w a y i n the 20-mile stretch between downt o w n and the A t l a n t i c Ocean. A t first, members of the Port A u t h o r i t y i n f o r m a l l y offered t o give the island to the company o u t r i g h t i f i t w o u l d agree to settle i n Jacksonville. L a t e r , i n 1973, the Port A u t h o r i t y drew up a contract offering up to 1,000 acres of B l o u n t I s l a n d to Offshore Power f o r $2,000 an acre. The price of other i n d u s t r i a l l a n d nearby was r u n n i n g f r o m 5 to 10 times t h a t figure. No-loss promises.—Written i n t o the agreement were these money-back guarantees : 1. I f OPS went broke, the Jacksonville Port A u t h o r i t y promised to r e f u n d the purchase price of the island to OPS, plus interest. 2. I n addition, i f OPS could find another buyer f o r the real estate suitable to the city, the company w o u l d be allowed to recoup out-of-pocket expenses, including site improvement, salaries, subcontracts, advertising and promotion. T o date, says A. P. Zechella, president of Offshore Power Systems, the company has spent 70 m i l l i o n dollars—a p o r t i o n of w h i c h has been paid f o r by the company's only remaining customer, a New Jersey u t i l i t y . T h e closing date f o r the l a n d deal was to have been J u l y 1, 1974, more t h a n t w o years after OPS decided to locate i n Jacksonville. There have been postponements, and the final papers were not signed u n t i l August 18 of t h i s year. Because of the delay, Offshore Power was able to p a r t i a l l y develop the island w i t h o u t paying any taxes. The company also delayed payment of i t s dredging and filling b i l l to the State of Florida. T h i s ranges f r o m less t h a n 1 m i l l i o n dollars to more t h a n 8 m i l l i o n dollars, depending on whose version is accepted— the company's or the State's. I n coming to Jacksonville, OPS officials knew they h a d a number of m a j o r problems to overcome. For example, i f the company was going to employ 10,000 people, there was a big question about j u s t where these workers would come f r o m and how they 289 would be trained. The answer was a new 11-million-dollar j u n i o r college campus—emphasizing i n d u s t r i a l vocational t r a i n i n g — t h a t is going up near downtown. Impetus f o r the project was provided by OPS and its need f o r such a facility. Floating of bonds.—Another w o r r y was whether Offshore Power would have enough money available to finish i t s building program. T o make sure there was no shortage of cash, the Jacksonville Port A u t h o r i t y — the same agency t h a t sold Blount Island to Offshore Power—offered to float 180 m i l l i o n dollars i n tax-exempt, i n d u s t r i a l revenue bonds f o r OPS. Such bonds could save the company tens of millions of dollars i n interest by getting a loan at municipal rather t h a n commercial rates. S t i l l another concern was t h a t the B l o u n t Island site was somewhat isolated f r o m the rest of Jacksonville. This would pose a major problem i n getting the projected 10,000 Offshore Power workers to their jobs every day. To meet this, the Jacksonville Transportation A u t h o r i t y — t h e road-building partner of the Port A u t h o r i t y — r e a r r a n g e d the city's bridge-building priorities. I t canceled a proposed span t h a t would have eased traffic j a m s on the already crowded downtown bridges, and began engineering studies of a bridge t h a t would cross the r i v e r w i t h i n yards of Blount Island, p r o v i d i n g easy access to the firm's site. This new bridge is to connect a residential section of Jacksonville on one side of the r i v e r w i t h w h a t is today l i t t l e more than a swamp on the other side. Business leaders hope t h a t development of B l o u n t I s l a n d by Offshore Power w i l l t r a n s f o r m the sparsely populated n o r t h bank of the St. Johns River into a booming i n d u s t r i a l area. The cost of the bridge is estimated at 137 m i l l i o n dollars. To help pay f o r it, the city i n mid-1973 raised tolls on a l l its downtown crossings f r o m 15 cents to 25 cents. The new bridge w i l l have the highest t o l l i n town—50 cents—and the lowest traffic density. I t was a f o u r t h move related to Offshore Power Systems t h a t critics charge nearly put the city into bankruptcy. I f OPS was going to be a success, i t would need customers f o r its floating nuclearpower plants. The Jacksonville Electric A u t h o r i t y — a n o t h e r of the independent agencies t h a t handle the city's business—decided a f t e r nine days of deliberation t o submit a letter of intent to buy t w o floating nuclear plants. T h i s w o u l d more t h a n double the city's generating capacity. The combined generating capacity of the t w o new u n i t s was to be 2,300 megawatts. T h i s is enough to supply roughly a m i l l i o n consumers w i t h electricity. The population of Jacksonville is about 550,000 today, and i t s generating capacity is 1,600 megawatts, w i t h another 550 megawatts scheduled to come on line i n a year. The t o t a l purchase price—including the breakwater needed to protect the floating plants—was to be 2.2 b i l l i o n dollars. The u t i l i t y ' s t o t a l assets are w o r t h 515 m i l l i o n dollars. Subsequent studies made i t clear t h a t the c i t y had no need f o r even one floating power plant. The 2.2 b i l l i o n dollars needed to pay f o r the plants was to be raised by selling municipal u t i l i t y bonds. T h i s sale would have been more t h a n twice the size of any ever offered by a city i n the U.S., according to a New Y o r k brokerage firm. Some opposition.—The d r i v e to push the purchase through w i t h o u t delay was intense and touched off the first real opposition to the city's support of OPS. One side of the issue was represented by City Councilman W a l t e r W i l l i a m s , who s a i d : " I f we can find some way to buy those generating stations, we ought to do i t , even i f i t costs a l i t t l e b i t more, because those dollars are coming back to t h i s community." Councilman F r a n k H a m p t o n took t h i s opposing v i e w : " W e should not subsidize a business j u s t because a business is coming to Jacksonville. I ' d rather j u s t take the money f r o m the taxpayers and give i t to the people." As debate heated u p i n the a u t u m n of 1974, a city official described the scene: " T h e newspapers carried m a j o r stories on the company every day and told how these plants would save Jacksonville a l l kinds of money. Billboards were bought by business leaders and plastered w i t h propaganda. I t was an amazing time." Jacksonville's newspapers, the Florida Times-Union and the Journal, are wholly owned subsidiaries of the Seaboard Coastline Railroad. The railroad, w h i c h 290 stands to gain considerably f r o m its real estate holdings i f OPS proves successf u l , supported the a t t e m p t to buy the t w o nuclear plants and so d i d the newspapers, i n banner headlines and editorials, day a f t e r day. Railroad holdings.—The Seaboard Coastline owns a vast piece of downtown. I t also holds t w o i n d u s t r i a l parks and several other t r a c t s of land—some near the B l o u n t I s l a n d area. A t t h i s point, the city's new general counsel, H a r r y Shorstein, entered the controversy. H e reviewed the proposed contract between Offshore Power and the Jacksonville Electric A u t h o r i t y and w r o t e a 69-page legal opinion laced w i t h sharp c r i t i c i s m of the agreement. M r . Shorstein concluded t h a t "reasonable and prudent public officials could not under any i n t e r p r e t a t i o n authorize" execution of the contract, and t h a t i t w o u l d be " a n a r b i t r a r y and capricious action on the p a r t of the Jacksonville Electric A u t h o r i t y B o a r d and c o n t r a r y to public interest." M r . Shorstein later t o l d U.S. News & World Report t h a t , i n h i s view, i t w o u l d have been j u s t a matter of years before the entire municipally owned u t i l i t y went b a n k r u p t t r y i n g to make payments on the t w o plants. Offshore Power, he says, could have ended u p o w n i n g Jacksonville's electric u t i l i t y . Offshore President Zechella says that, i n retrospect, there was i n his m i n d a "serious question" about whether the Electric A u t h o r i t y could have successfully floated the 2.2-billion-dollar bond issue. T h i s was not the p r e v a i l i n g v i e w at the time, however. Heated council meeting.—After M r . Shorstein's legal c r i t i q u e and several stormy sessions of the city council, the Jacksonville E l e c t r i c A u t h o r i t y was forced to let the letter of intent lapse i n the f a l l of 1974. I n the midst of the controversy, M r . Shorstein asked the F l o r i d a E t h i c s Commission to consider one of several cases of possible conflict of interest. H e requested t h a t the commission r u l e on the case of T r u e t t E w t o n , w h o was serving as c h a i r m a n of the Electric A u t h o r i t y and was an outspoken proponent of buyi n g the t w o power plants. M r . E w t o n also served as a vice president of G u l f L i f e Insurance Company, the firm t h a t was selected to provide the group-insurance policy f o r a l l OPS employees. The annual premiums f r o m a policy t h a t size could r u n more t h a n a m i l l i o n dollars a year i f Offshore Power ever employed the 10,000 people i t once said was possible. On each of the key agencies of the Jacksonville government—the Transportat i o n A u t h o r i t y , Port A u t h o r i t y and Electric A u t h o r i t y — t h e r e were appointed members whose companies were doing business w i t h OPS. The E t h i c s Commission refused to rule on any case unless the i n d i v i d u a l s involved i n the possible conflict of interest requested a judgment themselves f r o m the State body. So f a r as is known, none of the officials has requested such a public ruling. P r i o r to w i t h d r a w i n g f r o m the purchase of the t w o floating power plants, the Jacksonville Electric A u t h o r i t y contracted w i t h the old A t o m i c Energy Commission i n Washington, D.C., f o r more t h a n 4 m i l l i o n dollars' w o r t h of nuclear fuel. The Electric A u t h o r i t y paid 1.4 m i l l i o n dollars as a down payment. I t now appears l i k e l y i t w i l l lose t h a t down payment unless i t can sell the contract to another u t i l i t y . Orders canceled.—In the midst of a l l the city's problems. OPS was h a v i n g i t s own. A t one time, i t had letters of i n t e n t to buy f r o m N e w Jersey's Public Service Electric and Gas ( f o u r p l a n t s ) , f r o m Louisiana's Middle $ - \ith U t i l i t y System ( t w o p l a n t s ) , and f r o m Jacksonville Electric A u t h o r i t y v t w o p l a n t s ) . The f u t u r e looked bright, w i t h eight orders on the books. T h e n came the summer and f a l l of 1974—the recession was deepening and u t i l i t i e s across the country started canceling orders f o r a l l k i n d s of f u t u r e gene r a t i n g plants. OPS was h i t along w i t h others. Louisiana's Middle South U t i l i t y System let i t s letter of i n t e n t lapse i n mid1974. T h i s was followed i n the a u t u m n of 1974 by the Jacksonville controversy and the final lapsing of its letter of intent. Days a f t e r Jacksonville pulled out, the New Jersey u t i l i t y announced t h a t i t was going to delay a l l i t s orders by five years. T h i s l e f t Offshore Power w i t h a h a l f - b u i l t m a n u f a c t u r i n g f a c i l i t y on B l o u n t I s l a n d and no orders f o r the immediate f u t u r e . Then Tenneco, h a l f of the partnership t h a t p u t Offshore Power Systems i n business i n the first place, decided i n the early p a r t of 1975 to w i t h d r a w f r o m the j o i n t venture. 291 T h a t leaves Westinghouse as the only backer a n d P u b l i c Service E l e c t r i c a n d Gas of N e w Jersey as the only customer. M r . Zechella, OPS president, says he has prospects f o r other orders. H i s company, f o r example, is t r y i n g t o persuade t h e F e d e r a l Government t o buy f o u r floating p l a n t s a n d t h e n lease t h e m t o t r o u b l e d u t i l i t i e s . W i l l OPS go o u t of business? M r . Zechella says, " N o w a y . " Westinghouse i s c o m m i t t e d f o r t h e l o n g h a u l w i t h OPS, he m a i n t a i n s , a n d is ready to back the subsidiary i n t o t h e 1980s, even i f no other orders are received. Work force reduced.—OPS, w h i c h was to have s t a r t e d w o r k on the w o r l d ' s first floating nuclear p l a n t t h i s summer, has cut t h e p a y r o l l f r o m 700 t o 275. T h e welcome OPS got f r o m Jacksonville i n 1972 i s no longer as w a r m . Some of the people w h o w r ere l a i d off recently by t h e company h a d been d r a w n f r o m good h i g h - s a l a r y jobs i n J a c k s o n v i l l e a year ago. N o w they have j o i n e d the r a n k s of t h e unemployed, a n d there is open bitterness. T h e c i t y i s c o n t i n u i n g to b u i l d the v o c a t i o n a l education center, a n d t h e Transp o r t a t i o n A u t h o r i t y is p u s h i n g ahead w i t h i t s 137-million-dollar bridge. T h e Jacksonville E l e c t r i c A u t h o r i t y is c o n t i n u i n g i t s search f o r a buyer f o r the 1.4 m i l l i o n d o l l a r s of nuclear fuel. Jacksonville's s i t u a t i o n w a s described by one of the top managers of the Electric A u t h o r i t y : " T h e r e w a s n o t h i n g dishonest i n the c i t y ' s d e a l i n g w i t h OPS. I t w a s more a s i t u a t i o n of a l o t of businessmen—and they c o n t r o l t h i s t o w n — t h i n k i n g they h a d f o u n d the pot of gold a t the end of the r a i n b o w . " I f OPS h a d 50 customers today instead of j u s t one nobody w o u l d be quest i o n i n g a l l w e have done to help t h i s company. A s i t t u r n e d out, t h e r e w a s more r i s k t h a n w e t h o u g h t . M a y b e we've learned a lesson, b u t I doubt i t . A l o t of people s t i l l t h i n k w e should have bought those t w o nuclear p l a n t s . " [From the Rolling Stone, Mar. 25, 1976] T A L E S OF J A C K S O N V I L L E ( B y Joe K l e i n ) I t ' s a lovely a f t e r n o o n at Sawgrass, p r i s t i n e almost. T h e sun i s shining, a l i g h t breeze riffles the p a l m trees. T h e tennis courts are e m p t y a n d only a f e w stragglers m a r t h e golf course. M o d e r n c o n d o m i n i u m townhouses of a w a r d w i n n i n g design blend p e r f e c t l y i n t o the planned landscape. A n advertisement f o r F l o r i d a : T h e Good L i f e . None of t h e u r b a n hassles, no w i n t e r , no crowds. V e r y f e w people a t a l l , i n f a c t . One townhouse c l u s t e r — B e r m u d a Cove—is completely vacant. I t i s s t u n n i n g l y w h i t e a n d modern, a n a k e d s t r i n g of t w o story b u i l d i n g s — p r i c e d f r o m $65,000 t o $90,000 per u n i t — a l o n g a g e n t l y c u r v i n g road. They've been s t a n d i n g there, empty, f o r a t least a year. T h e rest of Sawgrass i s n ' t doing too w e l l e i t h e r : i t is, i n effect, a clustered, m o d u l a r ghost town. T h e saleswoman a t t h e m a i n gate, t a n n e d and blond, i s o p t i m i s t i c . E v e n t h o u g h t h e developer recently t u r n e d Sawgrass over t o the bank, " i t w a s n ' t r e a l l y a b a n k r u p t c y , " she says. T h e economy is g e t t i n g better a n d soon people w i l l start coming around. Soon, too, a l o n g tentacle of h i g h w a y w i l l s t r e t c h out f r o m t h e c i t y of Jacksonville t o i n c o r p o r a t e Sawgrass. T h e r o a d w i l l connect w i t h 1-295, a f r e e w a y a r o u n d t h e c i t y , a n d 1-295 w i l l be c l i m a x e d by t h e D a m e P o i n t B r i d g e , a massive span across t h e St. Johns R i v e r w h i c h l i n k s t h e populous south side w i t h . . . w e l l , t h e r e r e a l l y i s n ' t a l l t h a t m u c h on t h e other side. I n f a c t , most people i n t o w n h a v e n ' t t h e vaguest idea w h y anyone w o u l d w a n t t o spend several h u n d r e d m i l l i o n d o l l a r s t o b u i l d a b r i d g e t h a t goes nowhere. B u t t h e C i t y F a t h e r s ( t h e r e a r e f e w C i t y M o t h e r s i n J a c k s o n v i l l e ; i t ' s a man's t o w n ) look across the r i v e r a n d see thousands of acres w a i t i n g to be developed. L a n d f o r more i n d u s t r y , m o r e jobs, more taxes, m o r e residents f o r Sawgrass. L a n d t h a t w i l l m a k e J a c k s o n v i l l e t h e economic j e w e l of t h e Southeast, surpassing A t l a n t a . A pipe dream, perhaps. B u t i t doesn't pay t o be pessimistic—pessimism is a k i n t o socialism here. I t ' s not f o r n o t h i n g t h a t J a c k s o n v i l l e calls i t s e l f t h e B o l d N e w C i t y of the South. 292 A t the outset, i t should be noted that this is a story about the presidential campaign i n Jacksonville. Having said that, we can proceed: I t began on the morning of January 17th, 1974, w i t h the mail delivery at the Mandarin Supermarket. Joe Cury, the owner of the market, sat i n an elevated cubicle near the cash registers which serves as his office, opening the morning bills. And then he screamed, " W h a t is this?" I t was the market's electric bill, and i t had doubled—from $700 to $1500. Immediately, he called the Jacksonville Electric Authority. The young woman who answered said, i n what appeared to be a prepared statement, the increase that Mr. Cury may have noticed i n his electric b i l l was caused by an adjustment necessary because of the high price of oil. Joe wasn't satisfied. He wanted to know the exact price of oil, where i t was coming from, how many barrels. . . . The woman didn't know. For the rest of the morning Joe fumed, talking to his customers and finding that they, too, had received ridiculous electric bills. That afternoon, he jumped into his new black Lincoln Continental and went downtown to the Electric Authority headquarters and started yelling at one of the receptionists. " I want facts," he said. Joe Cury can seem rather threatening when he is angry. He isn't especially tall, but he is built like a sumo wrestler—thick neck, barrel chest, massive arms. A l l his clothes look too small. The receptionist went f o r help. She came back w i t h a middle manager of mild appearance, and Joe began to yell at him. "Who're you buying this oil from? How much is i t a barrel? Lemme see your books . . . I got a right. I ' m a citizen, ain't I ? " "We don't have to show you anything," said the middle manager. Joe was somewhat taken aback by this response. " H e actually said that," Joe recalled. " I could have killed the l i t t l e bastard. But I wasn't about to give up. That's how all this started." The t r i p to the Electric Authority had been the first overt political act of Joe Cury's life, but w i t h i n a couple of months he had formed POWER—People Outraged W i t h Electric Rates—and had filed a class-action suit demanding an open hearing on the rate increase. Soon he was at war w i t h the entire political establishment i n Jacksonville. The entire political establishment i n Jacksonville consists of a small group of businessmen who have grown rich together since World War I I . A t its center is the Florida Publishing Company, a subsidiary of the Seaboard Coast Line Industries, which produces the only two newspapers i n town. The primary function of the papers is, apparently, to tell the rest of the community how wonderf u l Jacksonville and the businessmen are. Aside from that, the businessmen all belong to the Rotary Club and the Chamber of Commerce's Committee of 100. They eat lunch together at the River Club atop the Prudential Building, play golf together and plan the future. The future, as they see it, is bright. I n 25 years, Jacksonville has grown from 300,000 people to 600,000. I t is a burgeoning financial and distribution center and has a wonderful deep-water port. The tallest building i n Florida—the Independent L i f e Insurance Company—is located downtown. Still, the city suffers f r o m a very distinct inferiority complex. I t is not as glamorous as Miami or as prosperous as Atlanta. I t is cool i n winter—sometimes, at night, i t even freezes—and the tourists whiz past on their way to the warmer weather, often remembering Jacksonville as the town w i t h the rotten smell (caused by paper mills and chemical factories). And so, over the last decade, there's been an outbreak of half-crazed macho boosterism. An effort to make Jacksonville so modern, so efficient, so enticing that corporations looking for gold along the Southern Rim can't afford to pass i t up. The first real step was taken i n 1967, when Jacksonville managed to get its suburbs to agree to become part of the city. The entire government was consolidated at that point, w i t h much of the power going to quasi-public Authorities (electric, port, transportation, downtown development) which would be controlled by, yes, that same small group of businessmen. " T h i s assured," one business leader told me, " t h a t when a corporation came to town i t could be welcomed by businessmen, not by bureaucrats waving red tape." The other effect of the consolidation was that i t absolutely prevented blacks i n the core city from taking control of the local government which, by most estimates, they would have done by 1970. "Let's face it, the consolidation prevented a black mayor," said a Chamber of Commerce staffer. " A n d now when businesses come down from the North, they're more likely to choose us than Atlanta, w i t h its black mayor and all the uncertainty that causes." 293 The payoff came i n 1972, when t w o corporate giants, Westinghouse Electric and Tenneco, announced they were f o r m i n g a j o i n t venture called Offshore Power Systems to build floating nuclear power plants, and they were considering Jacksonville as the location f o r their factory. The city went wild. The newspapers played i t l i k e the Second Coming: they even bought billboards and two-page ads which r e a d : W E S T I N G H O U S E T E N N E C O C A N B R I N G Y O U A B B I G H T E B TOMORROW . . . A N D A GREATER J A C K S O N V I L L E . W E W A N T T H E M H E B E . The local officials said they'd do everything i n their power, and more, to welcome the new industry to town. Even those who thought the idea of floating nuclear power plants was a bit bizarre were awed by the scope of Offshore Power Systems: the world's largest assembly line was promised on the banks of the St. Johns River, at least 10,000 new jobs. A t l a n t a didn't have anthing near as spectacular as that. A l l M i a m i had was old people. The unions loved the prospect of a l l those jobs. The blacks saw a way out of the ghetto. Only the environmentalists had doubts, and they could be counted on one hand. Even Joe Cury didn't oppose i t yet. Joe Cury was born i n Allentown, Pennsylvania, and arrived i n Jacksonville by pure chance. He was a rough kid, the son of a Syrian steelworker: A t age 16, he t r i e d to f a k e his way into the Marines and almost made i t . The next year he joined the Army. He was sent to Germany, where he had a lot of f u n and learned how to box. When his hitch was up, Joe decided to t r y boxing professionally. He was a heavyweight and, he says, won 27 straight fights. "Then my handlers took me to M i a m i and I was set up i n this hotel suite. M i a m i was the place i n those days, a l l kinds of w i l d broads and things going on. I lost eight straight fights; I was l i v i n g too high." Joe went into public relations of a sort. "Budweiser had j u s t come out w i t h its idea of using those horses to promote the beer, and so Ballentine decided to t r y the same thing. They had a guy called K i n g Ballentine who'd sit i n a wagon that was pulled around by horses. My friend—his name was Joe too— was K i n g Ballentine and I helped out. We traveled a l l over the place. One time we were here i n Jacksonville and I ' m i n this A-rab restaurant and the guy who owns i t says i f I really want good food, I should go to this picnic they're having. So we decided to take K i n g Ballentine to the picnic and that's where I met my wife." He was i n his mid-20s, time to settle down. H e t r i e d opening a hardware store, which didn't do well. He opened a grocery store, which did better. I t was located i n a well-to-do neighborhood and became known f o r good meats and huge open-house Christmas parties. H e grew older, raised t w o children, bought a beautiful house near his m a r k e t ; the marriage survived but only after some rocky times. He was restless. When the electric b i l l arrived t h a t morning, Joe was 45 and l i f e wasn't as exciting as i t once had been. For a while he was swept along by his anger, but gradually he found he was enjoying the political stuff. I t was a new challenge. He was becoming famous i n Jacksonville. A n d r i g h t l y so. Joe found that the Electric A u t h o r i t y was buying i t s oil f r o m a company named Ven-Fuel. Ven-Fuel had only one customer: the Jacksonville Electric A u t h o r i t y . The Jacksonville Electric A u t h o r i t y had signed a contract w i t h an escalator clause, and the price j u s t kept rising. I t was a l l very mysterious—no one was really sure who owned Ven-Fuel. Eventually the Federal Energy Administration, the I n t e r n a l Revenue Service and the Customs Service began to investigate, the city sued Ven-Fuel f o r overcharging, the company settled f o r $1.2 m i l l i o n and went out of business. A federal grand j u r y is s t i l l investigating the whole business. The Ven-Fuel case led Joe to look more closely at the JEA, and the more he looked, the less he liked it. I n one instance, the J E A wanted to build a tanker dock, and could have built i t on free public land, but chose instead to buy property held by several well-connected local businessmen. The deal was exposed by an enterprising reporter at W J X T - T V , and a grand j u r y is looking into that too. There seemed to be no end to the shady dealings. The businessmen who ran the Authorities bought and sold f r o m each other, planned new developments and made money hand over fist, often at the expense of the taxpayers. The ultimate deal was the one the J E A proposed w i t h Offshore Power Systems: i t would buy two floating nuclear plants f o r $2.2 billion. Joe Cury had nothing against nuclear power at t h a t p o i n t ; i n fact, he thought i t might lower his electric bill. 294 B u t because the J E A was involved, the deal was suspicious. He decided to check i t out. Joe Cury almost died twice i n 1974. Bad arteries, the doctors said. They took arteries f r o m his legs and put them i n his chest. They told h i m to q u i t smoking, lose weight and generally cool i t . B u t Joe couldn't cool i t — n o t when the city government was beggaring itself f o r OPS. What's more, he had begun to do some reading about nuclear energy. H e knew the safety systems at a nuclear plant had to be infallible—one mistake and an entire city could go. He knew there had been several near misses. "Those sons of bitches are dangerous," he said. " T h e insurance companies won't even cover them." Joe learned t h a t Ralph Nader was intersted i n nuclear issues. H e contacted Nader's anti-nuke group, Critical Mass, and began receiving m a t e r i a l f r o m them. H i s store took on a distinctly political t i n g e : there were stacks of Critical Mass newspapers at the cash registers and a big bulletin board w i t h clippings about the struggle against OPS. Eventually Joe convinced Nader to come to Jacksonville to speak (the Jacksonville Journal characterized Nader as one of the "perfectionists who . . . would certainly never have advised us to fight back after Pearl Harbor because war can conceivably k i l l you . . . " ) . Joe was so impressed w i t h Nader that he changed the name of his group f r o m P O W E R to Consumer Power. The grocer went out on the local lecture circuit, speaking to anyone who'd l i s t e n : the Kiwanis, the Young Republicans, the Southside Businessmen. H e spoke about the dangers of nuclear power and a l l the shady deals the local government was making to help OPS : The Jacksonville Port A u t h o r i t y ( J P A ) , for a l l practical purposes, had given OPS 850 acres of choice land on Blount Island i n the middle of St. Johns River. The floating nuclear plants would be b u i l t there and towed out to sea. The JPA also gave OPS a money-back guarantee. I f the project failed, the A u t h o r i t y would pay the company a l l expenses incurred i n building the factory. Going s t i l l f u r t h e r , the JPA agreed to float a $180-million bond issue to provide OPS w i t h cash. The Jacksonville Transportation A u t h o r i t y decided to build the Dame Point Bridge—the bridge to nowhere—to provide easier access to Blount Island. A n d the Jacksonville Electric A u t h o r i t y would buy the two floating nuclear plants f o r $2.2 billion. W h y was a l l this happening? Joe had a ready answer: the businessmen who ran the Authorities also ran their own businesses and stood to make a bundle off OPS. Wesley Paxson, chairman of the Jacksonville Transportation Authori t y , owned a companx that would do all the electrical contracting f o r OPS. T r u e t t Ewton, ther i r m a n of the JEA, would insure OPS employees through his company, Gulf L,*^., A n d there were other conflicts of interest. B u t Joe was gaining some curious allies i n addition to the h a n d f u l of environmentalists i n town. The local shipyards, not at a l l convinced there was any such thing as a floating nuclear power plant, thought the real purpose of a l l the development at Blount Island was a build a new and competitive shipyard, and smiled on the grocer's efforts. B u t i t appeared that Joe didn't need much help because OPS had begun to sink of i t s own weight. As the er lomy t u r ^ d sour and nuclear safety became a major question, the u t i l i t y companies that had been interested i n floating plants decided they didn't w a n t them after all. Soon OPS had only the orders f r o m Jacksonville and the New Jersey Public Service Electric and Gas Company, which had come up w i t h the idea of floating nuclear power plants i n the first place. Then the New Jersey u t i l i t y "postponed" its orders. A n d H a r r y Shorstein, Jacksonville's newly appointed general counsel, began to study the J E A ' s proposed contract. Shorstein found not only chat the city didn't need any more power plants, but also t h a t i f th< J E A signeu the contract i t would go bankrupt paying f o r the plants. The Jacksonville City Council decided not to approve the contract. Tenneco pulled out, leaving Westinghouse sole owner of OPS. Faced w i t h a half-completed factory and no customers, OPS l a i d off 500 employees, leaving an office staff of 311, and began to lobby i n Washington f o r a federal bailout. B u t the dream s t i l l i n k e r s i n Jacksonville: Wesley Paxson, f o r example, s t i l l wants to bMid the I s.: e Point Bridge. Wesley 1 ixson is Jig, open, friendly man who, l i k e so many others, made i t on his ov. n i n Jacksonville: " I n 1957, I started my electrical contracting company w i t h $5000 I had borrowed. H a d to hock my house, my kids, everything. B u t I made i t , and so can anyone else who tries." 295 Not surprisingly, Wesley is a Reagan man. H e believes government should leave the free enterprise system alone. Except sometimes, when the government can give the free enterprise system a l i t t l e nudge. L i k e the Dame Point Bridge. " I t ' s difficult f o r people to understand," Wesley said, f r u s t r a t e d . "They look across the r i v e r and see n o t h i n g there. I look over there and see jobs, taxes. The k i n d of g r o w t h t h a t can help a community. "These people who oppose g r o w t h are basically socialistic, I t h i n k . The same k i n d of people who w a n t to break up big business and let the employees r u n the companies and do a l l this consumer stuff." Wesley paused a moment, " N o w some of t h a t is okay, m i n d you. B u t you have to d r a w a line." B u t this bridge. Wesley Paxson, don't you own land on the other side t h a t w i l l increase i n value i f i t is built? " Y o u know where my land is? Ten miles f r o m the bridge." A n d don't your friends—including Bry.-mr Skinner, the elm inn,111 of the Reagan campaign i n Jacksonville—own land there too? " W e l l , sure, some of my friends own land there. B u t Jacksonville is a small town and . . . well, so what? I f a business guy puts his money up and takes his chances, w h y shouldn't he make a profit? Some people j u s t can't see the logic." I n 1975, Joe Cury decided to r u n f o r mayor. Then, lie said, he realized t h a t he'd have to borrow so much to make the race t h a t he might lose everything, even his market. So he decided to r u n f o r city council. Soon after, he began getting phone calls. F i r s t , they offered to buy h i m out of the race. Then they offered to k i l l him. Then they offered to arrange an auto accident f o r his daughter. Then someone smashed i n the f r o n t of his store. "These weren't kooks," he said. "These wTere educated, N o r t h e r n voices on the phone. L i k e lawyers." When Joe Cury gets excited, he tends to exaggerate a bit and even his closest friends doubted t h a t Joe's l i f e was i n danger. I n fact, Joe was close to becoming a complete laughingstock when he received t w o more phone calls. The first came f r o m Charles Charles, assistant chief of police i n A l l e n t o w n and an old f r i e n d of Joe's. He said the Pennsylvania Crime Commission had made a f o r m a l request f o r Joe's record. " A r e you i n some trouble down there?" Chief Charles asked. The next c a l l came f r o m Mrs. I v y Ogg, a customer at the market and a political supporter. She wanted to k n o w i f Joe had ever been a holdup man. " W h o told you t h a t ? " Joe asked. I v y Ogg said she'd received a phone call f r o m her good f r i e n d B i l l Staten, the vice-president of OPS. A t about the same time, the local media and several politicians received m a t e r i a l smearing Joe Cury. As i t happened, Joe d i d have a c r i m i n a l record: a f t e r he l e f t the A r m y and before he started boxing. Joe and a f r i e n d decided to go to A t l a n t i c City f o r a bash. They "borrowed" $1200 f r o m the friend's father, wrho owned a drive-in movie, and took off. The friend's f a t h e r had them arrested when they got home. They pleaded g u i l t y to a misdemeanor and were fined $100. When asked by a local T V station how he'd gotten hold of Joe Cury's criminal record, W i l l i a m Staten (who, i n addition to being I v y Ogg's f r i e n d , is also a former F B I agent) said the i n f o r m a t i o n came to his office i n an unmarked envelope. He was later asked to t e l l the story i n greater detail to a grand j u r y , w h i c h is s t i l l investigating the incident. Joe Cury n a r r o w l y lost the election. Someone should probably take pains to see t h a t W i l l i a m Staten and all his personal effects are preserved f o r the enlightenment of f u t u r e generations. He is a classic figure of mid-century A m e r i c a : the businessman. Not t h a t there is any one quality about h i m t h a t stands out or t h a t he has any special s k i l l or says a n y t h i n g p a r t i c u l a r l y memorable. He is a lawTyer, public relations man, former F B I and I R S man. H e is also finance chairman of President Ford's campaign i n Florida. He's a nice guy who, l i k e the president, exudes an air of easygoing athleticism. H e is a man w i t h o u t roots. H e w i l l go where Westinghouse sends him, sell w h a t Westinghouse asks h i m to sell, and believe i n the product to boot. He believes, f o r example, i n floating nuclear power plants. T h i n k s t h e y ' l l be "good f o r the ecology." H e can see i n the distant f u t u r e a day when the A t l a n t i c , G u l f and Pacific coasts w i l l be ringed w i t h floating nuclear reactors a f e w miles offshore. H e doesn't w o r r y about safety. There's a m i n i a t u r e floating nuclear p l a n t 71-787—7G 20 296 i n a t a n k of water over at the U n i v e r s i t y of F l o r i d a , and i t w o r k s j u s t fine. They've crashed m i n i a t u r e o i l tankers i n t o the thing, h u r l e d m i n i a t u r e t i d a l waves a t i t and i t always comes out okay. H i s office. There is a large poster of John W a y n e dressed as a cowboy and w a v i n g a six-shooter. There is a smaller picture of Roger Staubach dressed as a Dallas Cowboy and w a v i n g a football. There are golf trophies and pictures of foursomes. There's a f r a m e d letter f r o m the president and pictures of the f a m i l y . S t i l l , the office is cold and efficient. W h i t e and chrome, w i t h black indoor-outdoor carpeting. H e loves his country. H e t h i n k s the free enterprise system is great and shouldn't be tampered w i t h . " Y o u know, you m i g h t say t h a t $5000 is a lot f o r a car nowadays. B u t i f i t weren't f o r big companies l i k e F o r d and GM, you'd be paying a l o t more t h a n t h a t . B i g business provides the jobs, pays the taxes, developes the new technologies. . . ." H e t h i n k s President Ford's support w i l l come f r o m average, moderate guys l i k e him. A n d there are plenty of them i n Jacksonville. I n the past decade or so, the entire south side of the city has been overrun by young B i l l Statens. They w o r k f o r large corporations and live i n apartment complexes and t r a c t houses strategically placed along wide, flat boulevards i n between the 7-Elevens, the gas stations and steak pubs w i t h salad bars. B i l l Staten lives i n a grown-up version of that—Deerwood, a p r i v a t e community of expensive homes and recreational facilities. H e loves Jacksonville. I t ' s the f r i e n d l i e s t t o w n the company has sent h i m to. " T h e business community, of course, has been great. B u t the city government has been cooperative too, and Mayor H a n s Tanzler is j u s t the greatest. They accept you very quickly here. There's no real race problem. The unions are cooperative—I'd say Johnny Bowden of the B u i l d i n g Trades is j u s t about the best union leader i n the country." The more he thought about i t , the more ridiculous segregation seemed. I t wasn't good f o r a g r o w i n g city l i k e Jacksonville. W i l d mobs r u n n i n g around t o w n w i t h ax handles was not the sort of image the city needed. W h a t ' s more, segregation cost money—you had t o b u i l d t w o of e v e r y t h i n g : t w o h i g h schools, t w o w a t e r fountains, f o u r bathrooms. I t was bad business. I t was not progressive. Johnny became a voice of moderation i n t o w n and now, i n 1976, he s t i l l spoke softly and calmly. Just l i k e the man he was supporting f o r president, J i m m y Carter. Even though he wasn't sure Carter w o u l d win, Johnny l i k e d the man's style. I t was courtly, i t was progressive, i t was New South. Johnny is one of the more prominent Carter supporters i n town. Most of the others seem t o be on the f r i n g e of the local establishment—young teachers, lawyers, other professionals, blacks. R a t i o n a l people, people w h o value quiet and compassion leavened w i t h reason, people who don't l i k e to make waves. J i m m y Carter's wife, speaking to a group of Jacksonville women a t an elegant l i t t l e reception one evening, h i t the n a i l on the head: she said her husband w o u l d allow people to " t r u s t the government" once again. Johnny Sanders, s i t t i n g i n his office, painted a p i c t u r e of a Jacksonville where a l l was harmonious, where government was trusted. " I can go to a Chamber of Commerce meeting," he said, " a n d sit between W i l l i a m Staten of OPS and John Bowden, the head of the construction unions, and a l l three of us can get along j u s t fine. I go t o the C i t y Council and sit up there w i t h Rodney H u r s t , a black man. I n fact, Rodney was the leader of the black sit-ins on A x - H a n d l e Saturday. That's how f a r we have come." August 27th, 1960, is s t i l l very clear i n Rodney H u r s t ' s mind. H e remembers w a l k i n g t o w a r d H e m m i n g P a r k and seeing the rednecks gathering, k n o w i n g there w o u l d be trouble. H e remembers j o i n i n g his f r i e n d s a t the l u n c h counter at Grant's, as they'd done at other lunch counters, w a i t i n g u n t i l i t was absolutely clear they wouldn't be served, then g e t t i n g up to leave. The mob charged as soon as the demonstrators l e f t the store. Grant's employees locked the doors behind them. They were trapped outside. H e remembers the Jacksonville police j u s t standing there. H e remembers the sound the ax handles made. Rodney H u r s t was a 16-year-old anathema when t h a t happened; now he i s 31 and a c i t y councilman. H e w o r k s f o r the P r u d e n t i a l L i f e Insurance Company. W h i t e f o l k s l i k e to point to Rodney H u r s t as an example of how m u c h the c i t y has changed, a distinction he can l i v e w i t h o u t . 297 Still, He couldn't resist t a k i n g me to lunch at the J u r y Room, a p r i v a t e club across f r o m City H a l l where, w i t h his the only black face i n the room, he t r o t t e d out the old rhetoric. "There's only the facade of togetherness here. The black community is only inches away f r o m a m a j o r disturbance. Conditions i n the ghetto are worse t h a n ever." The words flowed e a s i l y ; he obviously enjoyed the sound of " c o m m u n i t y " and " g h e t t o " — i t made h i m feel like the good old days. B u t wasn't he adding to the facade? Wasn't he R a c i a l H a r m o n y E x h i b i t A? B u t sometimes, though, being t h a t was important. Black community support was crucial, f o r example, i n l u r i n g Offshore Power Systems to town, and Rodney defended i t vigorously. " T o hell w i t h ecology," he said. " I care about human ecology. M y people need jobs. OPS had j o b s ; they guaranteed t h a t 23% of their employees w o u l d be black." Still, he wasn't entirely comfortable w o r k i n g the same side of the street as the local power brokers. " I ' l l confront them when I have to," he said. A n d w h a t i f they ignored him? " I ' l l take i t to the streets . . . I ' l l call a press conference." There have been problems, though. The business w i t h Joe Cury was one of them. " I figured you'd ask about t h a t , " he smiled, not offended. " B u t my lawyers say it's inappropriate to comment about t h a t u n t i l the g r a n d j u r y is done w i t h i t . " John Bowden's B u i l d i n g Trades Council represents only about 5000 of the 30,000 trade unionists i n Jacksonville, but he is the labor leader the local papers quote because he is p a r t of the team (as opposed to J i m Deaton of the A F L CIO, who has been k n o w n to disagree w i t h the local establishment). A r o u n d town, John Bowden is k n o w n as " t h e establishment's Joe C u r y " because he's sometimes embarrassingly outspoken. John is rather d i m i n u t i v e . L i k e Cury, he's a f o r m e r boxer and he has a battered nose to show f o r 210 professional bouts. He originally became involved i n construction wTork to help b u i l d his body f o r the ring, but remained an ironworker when his boxing career faded. H e looks very distinguished now, s i t t i n g i n the electrical workers' union hall. He is wearing a three-piece pin-stripe suit, a gold t i e clasp, a gold pocket watch w T ith a gold chain. H e is also wearing a gold r i n g w i t h w h a t appear to be diamond insets, and he's smoking a big f a t cigar. " D i d you ever," John Bowden asked, "meet a labor leader w h o was as popu l a r w i t h the Chamber of Commerce, the contractors and the city government as I am? There isn't a person i n this p a r t of the country t h a t doesn't know my name." John Bowden hews to the p a r t y line i n Jacksonville and then some: " I ' v e been so successful because I ' v e taken a realistic approach to the labor situation. No strikes. No w o r k stoppages. W e w a n t to see this community grow." " T h e environmentalists are a dangerous group. The Audubon Society w i l l b r i n g this country to its knees." " R a l p h Nader is someone we could probably do w i t h o u t . They say there's a fine line between a genius and a n u t and he's r i g h t on i t . " "OPS w i l l be a great t h i n g f o r Jacksonville." H i s man f o r president is Henry "Scoop" Jackson. W h e n Jackson came to town, Bowden arranged a big labor r a l l y and gave h i m some good advice. " H o l d i t to about 15 minutes, Senator," he said. "They m i g h t get a l i t t l e bored a f t e r t h a t . " Scoop was a big success and John Bowden takes some credit f o r i t : " I t h i n k we l i t a fire under h i m . " John Bowden t h i n k s Jackson w i l l do w e l l i n the p r i m a r y , but is w o r r i e d t h a t much of the rank and file would vote f o r Wallace. " Y o u see, these rank and file guys don't take the t i m e to understand what's going on i n the world, so they can be led on easily." A cool, breezy day i n January. F o r the first time, Offshore Power Systems has i n v i t e d the community leaders of Jacksonville to inspect i t s B l o u n t I s l a n d site and have some lunch. OPS is to announce the beginning of construction on a giant crane f o r the world's largest assembly line. I t is uncertain w h y OPS is doing this, since there s t i l l aren't any immediate orders f o r floating nuclear power plants, but the suspicion is t h a t the company wants to prove there's s t i l l l i f e i n the corpse a f t e r a year of i n a c t i v i t y . 298 So the civic leaders come. About 200 or 300 of them c r o w d i n t o an absolutely vacant b u i l d i n g on desolate B l o u n t Island. John Bowden is there, as are Johnny Sanders, Rodney H u r s t , Wesley Paxson and, of course, B i l l Staten. The room is filled w i t h prosperous-looking men (there are t w o women, not c o u n t i n g w a i t resses) i n patent-leather shoes discussing mergers, interest rates and golf. A n impressive show of force on the p a r t of the establishment. I n addition to "consolidating" i t s suburbs i n t o the core city, i t appears Jacksonville has consolidated i t s various w a r r i n g factions—business, labor, blacks, reformed good ol' boys. Representatives of f o u r of the five active presidential campaigns—Ford, Reagan, Jackson, Carter—are present. B u t where are the Wallace people? I t ' s certainly curious. Everyone i n t o w n seems to agree t h a t Wallace w i l l sweep Jacksonville i n the p r i m a r y , as he d i d last time. B u t none of the organized factions seem to support h i m ; i n fact, they disdain him. H e represents everything that Jacksonville has been s t r i v i n g to overcome. H e is Old South, l i e has more support f r o m elected officials i n Boston t h a n he does i n Jacksonville. A f t e r a buffet lunch, the civic leaders gather around to listen to speeches. Mayor Tanzler says a prayer, t h a n k i n g God f o r OPS. Then he says, " T h e r e are those who have criticized this community's welcoming of OPS. There are those who chose to believe that OPS was a mirage. B u t I ' m here to say t h a t i f any other company wants to make the same k i n d of commitment to Jacksonville, I ' l l be out f r o n t shining their shoes, s t r e w i n g rose petals i n t h e i r p a t h and kissing them on both cheeks. . . ." A n hour later, the b u i l d i n g is locked and completely empty again. The gun on the counter of Joe Cury's l i t t l e office looked l i k e a toy, but i t was very real. Joe took the day's receipts and put them i n t o a b r o w n paper bag along w i t h the gun. H e was ready to go home. " B y the way, Joe," I asked. " W h o are you supporting f o r president?" " W h o am I supporting f o r president?" "Yeah." " I ' m v o t i n g f o r George Wallace," he said, laughing. " I w a n t to shake those bastards up." [ F r o m the Columbia Journal BOOSTERS IN THE NEWSROOM : THE Review] JACKSONVILLE CASE ( B y Sean Devereux) The American business man is generous to a fault, demand of all teachers and lecturers and journalists: them our good money, they've got to help us by selling it up for rational prosperity! but one thing he does if we're going to pay efficiency and whooping ( E x c e r p t f r o m George S. Babbitt's address at the dinner of the Z e n i t h Real Estate Board, i n Sinclair Lewis's Babbitt) Jacksonville, F l o r i d a ( p o p u l a t i o n : 570,000) has long enjoyed the r e p u t a t i o n of being a city i n which t r a i n s don't h i t cars, cars h i t trains. T h i s b i t of local color dates back to 1S97, when F l o r i d a magnate H e n r y Flagler, vexed a t being accused by Jacksonville's Florida Times-Union of f a l s i f y i n g records of r a i l r o a d land holdings to dodge taxes, silenced the paper by buying up i t s parent company, the F l o r i d a Publishing Company. A b r u p t l y , t r a i n s and r a i l r o a d men could do no w r o n g — a t least not i n Jacksonville. Control of F l o r i d a Publico, as the firm is i n f o r m a l l y called, and thus of the Times-Union, has remained i n the hands of r a i l r o a d men ever since. The present owner is Seaboard Coast L i n e Industries, one of Florida's largest companies, w h i c h also controls t h e merged A t l a n t i c Coast L i n e and Seaboard Railroads, as w e l l as the L o u i s v i l l e and Nashville Railroad. Workers i n F l o r i d a Publico's photoengraving shop recall t h a t black i n the fifties they had to a i r b r u s h the words " A t l a n t i c Coast L i n e " f r o m the sides of boxcars i n train-wreck photographs on the r a r e occasions such photographs were run. As late as 1973 a Times-Union police reporter who covered an accident i n v o l v i n g a Seaboard Coast L i n e t r a i n had to telephone SCL'S assistant public-relations director and read the story to h i m f o r approval before the city editor would accept it. 299 A s t h e c i t y ' s o n l y m o r n i n g paper, the T i m e s - U n i o n has a h e f t y c i r c u l a t i o n (148,000) a n d no r e a l competition. F l o r i d a Publico bought up its sole local r i v a l , the a f t e r n o o n J a c k s o n v i l l e J o u r n a l ( c i r c u l a t i o n : 60,400) back i n 1959. J a c k s o n v i l l e is also the c i t y w h i c h , i n 1972, was selected by the Westinghouse E l e c t r i c C o r p o r a t i o n a n d Tenneco, Inc., to be the home of a m a j o r new ind u s t r y — t h e c o n s t r u c t i o n of floating nuclear power plants, designed to be moored i n t h e ocean to generate power f o r coastal cities i n the U.S. a n d elsewhere. A n d thereby hangs a tale. Only a p a r k i n g l o t separates the Seaboard b u i l d i n g f r o m the newspapers' office b u i l d i n g s i n d o w n t o w n Jacksonville. I t took h a l f a year, however, f o r the power p l a n t t o move f r o m the conference room of the Seaboard b u i l d i n g to the pages of Jacksonville's t w o dailies. The Seaboard Coast L i n e R a i l r o a d Company was the p r i m e mover i n induci n g Offshore Power Systems, the j o i n t Westinghouse-Tenneco venture, to locate i n Jacksonville. I n J u l y 1971, E. I I . " B u d " W h i t t a k e r , SOL'S manager of indust r i a l development, met members of Westinghouse's special projects d i v i s i o n i n Tampa. They w e r e l o o k i n g f o r a deep-water h a r b o r site f r o m w h i c h they could l a u n c h floating nuclear plants, w h i c h w o u l d then be towed to permanent sites. W h i t t a k e r was confident t h a t i n Jacksonville they w o u l d find the site they were l o o k i n g f o r . T h r e e Westinghouse men a r r i v e d i n late August. F r o m the s t a r t , secrecy was the p o l i c y — a Westinghouse i>olic.v t h a t Jacksonville's public leaders, i n c l u d i n g F l o r i d a Publico board members a n d newspaper executives, e n t h u s i a s t i c a l l y adopted. Thus, on A u g u s t 26, when W h i t t a k e r ' s assistant J i m W h i t e i n t r o d u c e d t h e site scouts to Bob Peace, the m a n a g i n g d i r e c t o r of the J a c k s o n v i l l e P o r t A u t h o r i t y , he f o l l o w e d t h e i r i n s t r u c t i o n s and i d e n t i f i e d t h e m s i m p l y as representatives of " a reliable company." Only a f t e r Peace consented t o keep the i n f o r m a t i o n a secret d i d the Westinghouse men i d e n t i f y t h e i r employer a n d describe t h e i r plans f o r a m u l t i m i l l i o n - d o l l a r p l a n t . S h o r t l y a f t e r t h i s meeting, V i r g i l Fox, executive d i r e c t o r of the Jacksonville A r e a Chamber of Commerce's C o m m i t t e e of 100, the chamber's i n d u s t r i a l development task force, was let i n on the secret. Then, F o x recalled in a recent i n t e r v i e w , "because of the size of t h i s project and because of the necessity to get the f u l l support of the c i t y , " he a n d Peace decided " t o confidentially a l e r t a number of key people about t h i s p r o j e c t . " The number was r a t h e r large. " T h e m a y o r , the president of the c i t y council, the c h a i r m a n of The Committee of 100, the president of F l o r i d a J u n i o r College, several large key i n d u s t r i a l employers, a n d the governor w e r e alerted," Fox said. F l o r i d a Publico's publisher, Robert Feagin, a n d executive editor J o h n W a l t e r s were also let i n on the secret. " B o t h Bob and J o h n are i n The Comm i t t e e of 100," W h i t t a k e r p o i n t s out. " T h e y k n e w about the p r o j e c t f r o m the beginning." So, too, d i d the o v e r w h e l m i n g m a j o r i t y of F l o r i d a Publico's then t h i r t e e n - m a n board of directors, eleven of w h o m were members of t h e chamber's C o m m i t t e e of 100. So, too, d i d at least one F l o r i d a Publico reporter—Times-Union business e d i t o r George W a c h e n d o r f . " Y o u k n e w George could keep a secret, i f George gave y o u his w o r d , " explains Ross Legrand, an assistant manager of i n d u s t r i a l development f o r SCL. V i r g i l F o x , another a d m i r e r of W a c h e n d o r f ' s a b i l i t y t o keep a news story to h i m s e l f , added i n an i n t e r v i e w : "Once i n a great w h i l e we [ s t a f f members of T h e Committee of 1001 level w i t h the media. George and I discussed Westinghouse-Tenneco. I d i d n ' t discuss i t w i t h r e g u l a r reporters. I h a d confidence i n George. George k n e w a l l along." Publisher Feagin, asked to comment on the newspapers' six-months' silence on a story t h a t t h e T i m e s - U n i o n was l a t e r to c a l l i t s " S t o r y of the Y e a r , " replied t h a t " a p r e m a t u r e announcement here m i g h t have t i p p e d our h a n d to Portsm o u t h [ V i r g i n i a , w h i c h Westinghouse-Tenneco wTas also considering as a site i n t h e f a l l of 1971]. W e h a v e to be very c a r e f u l of g i v i n g a i d a n d c o m f o r t to t h e enemy—not enemy, r e a l l y , h u t a i d a n d c o m f o r t to another c o m m u n i t y . " V i r g i l F o x , m e a n w h i l e , defends the news blackout on the g r o u n d t h a t "publici t y muddies t h e waters. A c o m m u n i t y w i l l go crazy i f people t h i n k a b i g p l a n t is c o m i n g there. M o s t of the t i m e a company w i l l look at several dozen locations. Westinghouse looked at over fifty—fifteen or so i n F l o r i d a . The corporations a r e good citizens. They don't wTant a whole l o t of t o w n s g e t t i n g excited over n o t h i n g . " W h i l e Jacksonville's t w o dailies obligingly w i t h h e l d the OPS story, t w o P o r t s m o u t h , V i r g i n i a newspapers—the L e d g e r - S t a r a n d T h e V i r g i n i a n - P i l o t — 300 broke i t . A n October 8, 1971 a r t i c l e i n T h e V b r g i n i a r P i l o t , f o r example, quoted a l o c a l source as saying t h a t P o r t s m o u t h w a s being considered as a possible OPS site a n d t h a t " J a c k s o n v i l l e , F l o r i d a , i s m a k i n g a s t r o n g p i t c h f o r the [ O P S 1 p l a n t a n d t h a t Savannah, Georgia, i s i n t e r e s t e d . " THE TBAP Seaboard Coast L i n e R a i l r o a d , t h e p r i m e m o v e r i n b r i n g i n g Offshore P o w e r Systems to Jacksonville, w a s k e p t o u t of t h e s t o r y t h a t F l o r i d a P u b l i c o rep o r t e r s told. George W a c h e n d o r f — t h e n t h e T i m e s - X J n i o n business e d i t o r , n o w i n business f o r h i m s e l f — d o e s n o t h e s i t a t e t o e x p l a i n w h y he d i d n o t m e n t i o n the r a i l r o a d i n h i s stories. " T h e r a i l r o a d owns t h e paper, y o u k n o w . Some of m y sources w e r e S C I people. I was p r o t e c t i n g m y sources. I l e a r n e d t o stay off t h e r a i l r o a d as m u c h as possible." W a c h e n d o r f described one object lesson. One day he t h o u g h t h e w o u l d w r i t e a n a r t i c l e about r a i l r o a d f r e i g h t rates. H e discussed the idea w i t h h i s editors. H i s discussions l e f t h i m w i t h the u n d e r s t a n d i n g t h a t Seaboard c o u l d n o t p r o f i t by such a p u b l i c e x a m i n a t i o n : i f h i s a n a l y s i s d e t e r m i n e d t h a t Seaboard's f r e i g h t r a t e s w e r e h i g h , readers w o u l d conclude t h a t Seaboard w a s g r e e d y ; i f they w e r e l o w , readers w o u l d conclude t h a t the story h a d been published t o p l u g Seaboard. " I t ' s t h e t y p i c a l t r a p y o u get i n t o on t h e T i m e s - U n i o n , " s a i d Wachendorf. T h e P o r t s m o u t h papers scooped Jacksonville's by a f u l l five months. ( I n a speech d e l i v e r e d i n 1973, V i r g i l F o x said of the V i r g i n i a coverage: " T h i s w a s of considerable annoyance to t h e Westinghouse-Tenneco people." H e a d d e d : " T h e y w e r e h i g h l y c o m p l i m e n t a r y of us a n d our news media f o r the d i s c r e t i o n t h a t w e h a d used i n d e a l i n g w i t h them. O u r news media deserved t h i s compliment. I n spite of t h e f a c t t h a t most of t h e m k n e w about t h i s p r o j e c t , they respected o u r request to r e m a i n silent. They w e r e g r e a t ! " ) F l o r i d a Publico's news managers d i d not release the story u n t i l M a r c h 9, 1972; GIANT INDUSTRY BID i s BARED, t h e T i m e s - U n i o n stated i n banner headline. T w o a n d a h a l f m o n t h s l a t e r , the decision w a s made. On M a y 25, D . C. B u r n h a m , c h a i r m a n of the b o a r d of t h e Westinghouse E l e c t r i c C o r p o r a t i o n , a n d N. W . F r e e m a n , c h a i r m a n of the board of Tenneco, Inc., flew to J a c k s o n v i l l e t o announce p u b l i c l y t h a t the $200-million OPS p l a n t w a s d e f i n i t e l y c o m i n g t o Jacksonville. W h e n the t w o b o a r d c h a i r m e n emerged f r o m the R o b e r t Meyer H o t e l , w h e r e they h a d been guests of honor at a banquet sponsored by t h e J a c k s o n v i l l e A r e a Chamber of Commerce, they saw copies of the J a c k s o n v i l l e J o u r n a l h e a d l i n i n g t h e i r announcement a l r e a d y i n t h e racks. " T h i r t y to f o r t y seconds a f t e r o u r news conference a n n o u n c i n g i t ! " m a r v e l e d Tenneco c h a i r m a n Freeman. " T h i s i s the f a s t e s t a c t i o n I h a v e ever seen by a newspaper." Jacksonville's t w o d a i l i e s could move very f a s t , w h e n they chose to. D u r i n g the i n t e r v e n i n g t w o a n d a h a l f months, F l o r i d a Publico's a l l - o u t support f o r a p r o j e c t t h a t promised t o b r i n g jobs and money t o J a c k s o n v i l l e led t o a b u r s t of boosterism t h a t m i g h t h a v e come s t r a i g h t f r o m t h e pages of B a b b i t t . F r o m the t i m e the p u b l i s h i n g firm's t w o dailies began s e l l i n g Jacks o n v i l l e on OPS ( a n d selling Westinghouse-Tenneco on J a c k s o n v i l l e ) u n t i l Westinghouse-Tenneco made i t s decision, t h e newspapers repeatedly suppressed news o u t r i g h t ; they repeatedly k e p t a r g u m e n t s advanced by c r i t i c s of t h e p r o j ect o u t t h e headlines a n d b u r i e d t h e m so deep t h a t o n l y t h e most dogged reader could u n e a r t h t h e m ; a n d they resorted t o a c o u n t e r p u n c h t e c h n i q u e : b l a s t i n g t h e opponent's p o s i t i o n before s t a t i n g i t . B e f o r e c i t i n g specific instances, i t m i g h t be w e l l t o look i n t o one m y s t e r y : w h y d i d F l o r i d a Publico executives break t h e s t o r y w h e n they d i d ? P u b l i s h e r F e a g i n ' s e x p l a n a t i o n is t h a t u n t i l M a r c h 9 t h e p r o j e c t " w a s p u r e l y speculative." I n a n i n t e r v i e w , he said he c o u l d n o t recall, t h o u g h , w h a t e a r l y - M a r c h developments made i t any less speculative. V i r g i l F o x of T h e C o m m i t t e e of 300 a n d W h i t t a k e r a n d L e g r a n d of the S C I agree t h a t t h e story w a s b r o k e n on M a r c h 9 f o r only one r e a s o n ; the F l o r i d a House C o m m i t t e e on F i n a n c e a n d T a x a t i o n was due t o consider a t a x - b i l l amendment, i n t r o d u c e d by a Jacksonv i l l e legislator, t h a t w o u l d exempt i n s t a l l a t i o n s costing more t h a n $ 1 m i l l i o n f r o m p a y i n g sales t a x on heavy equipment. A s F o x e x p l a i n e d i n a n i n t e r v i e w , " I t w a s too t o u g h g e t t i n g a t a x break f o r a n anonymous company. I t [ t h e OPS story 1 w o u l d h a v e been k e p t under w r a p s even longer, somewhat longer, i f i t h a d n ' t been f o r the t a x p r o b l e m . " 301 T h e r e i s considerable evidence to support t h i s view. I n h i s f r o n t - p a g e M a r c h 9 story i n t h e T i m e s - U n i o n , f o r example, business e d i t o r W a c h e n d o r f w T arned readers t h a t i n order t o m a k e sure the g i a n t i n d u s t r y came t o Jacksonville, the business c o m m u n i t y w o u l d have t o p r o v i d e " a f a v o r a b l e c l i m a t e . " H e t h e n dropped a heavy h i n t , describing F l o r i d a ' s sales t a x o n heavy equipment as " a possible b a r r i e r to the p l a n t ' s l o c a t i o n here." V i r g i n i a levied n o such t a x , he noted. On M a r c h 10 the J o u r n a l published a n e d i t o r i a l w r hich asserted t h a t f a i l u r e t o give t h e OPS p r o j e c t a t a x break " c o u l d p r o v e t o be the d e c i d i n g f a c t o r t h a t w o u l d rob us of t h i s magnificent o p p o r t u n i t y , t h e type of i n d u s t r i a l enterprise t h a t f e w cities w 7 ould dare d r e a m of possessing." N e w s on M a r c h 11 t h a t the house c o m m i t t e e h a d voted d o w n t h e tax-law T amendment b i l l d i d nothi n g to s t i l l the c l a m o r on t h i s issue i n F l o r i d a Publico's papers. Between M a r c h 9 a n d M a r c h 15, t h e t w o newspapers r a n , between them, eight news stories a n d t w o e d i t o r i a l s describing t h e F l o r i d a t a x l a w as a c r i t i c a l f a c t o r i n t h e choice between J a c k s o n v i l l e a n d P o r t s m o u t h . ( A n e d i t o r i a l i n the P a l m B e a c h P o s t , a f t e r c a l l i n g a t t e n t i o n t o " t h e c u r r e n t semihysteria being w T hipped u p i n Jacksonville," suggested t h a t i f the citizens of t h a t c i t y w e r e so a f r a i d t h a t OPS w o u l d go a w a y to V i r g i n i a i f the p r o j e c t w7ere not g i v e n a t a x break, they m i g h t consider a m e n d i n g t h e i r l o c a l c o u n t r y p r o p e r t y - t a x schedule to t a k e u p the slack. T h i s a l t e r n a t i v e w a s n o t voiced i n the F l o r i d a Publico papers.) T H E HORSE RACE A t a J a c k s o n v i l l e press conference h e l d on M a r c h 23, W i l l i a m Staten, a manager i n Westinghouse's special p r o j e c t s division, s a i d : " W e hope t h i s f p l a n t ] is to be located i n Jacksonville. B u t the choice of sites is s t i l l a horse race. I t could be J a c k s o n v i l l e or i t could be P o r t s m o u t h . " J o u r n a l copy editors t u r n e d Staten's statement i n t o a h e a d l i n e : " W e s t i n g h o u s e : P l a n t Between J a c k s o n v i l l e a n d P o r t s m o u t h . " A n d t h e horse-race theme w a s w r i t t e n t i g h t l y i n t o the d r a m a w h i c h F l o r i d a Publico's papers w o u l d construct f o r t h e i r readers f o r the n e x t t w o months. H o w genuine was the race? I n a free-lance, liow-to-bring-a-w T hopping-industry-to-your-home-town article, w h i c h appeared i n a business p u b l i c a t i o n i n 1973, George W a c h e n d o r f w r o t e : Basic S t r a t e g y — T h e o r i g i n a l announcement f r o m OPS said t h a t J a c k s o n v i l l e was one of t w o sites being considered f o r t h e p l a n t . . . . T h e w T riter personally feels t h a t J a c k s o n v i l l e w a s the p r i m e choice r i g h t f r o m t h e beginning, b u t the element of c o m p e t i t i o n no doubt d i d m u c h i n i n t e n s i f y i n g the Jacksonville comm u n i t y e f f o r t f o r OPS. . . . A p p a r e n t l y , Westinghouse-Tenneco h e l d u p P o r t s m o u t h as a t h r e a t , not a novel wray of w r i n g i n g concessions f r o m c i t y f a t h e r s — a n d F l o r i d a Publico executives, editors, a n d reporters accepted t h e i r version as gospel. Ross L e g r a n d of the r a i l r o a d says now t h a t there never was any real suspense: " T h e y [Westinghouse-Tenneco] w e r e only interested i n P o r t s m o u t h i f i t f e l l dead i n J a c k s o n v i l l e . " V i r g i l F o x a n d J. J. D a n i e l agree. D a n i e l , c h a i r m a n of the executive c o m m i t t e e of a l a r g e F l o r i d a r e a l estate firm a n d a p r o m i n e n t member of F l o r i d a Publico's board of d i r e c t o r s a n d of t h e chamber of commerce, recalls being t o l d by A . P. Zechella, t h e n t h e manager of Westinghouse's special p r o j e c t s d i v i s i o n a n d n o w president of Offshore P o w e r Systems, t h a t P o r t s m o u t h w a s a d i s t a n t second choice, a back-up only i f plans w e n t r a d i cally a w r y i n Jacksonville. " P o r t s m o u t h d i d n o t w r ant t h e m [WestinghouseTenneco] there," D a n i e l recalls, a l t h o u g h he does n o t r e c a l l t h e reason. " T h e papers here let t h e m k n o w they were w a n t e d . " F o x supplies a reason. E a r l y on, he wTas t o l d t h a t the c o n c e n t r a t i o n of indust r y i n t h e P o r t s m o u t h a r e a — i n c l u d i n g Tenneco's s h i p y a r d s there, the count r y ' s largest—posed a l a b o r problem f o r a p r o j e c t t h a t w o u l d e v e n t u a l l y r e q u i r e a w o r k f o r c e of 14,000. One of the first men i n J a c k s o n v i l l e t o k n o w about the p r o j e c t F o x adds t h a t he never regarded P o r t s m o u t h as a serious t h r e a t to Jacksonville's chances f o r the prize i n d u s t r y . T h e impression created by F l o r i d a Publico coverage of t h e OPS story was t h a t t h e people of P o r t s m o u t h were also caught up i n the suspense a n d excitem e n t of t h i s m u l t i m i l l i o n - d o l l a r horse race. They w e r e n ' t . D u r i n g t h e elevenweek selling c a m p a i g n i n w h i c h t h e T i m e s - U n i o n a n d the J o u r n a l bombarded t h e i r readers w i t h 146 Westinghouse-Tenneco stories, i n c l u d i n g sixteen edit o r i a l s on the p r o j e c t , T h e V i r g i n i a n - P i l o t and t h e L e d g e r - S t a r , covering b o t h 302 P o r t s m o u t h a n d N e w p o r t News, published between t h e m seven stories a n d one e d i t o r i a l on t h e project. S i n g l e stories p u b l i s h e d i n the T i m e s - T J n i o n occupied m o r e column-inches t h a n a l l of t h e Westinghouse-Tenneco news a n d e d i t o r i a l copy p r i n t e d by b o t h V i r g i n i a papers. B e f o r e the OPS p r o j e c t could come i n t o being, a n u m b e r of h u r d l e s r e l a t e d to t h e f a c t o r y site w o u l d have to be cleared. T h e site Westinghouse-Tenneco w a n t e d , because i t offered access to the A t l a n t i c Ocean, was on B l o u n t I s l a n d , a n i s l a n d i n t h e St. Johns R i v e r m i d w a y between J a c k s o n v i l l e a n d t h e ocean. A t t h e island's center l a y a 250-acre s a l t w a t e r m a r s h or e s t u a r i n e b a y o u k n o w n as B a c k R i v e r , i n memory of a r i v e r w h i c h h a d l o n g since ceased t o flow. ( W h i l e d r e d g i n g a ship's channel i n t h e 1950's, t h e U.S. A r m y Corps of E n g i n e e r s h a d used B l o u n t I s l a n d as a spoil s i t e ; deposited spoil stopped B a c k R i v e r ' s mouth.) T h e first ( v e r y l o w ) h u r d l e , a p p r o v a l by the c i t y c o u n c i l of dredge-and-fill operations on B l o u n t I s l a n d , w a s s u r m o u n t e d on M a y 4, when, a f t e r a five-hour p u b l i c h e a r i n g , t h e council voted u n a n i m o u s l y t o approve. M e m b e r s h a d made u p t h e i r m i n d s on the m a t t e r before t h e h e a r i n g was h e l d ; weeks before the h e a r i n g took place, the council h a d a l l o w e d i t s name to appear on a f o r t y - f o o t h i g h b i l l b o a r d w h i c h bore the message: "Westinghouse-Tenneco, T h e K i n d of N e i g h b o r W e A l l W a n t . " T h e idea f o r such signs, w h i c h p r o l i f e r a t e d t h r o u g h out Jacksonville, h a d come f r o m the chamber of commerce's C o m m i t t e e of 100. F o l l o w i n g u p on another C o m m i t t e e of 100 idea, on M a y 5 b o t h F l o r i d a P u b l i c o papers r a n a two-page, three-color ad w h i c h r e a d "Westinghouse-Tenneco can b r i n g y o u a b r i g h t e r t o m o r r o w . . . a n d a Greater J a c k s o n v i l l e . . . WE WANT T H E M HERE," a n d w h i c h w a s s i g n e d b y " T h e F l o r i d a T i m e s - U n i o n and the J a c k s o n v i l l e J o u r n a l " T h e second ( h i g h e r h u r d l e , c e r t i f i c a t i o n by t h e state's p o l l u t i o n - c o n t r o l board, w a s overcome on M a y 22. T h e t h i r d h u r d l e w a s cleared the n e x t day w h e n Governor R e u b i n A s k e w a n d t h e cabinet, i n t h e i r role as Trustees of the I n t e r n a l I m p r o v e m e n t F u n d , voted to p e r m i t d r e d g i n g a n d filling on B l o u n t I s l a n d . T I I F executive d i r e c t o r Joel K u p e r b e r g a n d h i s staff h a d recommended t h a t t h e trustees should delay t h e i r decision. " T h e trustees cannot adequately protect t h e p u b l i c i n the l i g h t of t h e i n f o r m a t i o n we n o w h a v e a v a i l a b l e t o us." K u p e r b e r g said a week before the vote. " I f e e l v e r y , very nervous a b o u t h a v i n g t h i s t h i n g finally being decided n e x t Tuesday." T h e T i m e s - U n i o n p a r a p h r a s e d K u p e r b e r g ' s s t r o n g r e m a r k s a n d t h e n b u r i e d t h e m t w e n t y - o n e c o l u m n inches deep i n a story headlined C i t y D e l e g a t i o n Presents i t s Case t o Cabinet f o r aP l a n t F a b r i c a t o r . The O r l a n d o S e n t i n e l , l i k e other non-Jacksonville newspapers, v i e w e d t h e T I I F d i r e c t o r ' s r e m a r k s as being sufficiently n e w s w o r t h y to j u s t i f y a separate story, w h i c h i t h e a d l i n e d a - P l a n t Pressure Charged. DIVERSIONS A N D " R A L A N C I N G A C T S " I T H E DREDGE-AND-FILL ISSUE F r o m t h e s t a r t , F l o r i d a Publico's e d i t o r s a n d r e p o r t e r s b i l l e d t h e OPS p l a n t as an ecologist's dream. S u s t a i n i n g t h i s i m a g e r e q u i r e d g r e a t delicacy i n the t r e a t m e n t of c e r t a i n t o p i c s — f o r example, t h e proposed l o c a t i o n of the g i a n t p l a n t ( B l o u n t I s l a n d ' s B a c k R i v e r m a r s h , noted f o r i t s w i l d l i f e ) . I n W a c h e n d o r f ' s lead-off story on M a r c h 9, t h e proposed l o c a t i o n is n o t m e n t i o n e d e i t h e r i n t h e h e a d l i n e or t h e lead sentence or i n t h e c a p t i o n u n d e r t h e fivec o l u m n a r t i s t ' s r e n d e r i n g of the f u t u r e p l a n t on t h e T i m e s - U n i o n f r o n t page. T h e i s l a n d — b u t not the m a r s h — i s finally m e n t i o n e d t h i r t e e n inches deep i n t h e story a f t e r a j u m p to page 5. T h a t a f t e r n o o n ' s J o u r n a l said t h a t t h e r e w e r e t w o " M a j o r I s l a n d s I n T h e N e w s . " T h e J o u r n a l , l i k e the n e x t day's T i m e s - U n i o n , r e p o r t e d a p l a n , complete w i t h a map, f o r b u i l d i n g a r e c r e a t i o n a l p a r k on Q u a r a n t i n e I s l a n d , across t h e r i v e r f r o m B l o u n t I s l a n d . Congressman Charles Bennet t o l d t h e T i m e s U n i o n : " I envision picnic spots, boat l a u n c h i n g ramps, a s w i m m i n g pool, baseb a l l diamonds, soccer fields, a n d perhaps even a n outdoor a m p h i t h e a t e r f o r concerts a n d plays. T r o p i c a l p l a n t i n g s a n d l i g h t s c o u l d m a k e t h e area a r e a l beauty spot f o r our c i t y . " Q u a r a n t i n e I s l a n d ? A check i n the F l o r i d a P u b l i c o c l i p p i n g m o r g u e establishes t h a t i t h a d not been w o r t h y of e i t h e r newspaper's a t t e n t i o n p r i o r t o M a r c h 9 a n d w o u l d never a g a i n m a k e i t i n t o p r i n t a f t e r M a r c h 10. T h e stories quoted officials w h o said t h a t t h e p a r k could become a r e a l i t y o n l y i f t h e state d o n a t e d t h e i s l a n d to the c i t y , i f an u p c o m i n g bond issue w e r e used t o pay f o r 303 the p a r k , a n d i f Congress p r o v i d e d m a t c h i n g funds. None of these steps was taken, a n d the i s l a n d was f o r g o t t e n . B u t the maps a n d the l o n g sidebar stories d i d associate t h e OPS p r o j e c t w i t h the prospect of water's-edge f u n a n d games f o r all. F o r weeks, F l o r i d a Publico r e p o r t e r s stressed t h e e n v i r o n m e n t a l cleanliness of the OPS p r o j e c t . F o r weeks, they neglected to m e n t i o n t h e need f o r extensive d r e d g i n g a n d filling of t h e m a r s h a n d w i l d l i f e areas of B l o u n t I s l a n d . E x e c u t i v e e d i t o r J o h n W a l t e r s , l i k e publisher Feagin, a member of t h e knowledgeable C o m m i t t e e of 100, i g n o r e d the gap i n the story. George W a c h e n d o r f d i d n o t h i n g to p l u g the gap, e i t h e r . T h e first clear statement t h a t B a c k R i v e r w o u l d h a v e t o be filled appeared i n F l o r i d a Publico's papers on A p r i l 13—more t h a n a m o n t h a f t e r the first OPS coverage—and t h e n only because a U P I w i r e story f r o m Tallahassee, carr i e d by m a n y o t h e r newspapers i n t h e state, p r o m p t e d t h e company's editors to d i v u l g e t h i s news, i n t h e i r fashion. T h e news o u t of Tallahassee w a s t h a t t w o state e n v i r o n m e n t a l officials h a d said t h a t " t h e t i d a l b a y o u k n o w n as B a c k R i v e r , w h i c h m u s t be filled i n f o r the [ O P S ] p l a n t , is 'biologically valuable.' " T i m e s - U n i o n r e p o r t e r T o m Longh u r s t r e p o r t e d t h i s story i n a balanced a r t i c l e headlined V a l u e of B a c k R i v e r B a y o u Debated i n Governor's Office. H e also prepared a sidebar on the request by five J a c k s o n v i l l e conservation groups f o r a cost/benefit study of t h e OPS project. H i s c o n t r i b u t i o n s w e r e b u r i e d i n the women's section, on page 46. A t the J o u r n a l , e d i t o r s t i n k e r e d w i t h the w i r e service story t h r o u g h o u t t h e day. I n the first e d i t i o n , they headlined the story B i o l o g i c a l V a l u e of B a y o u Claimed and placed i t on t h e f r o n t page of t h e local section; i n i t s final c i t y e d i t i o n the headline was changed to read A s k e w 'Supports' F a c t o r y L o c a t i o n . Between editions, a new l e a d — a b o u t Governor Askew's " q u a l i f i e d s u p p o r t " f o r the locat i o n — h a d been inserted, a n d the p a r a g r a p h r e p o r t i n g t h e e n v i r o n m e n t a l i s t s ' position w a s moved f r o m the second p a r a g r a p h to the s i x t h . N o t content w i t h d e f t l y obscuring t h e news t h a t t h e cost of the OPS p r o j e c t was t o be t h e B a c k R i v e r bayou, t h e editors of the J o u r n a l took care to p u t i t " i n perspective." Thus, t h e r e w r i t e of the U P I story r a n u n d e r another story w h i c h bore a l a r g e r h e a d l i n e : T i d a l S i l t S a i d R a p i d l y F i l l i n g B a c k R i v e r . W r i t t e n by Joe C a l d w e l l , w h o h a d covered the p o r t a u t h o r i t y since i t s f o u n d i n g i n 1966, t h e a r t i c l e began : C a l d w e l l h a d h a d t o do no d i g g i n g t o come u p w i t h h i s story. Several days before h i s a r t i c l e appeared, t h e J a c k s o n v i l l e P o r t A u t h o r i t y h a d p r o v i d e d h i m w i t h a copy of a r e p o r t made, on behalf of t h e J P A , by D r . B. A . Christensen, an e x p e r t i n coastal a n d oceanographic engineering. C a l d w e l l does n o t r e c a l l w h e n he w a s handed t h e r e p o r t , w h i c h bears t h e date " M a r c h 1972," n o r can he say w h y h i s superiors chose t h a t p a r t i c u l a r a f t e r n o o n to r e v i e w i t . I n any event, his a r t i c l e served the u s u a l p u r p o s e : t h e transcendent e n v i r o n m e n t a l goodness of the OPS p r o j e c t w a s preserved—Back R i v e r was " d y i n g " a n y w a y ; by filling i t , the Corps of Engineers w o u l d merely be speeding up i t s i n e v i t a b l e demise. T h e r e a f t e r , F l o r i d a P u b l i c o reporters f o u n d themselves unable t o w r i t e the w o r d s " B a c k R i v e r " w i t h o u t f o l l o w i n g t h e m w i t h " d y i n g a n y w a y " or " t h e d y i n g cul-de-sac." Officials i n Tallahassee a n d biologists t h r o u g h o u t the state w e r e upset by the Christensen r e p o r t — a n d by the uses to w h i c h Jacksonville's newspapers could be r e l i e d upon t o p u t i t . K u p e r b e r g of the T I I F called the d y i n g cul-de-sac thesis "absolute h u m b u g . " K e n n e t h Relyea, a professor of biology a t Jacksonv i l l e U n i v e r s i t y , said " I t a l l depends on w h a t y o u mean by 'dead.' W h e n a body of w a t e r g r a d u a l l y fills i n a n d becomes a marsh, t h e n a swamp, t h e n a h a r d wood h a m m o c k , t h e n a forest, w h e n w a s i t 'dead'? B u t B a c k R i v e r w i l l be dead i n every sense of t h e w o r d w h e n they pour concrete and b u i l d a p l a n t over i t . " ( S u c h comments by t h i s l o c a l a n d a r t i c u l a t e expert on t h e subject d i d n o t find t h e i r w a y i n t o p r i n t i n Jacksonville.) Robert R o u t a — c h i e f of survey a n d management of t i d e l a n d s f o r the state's d e p a r t m e n t of n a t u r a l resources, a n d a m a r i n e b i o l o g i s t — f e l t t h a t l a y m e n w e r e being misled a n d asked Christensen to c l a r i f y h i s statement. I n a l e t t e r t o R o u t a — a copy of w h i c h R o u t a made a v a i l able t o U P I a n d w h i c h came over t h e w i r e to J a c k s o n v i l l e on M a y 2—Christensen w r o t e , i n p a r t : " T h e w o r d 'dead' does not r e f e r to t h e biological system ( o r ecosystem) b u t s t r i c t l y t o the r i v e r as a p h y s i c a l h y d r a u l i c system." Christensen's r e p o r t h a d made a splash on A p r i l 13, w h e n i t h a d p r o v i d e d the perfect b u f f e r i n g f o r the " b a d n e w s " f r o m Tallahassee t h a t B a c k R i v e r 304 w o u l d h a v e t o be filled; h i s q u a l i f y i n g statement w a s ignored on M a y 2 by t h e J o u r n a l , t h e n w a s positioned on page 5 of t h e second section of t h e f o l l o w i n g day's T i m e s - U n i o n , n e a r l y t h r e e column-feet deep i n a story t h a t disputes B a c k R i v e r ' s biological w o r t h . Christensen's q u a l i f i c a t i o n h a d come too l a t e ; b o t h papers c o n t i n u e d t h e i r l i t a n y of " d y i n g a n y w a y . " A n y r e p o r t e r w h o h a d bothered to look i n t o the T i m e s - U n i o n 1 s " s a l t m a r s h e s " file i n a l a r g e cabinet i n the exact center of t h a t paper's n e w s r o o m c o u l d h a v e f o u n d a v e r y d i f f e r e n t v i e w of B a c k R i v e r . T h e r e p o r t e r m i g h t also h a v e d r a w n some conclusions about w h y i n 1972, t h e year of the OPS p r o j e c t , t h e Jacksonv i l l e P o r t A u t h o r i t y h a d asked a h y d r a u l i c engineer t o assess B a c k R i v e r , w h e r e a s previously i t h a d asked biologists t o study t h e bayou. I n 1969, t h e J P A h a d commissioned R o b e r t R o u t a , of t h e d e p a r t m e n t of n a t u r a l resources, t o study B l o u n t I s l a n d . I n a r e p o r t t h a t s t a r t e d out by a s s e r t i n g t h a t " s a l t marshes are a m o n g t h e most b i o l o g i c a l l y p r o d u c t i v e areas on e a r t h , " R o u t a h a d w r i t t e n of B a c k R i v e r . " T h i s bayou is exceptionally p r o d u c t i v e f o r m a r i n e l i f e a n d should be preserved i n t a c t . A b u f f e r zone should be l e f t between i t a n d i n d u s t r i a l development." I n 1970, t h e J P A h a d t u r n e d t o K e n n e t h Relyea, a t t h e l o c a l u n i v e r s i t y . Relyea's r e p o r t , s u b m i t t e d t o t h e J P A o n F e b r u a r y 20, 1970, ended on a n u n e q u i v o c a l n o t e : " I c a n state t h a t . . . s p o i l i n g of t h e proposed areas [ w h i c h i n c l u d e d B a c k R i v e r ] w o u l d be a n ecological disaster e q u a l t o any such disaster t h a t has occurred i n N o r t h A m e r i c a . . . . " N e i t h e r r e p o r t w a s j u d g e d n e w s w o r t h y by F l o r i d a Publico's e d i t o r s a t t h e t i m e of i t s release; n e i t h e r w a s used t o give b a c k g r o u n d a n d balance t o t h e Christensen-report story. On M a y 2, a 10:20 a.m. d i s p a t c h f r o m U P I i n Tallahassee took t h e T i m e s U n i o n a n d J o u r n a l newsrooms by surprise. T h e story, w r i t t e n by Tallahassee Bureau Chief Barbara Frye, began: A n e w b i o l o g i c a l study t u r n s t h u m b s d o w n on l o c a t i o n of a m u l t i m i l l i o n d o l l a r Westinghouse-Tenneco p l a n t on B l o u n t I s l a n d i n D u v a l C o u n t y , S t a t e N a t u r a l Resources D i r e c t o r R a n d o l p h Hodges r e p o r t e d today. ". . . T h i s proposed p r o j e c t w i l l r e s u l t i n t h e i r r e v e r s i b l e c o m m i t m e n t of a l a r g e area of p r o d u c t i v e m a r s h h a b i t a t a n d w i l l have massive adverse effects on t h e m a r i n e biological resources of N o r t h e a s t F l o r i d a , " a c c o r d i n g t o t h e sixpage r e p o r t signed by R o b e r t A . R o u t a , Chief of Survey a n d M a n a g e m e n t f o r Tidelands. " A n a l t e r n a t e site should be f o u n d f o r t h i s i n d u s t r i a l p l a n t a n d B a c k R i v e r should be conserved so that, i t can c o n t i n u e t o f u n c t i o n as an i m p o r t a n t p a r t of the St. Johns e s t u a r y , " i t concluded. . . . R o u t a recalled t h a t previous studies f o u n d t h e St. Johns R i v e r t o be " p r o b ably t h e most i m p o r t a n t single f e a t u r e a f f e c t i n g the s h r i m p p o p u l a t i o n of the n o r t h e a s t coast of F l o r i d a . " H e said B a c k R i v e r is h e a v i l y u t i l i z e d by these s h r i m p on t h e i r m i g r a t i o n i n a n d out of the . . . r i v e r . R e p o r t e r s a t w o r k i n the newsrooms near t h e w i r e service machines on t h e m o r n i n g of M a y 2 r e c a l l t h a t c i t y e d i t o r s j u d g e d the s t o r y too h o t f o r t h e m t o handle. R o u t a was, a f t e r all, t h e senior staff biologist of t h e agency responsible f o r a l l of F l o r i d a ' s n a t u r a l resources. T h e story q u i c k l y ascended t h e c h a i n of c o m m a n d t o the office of executive e d i t o r J o h n W a l t e r s . " W e don't w a n t t h i s , " W a l t e r s t o l d a r e p o r t e r . " L e t ' s h o l d t h i s u n t i l w e get something to balance i t . " W a l t e r s called T i m e s - U n i o n r e p o r t e r J i m W a r d to h i s office. N o r m a l l y t h e story w o u l d h a v e been assigned t o J o u r n a l r e p o r t e r Joe C a l d w e l l , since t h e story b r o k e on J o u r n a l t i m e ; b u t W a l t e r s decided t h a t the J o u r n a l , t w o h o u r s a w a y f r o m i t s first e d i t i o n deadline, could go t o press w i t h o u t t h e news f r o m Tallahassee. ( T h e T i m e s - U n i o n , i n c i d e n t a l l y , has been k n o w n t o r e p l a t e i t s final e d i t i o n s t o m a k e r o o m f o r such l a t e - b r e a k i n g stories as t h e B o y Scouts of A m e r i c a ' s bestowal of i t s S i l v e r B u f f a l o A w a r d on P r i m e F . Osborn I I I , vice president of Seaboard Coast L i n e I n d u s t r i e s a n d president of t h e L o u i s v i l l e a n d N a s h v i l l e line, a t a scouts' conference i n C a l i f o r n i a . ) W a l t e r s t r u s t e d W a r d , w h o occasionally r e f e r s t o h i m s e l f as " t h e sacred cow r e p o r t e r . " " I k n o w w h a t those people u p t h e r e w a n t , " W a r d once t o l d a f e l l o w r e p o r t e r , w i t h a l i f t of h i s eyes t o w a r d the fifth-floor offices i n h a b i t e d by F e a g i n a n d o t h e r F l o r i d a P u b l i c o executives, " a n d I b i v e i t t o t h e m . " W a r d ' s r e g u l a r beat w a s c i t y n e w s — U n i t e d F u n d dinners, trophy-presentat i o n dinners, meetings of the l o c a l h i s t o r i c a l society, t h e N o r t h F l o r i d a s p e l l i n g bee (sponsored by F l o r i d a P u b l i c o ) , a n d R o b e r t Feagin's recent r e s i g n a t i o n 305 f r o m h i s post as president of t h e chamber of commerce because of h i s publishi n g company responsibilities. As of M a r c h 1972, he h a d never seen B a c k R i v e r . A s W a r d recalls, W a l t e r s t o l d h i m t o go the J P A office w h e r e Peace w o u l d g i v e h i m a r e p o r t w h i c h he w o u l d find useful. W a r d says he l e f t W a l t e r s ' office w i t h t h e clear impression t h a t h i s assignment wras t o counter the bad news conveyed by B a r b a r a F r y e ' s U P I w i r e story w i t h w h a t e v e r h e l p f u l news he could e x t r a c t f r o m the r e p o r t Peace w o u l d h a n d h i m . W a l t e r ' s reasoning, W a r d says, w a s : B a r b a r a F r y e is t h e w i f e of E a r l F r y e , d i r e c t o r of the F l o r i d a Game a n d F r e s h W a t e r F i s h C o m m i s s i o n ; members of t h i s commission h a d w o r k e d together w i t h biologists of t h e D e p a r t m e n t of N a t u r a l Resources i n p r e p a r i n g t h e r e p o r t w h i c h R o u t a h a d signed. H e r husband " h a d somehow gott e n to h e r " ; she was, therefore, " n o t o b j e c t i v e " — t h i s despite h e r t h i r t y years as a U P I correspondent. I t was about 2 : 3 0 P.M. w h e n W a r d rushed o u t of the F l o r i d a Publico b u i l d i n g ; he h a d u n t i l 10:00 P.M. to produce a " b a l a n c e d " r e w r i t e . T h e r e p o r t Peace handed W a r d w a s t h e b i o l o g i c a l a p p r a i s a l section of an " i n d u s t r i a l l a n d m a r k e t s t u d y " of B l o u n t I s l a n d , w h c h the J P A commissioned i n October 1971, s h o r t l y a f t e r i t , SCI, a n d the chamber of commerce h a d begun t h e i r n e g o t i a t i o n s w i t h Westinghouse-Tenneco. T h e firm h i r e d f o r t h e j o b w a s t h e B a t t e l l e M e m o r i a l I n s t i t u t e , of Columbus, Ohio, w h i c h specializes i n doing research on i n d u s t r i a l development. T h e biological a p p r a i s a l section was done by F r e d e r i c k C. Tone, a biologist on the staff of B a t t e l l e - D u x b u r y , i n D u x b u r y , Massachusetts. " I was l o s t , " W a r d recalls. " T h e r e p o r t w a s n ' t finished. T h e r e w e r e a l l those b i r d a n d fish names a n d a l l these scientific f o r m u l a s t h a t I d i d n ' t understand. B u t I got i t [ t h e i n f o r m a t i o n he needed] f r o m t h e s u m m a r y . T h e s u m m a r y pretty well had i t a l l there." W a r d zeroed i n on the l a s t lines of Tone's r e p o r t — w r h i c h sounded s t r i k i n g l y s i m i l a r t o t h e recently-published " d y i n g - a n y w a y " Christensen report, w h i c h Christensen h a d j u s t clarified. Tone h a d w r i t t e n : " A l t h o u g h n e a r l y t w o - t h i r d s of B a c k R i v e r is q u i t e u n p r o d u c t i v e i n i t s present h e a v i l y silted state, based on e x i s t i n g data, the r e m a i n i n g p o r t i o n near the m o u t h is s t i l l m a k i n g i m p o r t a n t c o n t r i b u t i o n s to the B l o u n t I s l a n d environment. Y e t w h e n compared to apparent p r o d u c t i v i t y i n N i c h o l s a n d B r o w n s Creeks a n d w h e n i t is realized t h a t i t is r a p i d l y s i l t i n g i n a n d w T ill soon die f r o m a n e n v i r o n m e n t a l standpoint. B a c k R i v e r ' s c o n t r i b u t i o n t o t h e B l o u n t I s l a n d region is considered to be i m p o r t a n t only on a short t e r m a n d l i m i t e d scale. A n y a d d i t i o n a l conclusions w i l l r e q u i r e supplemental d a t a . " T h i s a l l o w e d W a r d to s t a r t off his r e w r i t e ( t h e first t h i r t y - s i x c o l u m n inches of w h i c h are devoted to Tone's r e p o r t a n d a rehash of the Christensen r e p o r t ) as f o l l o w s : " A n in-depth ecological survey of the B a c k R i v e r shows the silted and d y i n g i n l e t on the J a c k s o n v i l l e P o r t A u t h o r i t y ' s B l o u n t I s l a n d is p r o d u c t i v e l y i n t e r i o r to other m a r s h l a n d s i n N o r t h e a s t F l o r i d a a n d only of s h o r t - t e r m a n d l i m i t e d environmental importance." T h e " b a l a n c e " requested by W a l t e r s is h a r d to find i n t h a t lead sentence or i n t h e story's h e a d l i n e ( B a c k R i v e r E c o l o g i c a l W o r t h is H e l d L i m i t e d ) or, indeed, i n any aspect of the story. B o t h t h e i n t r o d u c t i o n a n d s u m m a r y of Tone's r e p o r t contained a n u m b e r of i m p o r t a n t qualifications. Tone notes, f o r example, t h a t t h e J P A h a d requested " a r a p i d s u r v e y " ; t h a t " a l l collected d a t a are a r e s u l t of a three-day s a m p l i n g p e r i o d i n J a n u a r y 1 9 7 2 " ; t h a t i n J a n u a r y " m a n y species are off-shore and not i n t h e i r marsh-dependent stage." W a r d b u r i e d these q u a l i f i c a t i o n s 200 lines deep i n h i s story. H e b u r i e d Christensen's clarification—w T hich called W a r d ' s w h o l e lead i n t o question—280 lines deep i n h i s account. H e b u r i e d R o u t a findings—the news i n the U P I story, w h i c h he h a d been asked t o "balance"—293 lines deep. M o r e i m p o r t a n t , w T hile W a r d emphasizes t h a t Tone's r e p o r t " i s m a r k e d cont r a s t t o " Routa's, he nowhere mentions t h a t Tone w a s the first a n d o n l y biologist wThose research m i g h t be said t o j u s t i f y t h e filling of B a c k R i v e r — n o doubt because he h a d n o t read the Relvea a n d R o u t a r e p o r t s i n the newsroom file. ( N o r , indeed, h a d W a r d read t h i s new R o u t a r e p o r t ; a l l the d i r e c t quotes f r o m i t t h a t appear i n h i s r e w r i t e w e r e t a k e n f r o m F r y e ' s a c c o u n t ) . One man's three-day study of a marsh, made a t a t i m e w h e n i t s m a r i n e l i f e w a s least i n evidence, is balanced against three studies made by F l o r i d a biologists over ex- 306 tended periods of t i m e — a n d the Massachusetts biologist's r e p o r t , commissioned as p a r t of a n i n d u s t r i a l l a n d m a r k e t study, is f o u n d t o o u t w e i g h t h e m a l l . W a r d made h i s deadline. W a l t e r s , pleased w i t h t h e r e w r i t e , sent t h e r e p o r t e r a special note of thanks. I n t h e envelope, W a r d recalls, w a s a check f o r $125 f r o m p u b l i s h e r Feagin. He, too, w a s pleased. T h e r e w e r e f u r t h e r expressions of company a p p r e c i a t i o n f o r a j o b w e l l done. I n the J u n e 1972 issue of Intercom, F l o r i d a Publico's in-house n e w s l e t t e r , B r u c e M a n n i n g , the m a n a g i n g e d i t o r of t h e Times-Union, wrote: " J i m W a r d ' s o u t s t a n d i n g j o b of p u t t i n g together a n elaborate s t o r y o n t h e B a t t e l l e ecological r e p o r t on B l o u n t I s l a n d w a s recognized as a s t a n d p o i n t p e r f o r m a n c e i n t h e best professional t r a d i t i o n o f speed a n d completeness." T w o weeks a f t e r h i s high-speed r e w r i t e , W a r d w a s assigned t o a s t o r y t h a t took h i m t o B l o u n t I s l a n d . T u r n i n g t o a n o t h e r r e p o r t e r , he a s k e d : " W h e r e is B a c k R i v e r out here, a n y w a y ? I helped k i l l a l l those poor l i t t l e s h r i m p a n d I ' v e never even seen t h e place." W a r d ' s story w a s o u t s t a n d i n g i n one r e s p e c t : i t spelled out, f o r the first t i m e since F l o r i d a Publico's coverage of t h e OPS p r o j e c t began, t h e n u m b e r of acres on a n d a r o u n d B l o u n t I s l a n d t h a t w o u l d h a v e t o be dredged (550 acres) a n d filled (800 acres of m a r s h l a n d a n d f r i n g e ) . T h e figures were c i t e d i n t h e UPI s t o r y ; a p p a r e n t l y , no J a c k s o n v i l l e r e p o r t e r h a d e x t r a c t e d these figures f r o m t h e l o c a l p o r t a u t h o r i t y , w h i c h h a d filed t h e dredge-and-fill p e r m i t . W a r d ' s c i t i n g of t h e m m a r k e d n o t only t h e i r first appearance i n F l o r i d a Publico's t w o dailies, b u t also, w i t h t h e exception of one J o u r n a l reference, the only t i m e d u r i n g t h i s p e r i o d t h a t a F l o r i d a P u b l i c o r e p o r t e r w o u l d get the n u m b e r of acres i n v o l v e d i n the massive dredge-and-fill o p e r a t i o n s t r a i g h t : 1,350 acres. T h e r e a f t e r , w h e n t h e t w o papers r e f e r r e d to d r e d g i n g a n d filling r e q u i r e d f o r t h e p r o j e c t , t h e figure m e n t i o n e d was almost i n v a r i a b l y 250 acres. " I n t e r e s t i n g o v e r s i g h t , w a s n ' t i t ? " r e m a r k e d George W a c h e n d o r f , whose r e p o r t i n g repeatedly set t h e loss of m a r s h l a n d a t 250 acres, w h e n t h i s discrepancy w a s l a t e r called t o h i s a t t e n t i o n . " A s f a s as I ' m concerned, OPS w a s so good f o r J a c k s o n v i l l e t h a t i f someone h a d t o l d m e they needed even t e n per cent of a l l t h e m a r s h i n t h e c o u n t r y , I w o u l d n ' t h a v e cared." H i s e x p l a n a t i o n f o r any inaccuracies i n v o l v i n g the marshes was, " I ' m not a n e n v i r o n m e n t a l i s t . " T H E M I S S I N G OTHER SIDE T h e a r g u m e n t f o r encouraging OPS t o settle i n J a c k s o n v i l l e w a s strong. A s F l o r i d a Publico's papers incessantly r e m i n d e d t h e i r readers, i t w o u l d mean 8,000 or 10,000 or 14,000 jobs a n d a $100 m i l l i o n p a y r o l l each year. B u t reasonable citizens raised reasonable objections t o t h e w a y the p r o j e c t was being pushed t h r o u g h . T h e T i m e s - U n i o n a n d J o u r n a l e i t h e r refused to cover such people or counter-punched t h e m i n t o oblivion. C r u t i s Lovelace was one local c r i t i c of the p r o j e c t whose t r e a t m e n t by F l o r i d a Publico's editors m a y stand as an e x a m p l e of t h a t a f f o r d e d o t h e r J a c k s o n v i l l e c r i t i c s . Lovelace w a s president of t h e Citizens' C o m m i t t e e of 100 ( n o k i n of t h e chamber of commerce's C o m m i t t e e of 100), a g r o u p " d e d i c a t e d t o t h e prese r v a t i o n of our n a t u r a l resources. F l o r i d a ' s greatest asset." H e was n o t a r a b i d conservationist. A l m o s t i m m e d i a t e l y upon l e a r n i n g the n a t u r e of the OPS p r o j ect, five other J a c k s o n v i l l e conservation groups h a d voted t o oppose the p r o j e c t u n t i l a cost/benefits r a t i o study h a d been made. Lovelace's g r o u p refused e i t h e r t o oppose or approve the p r o j e c t , despite s t r o n g pressure f r o m c o n s e r v a t i o n i s t s a n d members of the chamber of commerce alike, u n t i l A p r i l 23, w h e n i t , too, f o r m a l l y opposed the p r o j e c t p e n d i n g a cost/benefits study. Lovelace repeatedly hand-delivered l e t t e r s a n d press releases, w h i c h raised questions about t h e p r o j e c t , to b o t h newspapers. I n a recent i n t e r v i e w , published F e a g i n a n d executive e d i t o r W a l t e r s w e r e asked about t h e i r f a i l u r e to give Lovelace and other conservationists a chance t o be heard. B o t h men spoke at the same time. F e a g i n spoke s t r o n g l y , s a y i n g t h a t i n t h e i n t e r e s t of a balanced p r e s e n t a t i o n of the Westinghouse-Tenneco news the T i m e s - U n i o n and J o u r n a l h a d solicited the views of e n v i r o n m e n t a l i s t s a n d o t h e r researchers w h o questioned the p r o j e c t , a n d t h a t Lovelace, as spokesm a n f o r t h e body of N o r t h F l o r i d a e n v i r o n m e n t a l i s t s , h a d been g i v e n e q u a l t i m e by the newspapers. " W e e x p l a i n e d h i s p o s i t i o n t i m e a f t e r t i m e , " F e a g i n recalled. W a l t e r ' s recollection differed. T h e e d i t o r acknowledged t h a t Lovelace's questions and findings h a d been i g n o r e d by the papers, j u s t i f y i n g h i s decision t o do 307 so on the g r o u n d t h a t " h e h a d been a r o u n d t a l k i n g about t h e e n v i r o n m e n t f o r a l o n g t i m e . Oh, t e n years. B y t h i s t i m e he w a s m a k i n g w i l d c l a i m s s i m p l y f o r n o t o r i e t y ' s sake. H e h a d begun to sound r e p e t i t i o u s . " W a l t e r ' s m e m o r y is t h e more accurate. D u r i n g the first t w o a n d a h a l f m o n t h s of Westinghouse-Tenneco coverage, Lovelace was m e n t i o n e d by n a m e only once, t h i r t y - s i x c o l u m n inches deep on a T i m e s - U n i o n back page. W h i l e men a n d w o m e n w h o h a d doubts about the p r o j e c t were t r e a t e d as nonpersons or p u t d o w n i n p r i n t before they could speak f o r themselves, those w h o wholeheartedly approved of the OPS p r o j e c t loomed l a r g e i n F l o r i d a Publico news. Thus, f o r example, i n t w o a n d a h a l f m o n t h s of p h o t o g r a p h i c coverage both newspapers between t h e m r a n a t o t a l of o n e p h o t o g r a p h of a n opponent of the p r o j e c t : a p i c t u r e of F r a n k F l o o k , a member of t h e F l o r i d a W i l d l i f e Federat i o n a n d of the l o c a l chapter of Zero P o p u l a t i o n G r o w t h , appeared on a back page of the J o u r n a l . D u r i n g t h a t period, the T i m e s - U n i o n r a n dozens of photographs of supporters, f r o m F l o r i d a ' s Governor A s k e w to Westinghouse's A. P. Zechella. B u t t h e paper never showed t h e face of a c r i t i c . EPILOGUE On M a y 25, 1972, t h e day OPS announced i t s decision t o come to Jacksonville, M a y o r H a n s T a n z l e r declared, " I believe t h i s is Jacksonville's finest h o u r , " thereby p r o v i d i n g t h e headline f o r t h e evening paper. " T h e p l a n t , " he w e n t on to say, " w i l l l i t e r a l l y t r a n s f o r m o u r l i v e s . " " I don't w a n t t o say t h a t the newspapers p r o s t i t u t e d themselves," comments Seaboard Coast L i n e executive Ross Legrand. ( H i s choice of w o r d s was not p r o m p t e d by the i n t e r v i e w e r . ) " W h a t I w o u l d say is t h a t they w e r e serving the public i n t e r e s t . " T h e i n t e r v i e w e r suggested t h a t i t m i g h t be h e a l t h y f o r a newspaper t o m a i n t a i n some skepticism or at least some show-me o b j e c t i v i t y i n the face of a development as vast as the OPS project. " T h a t ' s not the w a y o u r newspapers here w o r k , " L e g r a n d replied. " O u r papers w o r k to p r o m o t e g r o w t h . " F l o r i d a P u b l i c o b o a r d member J. J. D a n i e l defends t h e t w o papers' coverage of the Ops p r o j e c t on s i m i l a r grounds. A s k e d w h y e d i t o r s h a d not been urged to p r o v i d e m o r e balanced coverage. D a n i e l replied. " I don't t h i n k the newspapers should have been c r i t i c a l or skeptical. . . . B o t h Westinghouse a n d Tenneco are so reputable. T h e paper chose to support i t . " A s k e d w h e t h e r he t h o u g h t t h e support t h e t w o papers gave the p r o j e c t t h r o u g h o u t t h e i r pages should have been confined to t h e i r e d i t o r i a l pages, D a n i e l r e p l i e d : " H o w m a n y people do y o u t h i n k r e a d t h e e d i t o r i a l page? W h a t do y o u t h i n k the percentage is of people w h o read the news pages versus those w h o r e a d the e d i t o r i a l page? Seventyt h i r t y ? D o y o u t h i n k i t is t h a t h i g h ? O u r papers let t h e m k n o w they were wanted." Asked w h e t h e r F l o r i d a Publico's all-out support f o r the 01*8 p r o j e c t was rel a t e d to t h e f a c t t h a t Seaboard Coast L i n e I n d u s t r i e s stood t o g a i n increased r a i l r o a d business f r o m the project, D a n i e l replied, " I f I believed t h a t t h e r a i l r o a d was t e l l i n g t h e papers w h a t to w r i t e , I w o u l d q u i t the board t o m o r r o w . " H e d i d acknowledge t h a t t h e r a i l r o a d h a d exerted influence i n t h e past. " W h e n I first became a member of the b o a r d [ i n 1968]," D a n i e l said, " I w e n t t o see [ R o b e r t ] M i l l a r [ F e a g i n ' s predecessor as p u b l i s h e r ] a n d asked h i m about the newspaper a n d the r a i l r o a d . H e t o l d me t h a t c e r t a i n taboos a n d p r o h i b i t i o n s h a d g r o w n u p over t h e years. ' T h i s is p r e t t y m u c h the w a y we r u n things,' he t o l f l me." N o t any more, D a n i e l recalls i n f o r m i n g M i l l a r . D a n i e l says t h a t i f the r a i l r o a d s t i l l receives special a t t e n t i o n i n the T i m e s - U n i o n a n d J o u r n a l newsrooms, i t is only because " t h e change i n a t t i t u d e has not settled d o w n t o t h a t level." I n a M a y 1972 i n t e r v i e w w h i c h appeared i n the S t . P e t e r s b u r g T i m e s , b u t w h i c h readers of F l o r i d a Publico papers w e r e spared, Joel K u p e r b e r g of the THF r e m a r k e d : " T h e Westinghouse-Tenneco p l a n t m a y be t h e best t h i n g t h a t ever happened. I f i t ' s a good p r o j e c t i t should s t a n d u p u n d e r e x a m i n a t i o n . I t w o u l d appear t h a t they [ J a c k s o n v i l l e ' s newspapers a n d c i v i c leaders] d i d n ' t want i t examined." Responding t o t h i s statement, George W a c h e n d o r f , w h o w r o t e more W e s t i n g house-Tenneco copy t h a n any other J a c k s o n v i l l e j o u r n a l i s t , said i n a recent int e r v i e w : " N o t h i n g stands on i t s o w n t w o feet. Y o u a r e o p e r a t i n g i n an u n r e a l 308 w o r l d i f y o u t h i n k so. Y o u have t o sell a n y t h i n g . I a m h e s i t a n t t o t h i n k t h a t s a y i n g something once or i n measured t e r m s gets across t o anyone. M y j o b w a s t o m a k e t h e m aware. I f I c o u l d help i t , everyone w a s going to k n o w about i t , even the shoeshine boys. . . . I n m y m i n d , t h e son o f a b i t c h w a s a w i n n e r . M y m a j o r w o r r y was t h a t people w o u l d n ' t realize h o w good t h i s t h i n g was. T h a t is w h y I pressed t h e p o i n t . I d i d f o r Westinghouse-Tenneco w h a t a good p u b l i c r e l a t i o n s firm w o u l d have done. M a y b e I got c a r r i e d a w a y . " ( T h r o u g h o u t 1972 W a c h e n d o r f m o o n l i g h t e d as a one-man p u b l i c r e l a t i o n s firm, p r e p a r i n g a n n u a l r e p o r t s a n d i n v e s t m e n t brochures f o r several J a c k s o n v i l l e firms. A t least t h r e e of h i s clients enjoyed f a v o r a b l e a t t e n t i o n i n h i s T i m e s - U n i o n financial a f f a i r s column. I n M a r c h 1973, he w a s g i v e n the choice of r e m a i n i n g as business news e d i t o r w i t h a raise a n d g i v i n g u p h i s w o r k i n p u b l i c r e l a t i o n s , or l e a v i n g t h e paper. H e l e f t t o become president of W a c h e n d o r f Associates, a firm specializi n g i n corporate c o m m u n i c a t i o n s a n d investor r e l a t i o n s . ) F o r m e r T i m e s - U n i o n r e p o r t e d T o m Hoey, n o w d i r e c t o r of p u b l i c r e l a t i o n s f o r the J a c k s o n v i l l e P o r t A u t h o r i t y , a d d s : " I n retrospect, i t appears t h a t i t w a s a selling job. I f y o u are f o r a t h i n g , i f y o u h a v e decided t h a t i t is good f o r t h e c o m m u n i t y , t h e n y o u should sell i t , I guess. W e w e r e not t o l d to w r i t e a n y t h i n g false, b u t to stick to the h e l p f u l facts. E v e r y t h i n g w e said was t r u e , b u t we l e f t some of i t out. W e d i d n ' t seek stories, we t o o k h a n d o u t s [ f r o m OPS, t h e J P A , a n d the chamber of commerce]. A n y t h i n g negative, D i c k [ S t a l d e r , T i m e s - U n i o n c i t y e d i t o r ] t u r n e d h i s head. " O P S was very h e l p f u l . T h e y sold the paper a b i l l of goods a n d t h e y sold us. Obviously i t was i n t h e i r i n t e r e s t t o p l a y d o w n any of t h e problems, p r o b l e m s t h a t are n o w c r o p p i n g up. I t w a s n ' t Westinghouse's j o b t o p o i n t o u t t h e problems." Exactly. A m o n g t h e problems t h a t have cropped u p : B a c k R i v e r has been filled in, but orders f o r floating nuclear p l a n t s have d r i e d up. I n the f a l l of 1973. OPS h a d orders f o r f o u r such p l a n t s f r o m t h e P u b l i c Service Gas a n d E l e c t r i c Company of N e w Jersey, the u t i l i t y w h i c h h a d developed t h e concept of floati n g nuclear plants, a n d l e t t e r s of i n t e n t f o r the purchase of f o u r m o r e : t w o f o r L o u i s i a n a ' s M i d d l e South U t i l i t y System, t w o f o r the J a c k s o n v i l l e E l e c t r i c A u t h o r i t y . ( S w e p t u p i n the l o c a l e f f o r t t o boost OPS, the J P A offered t o sponsor u p t o $180 m i l l i o n i n t a x - e x e m p t i n d u s t r i a l revenue bonds f o r Ops, a gesture of support t h a t could save the company m i l l i o n s of d o l l a r s i n i n t e r e s t by p r o v i d i n g i t w i t h a l o a n a t m u n i c i p a l r a t h e r t h a n c o m m e r c i a l rates. Officials of both the J F A and the J P A stood t o p r o f i t f r o m the success of the Ops v e n t u r e T r u e t t E w t o n . the c h a i r m a n of the J F A , was also vice president f o r G u l f L i f e I n s u r a n c e , the company a w a r d e d t h e g r o u p insurance f o r OPS employees, w h i l e T h o m p s o n S. B a k e r , chief officer of F l o r i d a Rock I n d u s t r i e s a n d a member of the J P A ' s board of directors as w e l l as of F l o r i d a Publico's, was a w a r d e d a $ 4 - m i l l i o n c o n t r a c t to supply OPS w i t h m a t e r i a l s . ) T h e n came t h e recession, a n d i n f l a t i o n — a n d , i n Jacksonville, a n e w g e n e r a l counsel f o r the c i t y . M i d d l e S o u t h U t i l i t y System let i t s l e t t e r of i n t e n t lapse i n December 3973. T h e f o l l o w i n g summer, Jacksonville's n e w general counsel, I l a r r y Shorstein. reviewed the proposed c o n t r a c t between Ops a n d t h e Jea a n d concluded a s c a t h i n g analysis of i t s t e r m s by w r i t i n g t h a t i t s execution w o u l d be " c o n t r a r y to the public i n t e r e s t . " T h e purchase price f o r t h e t w o p l a n t s cnnie to $2.2 b i l l i o n ; the J E A , whose t o t a l assets are v a l u e d at 8515 m i l l i o n , proposed to raise t h i s sum by floating a bond issue. Shorstein, w h o described the proposed $2.2-billion bond issue as " t h e largest a m o u n t of t a x - e x e m p t debt ever offered f o r sale to finance any p r o j e c t i n the h i s t o r y of the U n i t e d States," p o i n t e d out t h a t m a k i n g payments f o r t h e t w o floating nuclear p l a n t s c o u l d q u i c k l y b a n k r u p t the Jea, costing the people of J a c k s o n v i l l e t h e i r m u n i c i p a l l y owned u t i l i t y system and about $25 m i l l i o n a y e a r i n revenues w h i c h t h e Jea n o r m a l l y p a i d i n t o t h e c i t y ' s general f u n d . I n September 1974 t h e Jea a l l o w e d i t s i M i e r of i n t e n t w i t h OPS to expire. A f e w days l a t e r , P S K & G o f N e w Jersey postponed a l l of i t s orders f o r five y e a r s — i t s first p l a n t is n o w scheduled to be d e l i v e r e d i n 1984—because of l o w e r forecasts f o r energy d e m a n d a n d h i g h e r interest rates on loans. On F e b r u a r y 1, 3975, Tenneco dropped out of i t s p a r t n e r s h i p w i t h W e s t i n g house. B y the summer of 1975, OPS was t r y i n g to persuade the f e d e r a l government to buy f o u r floating nuclear plants, w h i c h i t could t h e n lease t o u t i l i t i e s a l o n g the G u l f a n d A t l a n t i c coasts. Westinghouse is n o w l o b b y i n g h a r d f o r 309 President Ford's Energy Independence A u t h o r i t y bill, w h i c h w o u l d set up a $100-billion corporation ($25 b i l l i o n of equity, $75 b i l l i o n of debt) to assist private sector energy projects. Whether the country at large needs floating nuclear plants remains an open question. A study j u s t completed by the environmentconscious Scientists I n s t i t u t e f o r Public I n f o r m a t i o n , f o r example, finds t h a t r i s i n g construction costs w i l l make the production of electricity at nuclear power plants, earth-based and seaborne, economically i m p r a c t i c a l w i t h i n ten years: nuclear power w i l l cost more t h a n coal-based power. Ops officials, meanwhile, say t h a t they are committed to the offshore venture and t h a t Westinghouse w i l l back i t even i f no federal funds are forthcoming. B u t today there are no 8,000 or 10,000 or 14,000 jobs f o r Jacksonville workers out on Blount Island. Ops, w h i c h was to have begun wTork on the world's first floating plant last summer, has cut its w o r k force f r o m 700 to "305 officeoriented people." The huge assembly plant w i l l now be b u i l t piecemeal, an OPS spokesman says, each section being completed i n t i m e f o r next process i n the manufacture of a floating nuclear power plant. I t would have been asking too much of any newspaper to foresee the difficulties Ilia I: presently beset OPS. B u t i t would not have been asking too much of Jacksonville's t w o dailies to have reported the pros and cons i n the beginning, before the community's decision wras made—to have behaved, i n short, like newspapers rat her than like publishing arms of the chamber of commerce. The C H A I R M A N . W e l l , thank you. I thank a l l of you gentlemen very much f o r your presentations. T h a t was quite a story. I see i t was featured, as you say i n U.S. News and W o r l d Report. I have a copy of the article here. M r . S I M P S O N . M r . Chairman, I am J o h n W . Simpson of the Westinghouse Electric Corp. Could I make a brief statement? The C H A I R M A N . Y o u certainly may. M r . S I M P S O N . I was very involved i n the f o u n d i n g of the Offshore Power Systems Co., which is a w h o l l y owned subsidiary of the Westinghouse Electric Corp. The project is a very viable project, technically and economically. I t is i n trouble neither technically nor economically. W e are asking f o r no bailout f r o m anyone. W e have f i r m contracts f o r four floating nuclear plants of 1,150 megawatts each w i t h the Public Services Electrical and Gas Co. of New Jersey. T h i s w i l l f u r n i s h power to New Jersey cheaper than any other possible source. I f the Federal Government, i n its wisdom, wishes to buy plants, i t is their option to do so. W e believe t h a t there w o u l d be some m e r i t i n having these plants, because i n the event of a power shortage i n any area, they could be moved t o t h a t area. Such orders are by no means necessary f o r the financial v i a b i l i t y of the project. I n the long run, that project w i l l become increasingly viable, f u r n i s h power increasingly cheaper to the utilities who have suitable sites. Public services delayed its order 5 years tbromrh no fault of ours, only due to the fact of the lack of energy i n the U n i t e d States bringi n g down the economy and resulting i n low g r o w t h i n load i n the State of New Jersey. I t h i n k that is all I have to say. There is no bailout. There is no financial problem. W e are proceeding. Next, w i t h respect to M r . P a t r i c k Codell, who is a consultant of Westinghouse f u r n i s h i n g public opinion information. There is a proposition, known as proposition 15, before the people of California, 310 the i n i t i a t i v e to be voted on on June 8. I t is our opinion, mine as an i n d i v i d u a l , the atomic i n d u s t r i a l forum's and a great deal of i n d u s t r y , t h a t the people of C a l i f o r n i a simply do not understand what they are voting for. A recent opinion p o l l showed that of those people w h o stated t h a t they w o u l d vote i n f a v o r of proposition 15, approximately 50 percent t h o u g h t they were voting, when asked, f o r nuclear power instead o f against i t . T w e n t y five percent of the people who said they w o u l d vote i n f a v o r of proposition 15 admitted to the poller they d i d n ' t know w h i c h way they were voting, they were just voting. U n d e r those circumstances, backed up by industry's and the people's constitutional rights to defend themselves and to discuss legislation, backed up by the superior and supreme court of C a l i f o r n i a and the Supreme Court of the U n i t e d States, we i n industry are exercising our constitutional r i g h t t o advise the people of C a l i f o r n i a the facts surrounding proposition 15 and u r g i n g them to vote " n o " on proposition 15. T h a n k you, sir. T h e C H A I R M A N . I want to get into t h a t maybe later, gentlemen. I t h i n k maybe we could devote an hour or t w o t o that, b u t I t h i n k we better stick on this legislation f o r the time being. Perhaps at the end we may have time t o discuss this particular problem f u r t h e r . I have some questions w i t h respect to that. L e t me first ask M r . Cameron—and, M r . Simpson, you m i g h t w a n t t o comment, too. Y o u both made a good case f o r Federal assistance to finance long leadtime capital intensive energy facilities, f o r example, fuel enrichment, reprocessing operations w h i c h you mentioned, M r . Simpson. Federal assistance should go to projects which offer the best hope of achieving energy independence, the most innovative technology, the most efficient production methods. F r a n k l y , I am not convinced t h a t this Energy Independence A u t h o r i t y w o u l d to this. T h e range of projects w h i c h can be assisted is very broad, w o u l d include anything, and I quote, "essential t o the production or use of nuclear power." I t appears t h a t E I A could finance any nuclear p l a n t on the production line today under t h a t broad language, and I am just wondering whether or not this can be justified. F o r instance, the language of the b i l l provides the a u t h o r i t y shall not provide financial assistance to a project w h i c h w o u l d otherwise q u a l i f y f o r financial assistance i f i n the judgment of the board of directors such project involves technology w h i c h is i n the research and development phase or project application doesn't display satisfactory levels of efficiency, management levels, or other factors. T h a t is about the only safeguard. T h e charge has been made, and i t is a charge that concerns me very much, t h a t this could go i n t o inefficient technologies s i m p l y because the pressure w o u l d be there t o b u i l d atomic plants o r to provide f o r a p l a n t t h a t m i g h t permit you t o l i q u e f y or gasify coal. T h e cost w o u l d be high, and the commercial prospects w o u l d n o t be very promising. W h a t is your answer to that? 311 M r . C A M E R O N . I w o u l d only answer w i t h respect to synthetic fuels, M r . Chairman. I m i g h t defer t o M r . Simpson t o discuss the nuclear question. I n s o f a r as synthetic fuels are concerned, I f r a n k l y am much more optimistic about the results t h a t w o u l d come out of the legislation passed by the Senate and now being considered by the House, H . R . 12112. T h a t legislation has been the subject last f a l l of exhaustive hearings. I t has gone t h r o u g h a perfecting process i n order t o make sure t h a t there are not wasteful uses of the loan guarantee authorities that w i l l be granted under i t . I f , indeed, there is passed i n the f u t u r e an Energy Independence A u t h o r i t y , the administration has said t h a t the p r o g r a m w o u l d be folded i n t o the E I A . B u t I believe that synthetic fuels can best get under way now under the aegis of H . R . 12112, w i t h government risksharing w i t h industry. T h e C H A I R M A N . T h a t b i l l i n the House, as I understand, provides f o r $2 b i l l i o n i n loan guarantees. Now, this is a $100 b i l l i o n b i l l . I t sounds as i f , i n view of the fact t h a t synthetic fuels w o u l d be a major p a r t of this operation, the $100 b i l l i o n may be too much. I t may be extravagant. M r . C A M E R O N . I have not seen any breakdown of how the $100 b i l l i o n m i g h t be used, but, f r a n k l y , the o r i g i n a l b i l l considered before the House and passed by the Senate was a $6 b i l l i o n loan guarantee, which w o u l d have covered the development of about 350,000 barrels per day of synthetic fuels. The C H A I R M A N . I S i t your contention t h a t what w o u l d happen is t h a t the process, f o r example, of l i q u e f y i n g coal or of m a k i n g o i l shale commercial, that t h a t plant would come onstream and then you would w o r k out the bugs, w o r k down the costs, and you would be able t o get the costs down f r o m w h a t m i g h t now be projected at $15 or $20 a barrel down t o the $6 or $7 or $8 that we are a i m i n g t o w a r d ? O r do you t h i n k t h a t a l l i t would do would produce fuel at this very h i g h cost? M r . C A M E R O N . N O ; I t h i n k t h a t the costs of o i l f r o m o i l shale, o i l f r o m coal and gas f r o m coal, probably i n i t i a l l y w i l l be i n the range of those figures that I mentioned, anywhere f r o m $12 to $25 a barrel, covering the f u l l range. Now, we are t a l k i n g about 1976 dollars. I f we go ahead and b u i l d this i n i t i a l suite of plants, we are going to learn a lot. Those plants that m i g h t be b u i l t at a 50,000-barrel-per-day capacity—after we learn to operate them better—probably w i l l be increased i n capacity to 60,000 or 70,000 barrels a day. I n real terms, we w i l l reduce those costs. The C H A I R M A N . I t h i n k w h a t I hear you saying is t h a t we w i l l b u i l d a plant or series of plants to produce at this $15 or $12 to $25 cost, and we w i l l learn i n t h a t process what is w r o n g w i t h t h a t plant. Then we have to b u i l d another plant to produce at the lower cost. Is that right? M r . C A M E R O N . N O ; an industrial plant is not like a 1 9 7 6 Chevrolet, which is always a 1976 Chevrolet. W h e n you b u i l d a 1976 industrial plant, every time you b r i n g i t down f o r maintenance, you p u t i t back together better than i t was before. 71-787—76 21 312 So we expect t o see improvements i n the economics of those i n i t i a l plants, because you w i l l incorporate the new things you learn. B u t the i m p o r t a n t aspect of this whole concept is to be prepared to b u i l d better plants the second t i m e around, to expand the i n d u s t r y w i t h a more mature technology and more experienced manpower. The C H A I R M A N . Can you give us any h a r d evidence t h a t this is l i k e l y to lead to a lower cost fuel t h a t w o u l d be competitive w i t h o i l ? M r . C A M E R O N . E v e r y experience we have had i n the past, f r o m b u i l d i n g o i l refineries t o airplanes, we have always been able t o increase efficiencies and reduce real costs. The C H A I R M A N . Provide us documentation f o r the record. M r . Simpson, let me sharpen the question. I t ' s been charged t h a t this b i l l is a bailout f o r the nuclear power industry. T h a t the costs to the nuclear power industry have been much, much higher t h a n they thought they would go, and t h a t they are inefficient and t h a t the Federal Government w i l l pick up financing f o r large projects t h a t have failed t o make i t on the private market, because they are not economical. W h a t is your response t o t h a t ? M r . S I M P S O N . W e l l , I t h i n k t h a t is not a correct statement of the facts, because I t h i n k t h a t this b i l l w o u l d only provide money f o r plants i n the event t h a t a u t i l i t y had decided t h a t the cheapest way to produce power was w i t h a nuclear plant. T h e C H A I R M A N . Yesterday, Vice President Rockefeller testified t h a t most of the money m i g h t go, and he was j u s t i f y i n g $100 b i l l i o n , m i g h t go t o nuclear powerplants, t h a t we have to increase the number, so we w i l l be producing 30 percent of our power w i t h i n 10 years or 27 percent, a very large proportion w i t h nuclear plants. Now, i t seems t o me t h a t i f you are l o o k i n g at i t t h a t way, then y o u aren't going to get the cost down t o a competitive level, are you? M r . S I M P S O N . Nuclear plants produce power much cheaper t h a n an oil-fired plant, substantially cheaper than Eastern coal, m a r g i n a l l y cheaper, but cheaper than Western coal w i t h o u t scrubbers. N o w , i n the area where you have a need f o r the power, the u t i l i t y , f o r whatever reason of the past, no longer has the bond r a t i n g where they can borrow the money or, f o r example, they have to have 2 times interest coverage i n order to borrow any more money and they do not earn t h a t much. They can't sell common stock, because they are selling i t at 60 to 70 percent of the book value, and any d i l u t i o n simply makes the stock w o r t h less w i t h a series that only converges at a zero price f o r the stock. Then i f the people i n the u t i l i t y , t h i n k nuclear is the cheapest, i t seems reasonable t h a t some assistance i n b o r r o w i n g money f o r t h a t area t h a t w o u l d not otherwise be provided, w o u l d be reasonable. I w o u l d t h i n k only in the event that a great many utilities f o u n d themselves i n a position they simply couldn't borrow money and couldn't sell stock, t h a t you would use this b i l l to b u i l d nuclear plants. A nuclear p l a n t is a very viable financial deal on its own to be b u i l t by any company that itself is financially capable. The problem is not the nuclear p l a n t isn't an attractive financial venture, i t is t h a t utilities i n some cases m i g h t not be able to borrow money f o r anything, even to buy coal. 313 N o w , the other p a r t is on the solidification. T o me the solidification of nuclear waste is a very special situation. There is no m a r k e t f o r t h i s radioactive waste. T h e waste by law must be t u r n e d over t o the Federal Government. I t must be b u r i e d i n a solid f o r m . I f y o u are sending i t t o the Federal Government f o r storage, i t is not a n o r m a l commercial venture and there is no good w a y t o determine a f a i r price. So i t seems reasonable t h a t the government w o u l d be involved i n the financing of a solidification process. I t has no other useful industrial use, except s o l i d i f y i n g the waste t o t u r n i t over t o the government to b u r y . There are a number o f special cases l i k e this where I t h i n k t h a t i t m i g h t w e l l be t h a t t h i s act could come in. T h e C H A I R M A N . M r . B r o w d e r — I beg y o u r pardon. M r . S I M P S O N . W h e n you are t a l k i n g about t h e — I believe, i t was M r . Cameron, who said t h a t the price w o u l d come down, I don't t h i n k lie meant to say t h a t i t w o u l d be lower t h a n other f o r m s of energy, but t h a t any given p l a n t w o u l d have lower costs later t h a n i t d i d at the s t a r t ; is t h a t correct? Mr. CAMERON. Eight. T h e C H A I R M A N . I presume i t w o u l d have a lower price, b u t i f i t is not g o i n g to come d o w n i n t o a range where i t w o u l d be competitive, where i t w o u l d be able—this a u t h o r i t y only lasts 10 years, only 7 years when they make commitments. I f they can't get i t d o w n i n t h a t period, then w h a t happens ? Does the Federal Government have t o operate or subsidize i t w i t h some k i n d of price support p r o g r a m or price differential, price subsidy ? M r . S I M P S O N . I personally don't believe i t is possible i n t h i s period of time to get i t down, because s t a r t i n g today, by 1983, 1985, we w i l l be lucky t o be t h r o u g h the second phase on these t h i n g s t h a t take so l o n g to b u i l d . I t h i n k you also have to take into consideration the cost of the coal t h a t goes into i t , w h i c h is the key place you start. B u t you are g o i n g to need synthetic gas and synthetic o i l f o r those uses f o r w h i c h we have no substitutes, regardless of whether i t is less expensive, because i n the not-too-distant f u t u r e we are s i m p l y not going t o have enough n a t u r a l gas and n a t u r a l petroleum liquids to go around. T h e n we are g o i n g to need these even i f they are not economically competitive. T h e C H A I R M A N . M r . B r o w d e r , on the first page of y o u r statement and t h r o u g h o u t y o u r delivery, you claim the E I A w o u l d develop our lowest grade, most remote and most costly resources, a l l at the highest price and highest rate of consumption. W e l l , the b i l l requires the E I A to finance those projects w h i c h w o u l d contribute to energy independence. I t w o u l d have a clear directive to get the most efficient, most promising energy sources f o r development and financing. W h y do y o u t h i n k they w o u l d be t h i s perverse ? M r . B R O W D E R . W e l l , sir, a l l t h a t is required is a look at the A d ministration's existing policy, a look at those industries and those companies t h a t are lined up to get the subsidies. 314 I don't t h i n k you can look at the b i l l as i f i t were being proposed i n the absence of a n y t h i n g else t h a t is happening. Y o u can look at the Administration's policy, oh, as f a r back as Secretary Dent's tenure as, Secretary of Commerce, when he was proposing the list of plants t h a t had t o be subsidized. T h e n just take a look at M r . Cameron's very presence here and interest i n this. I t h i n k i t is quite clear which systems and w h i c h fuels are l i n i n g up, w h i c h ones are doing lobbying i n f a v o r of the legislation. Today, the Science and Technology Committee on the House side is h a v i n g more hearings on the synthetic fuel subsidy legislation. T h e E n v i r o n m e n t a l Defense F u n d is representing us and most of the others The C H A I R M A N . T h e fundamental p o i n t M r . Simpson made t h a t I t h i n k makes a lot of sense, we just need more fuel. T h e cost may be higher, but we need more energy. M r . B R O W D E R . W e agree w i t h that very much. T h e C H A I R M A N . I f we are going t o avoid a situation where we are i m p o r t i n g more t h a n h a l f of our energy and, therefore, are very dependent and very vulnerable and subject to international blackmail M r . B R O W D E R . W e agree w i t h t h a t very much, sir. B u t this program is not designed t o produce more fuel. T h e C H A I R M A N . I t is bound to, isn't i t . M r . B R O W D E R . N O , sir, i t is designed t o subsidize hardware construction, not fuel production. A t more than a b i l l i o n T h e C H A I R M A N . T h a t additional hardware w o u l d produce some fuel. I f , f o r example, let me give you an example. Supposing i f we had 30 percent, maybe you can't get t h a t h i g h , but 25 or 30 percent of our electricity supplied by atomic plants i n 1985. W h y w o u l d n ' t t h a t reduce the shortage we now have and create a situation where we have gone at least p a r t way t o w a r d solving this problem? M r . B R O W D E R . I t h i n k you w o u l d have t o take a look at w h a t the alternatives were and the number and kinds of resources and amount of money t h a t could be invested t o achieve t h a t same degree of energy production, whether i t was t h r o u g h nuclear power or coal or a combined cycle T h e C H A I R M A N . V e r y good. T h i s is exactly what the G A O just testified to. They said they wanted t o require that before these investments are made t h a t there would be an analysis t o determine whether this is the most efficient way of saving or getting a barrel of oil, whether the conversion method w o u l d be the best, solar energy, whatever i t is, require t h a t test. M r . B R O W D E R . The administration has already made its analysis. I t h i r e d M r . Cameron to t e l l the administration "that his process was the most efficient. So we t h i n k the administration has gone t h r o u g h the process of m a k i n g its agenda f o r those fuels and systems t h a t deserve t o be subsidized. T h e C H A I R M A N . A r e you saying they w o u l d ignore the law ? 315 M r . B R O W D E R . Yes, s i r ; absolutely. They would continue their same O r w e l l i a n use of language that they have i n regard t o energy production f o r the last several years. T h e C H A I R M A N . Then what can you do? On the assumption t h a t you said Senator Jackson had the same position, i f you have President Jackson or President F o r d or some other Democratic President, who would support the Jackson position on energy he is enormously influiential M r . B R O W D E R . N o t everyone supports his position. The C H A I R M A N . T h a t is true. B u t i t seems to me your position is one of just saying there is n o t h i n g we can do about it. M r . B R O W D E R . N O , s i r ; there are a number of things we can do to produce energy i n the country. B u t one of those things has to be to take a look at how direct Federal investment and how Federal spendi n g indirectly influence private capital and influence which fuels and which systems we encourage. T o encourage the construction of billion-dollar facilities to produce 50,000 barrel a day energy systems would, i n our opinion, and the opinion of a lot of other people, not give you enough energy f o r your money. The administration's own synthetic fuel task force t o l d the President, and you can have these documents, they are accessible to you just as much as to M r . Cameron, t h a t the synthetic f u e l commercialization program w o u l d i n no way contribute to U.S. energy independence. The C H A I R M A N . Y O U say you share our objective to achieve energy independence. H o w w o u l d you do it? M r . B R O W D E R . F i r s t I would get an honest definition of independence, and decide what level of imports we could achieve through diversification of our sources. The C H A I R M A N . A l l r i g h t . I don't t h i n k t h a t is unrealistic. The Vice President, i n supporting his position, argued that i m p o r t i n g 30 percent of our energy needs by 1985, would be progress t o w a r d independence. D o you accept t h a t ? M r . BROWDER. Y e s , sir. Second The C H A I R M A N . H O W would you get there? M r . B R O W D E R . T O the 30 percent ? The C H A I R M A N . That's r i g h t . M r . B R O W D E R . S i r , I would rather, because I feel more comfortable, t a l k about domestic fuel production, because those are the issues t h a t our organization works on. The C H A I R M A N . A l l r i g h t . M r . B R O W D E R . F r o m the coal and oil and synthetic fuels w o r k and energy facilities s i t i n g and electric power demand w o r k t h a t our people do, we believe t h a t i t is possible to stimulate coal production i n a much more efficient way than the administration is now doing. T o the degree that government has to bias toward one segment of the industry or another, we believe the biases are going i n just the wrong way now. 316 The C H A I R M A N . Specifically what w o u l d you have us do? H o w w o u l d we amend this legislation to achieve this goal ? M r . B R O W D E R . I would t h r o w out this legislation, sir. The C H A I R M A N . Then what legislation do we need, i f any? M r . B R O W D E R . I t h i n k the first t h i n g you w o u l d have to recognize is the country is broken i n t o diverse regions t h a t have diverse sources of energy and uses of t h a t energy once i t comes to them. I t is difficult t o create an efficient, u n i f o r m nationally applied energy production system when y o u are t a l k i n g about regional f u e l consumption. I w o u l d l i k e to give you a very specific example. E i g h t y percent of our current national coal production comes f r o m east of the Mississippi River. F i f t y five of our coal resources i n this country measured by B r i t i s h thermal units, w h i c h is the way we b u r n i t , instead of measured by tons, is east of the Mississippi River. There is more than 80 b i l l i o n tons of coal t h a t is low s u l f u r east of the Mississippi River. Most of the demand f o r expanded coal consumption is i n the industrial sector of this country east of the Mississippi River. Y e t the administration and those elements of the coal i n d u s t r y t h a t have enough capital to be mobile enough t o make the move are w a n t i n g t o take advantage of cheap Federal leases on the public lands i n the West and s h i f t our coal production, i n effect develop a new coal industry out there where we w o u l d take, i n the West, low quality coal. I t is only low s u l f u r s i t t i n g i n the ground. I f i t has fewer B r i t i s h thermal units, by the time y o u b u r n enough coal to achieve the same u n i t of energy production, you have burned more s u l f u r . The C H A I R M A N . H O W would you achieve the purpose of m a k i n g the—converting coal to the purposes now served by o i l i f we don't f o l l o w some k i n d of a synthetic fuel operation ? M r . B R O W D E R . W e l l , there is a considerable difference between the economics, i n c l u d i n g the geographic economics, of synthetic f u e l production and production of coal f o r use under boilers, f o r direct production of electricity. A n d the first t h i n g t h a t we would do w o u l d be t o look at those Federal programs t h a t are biasing t o w a r d inefficient fuels, 7,000 B t u coal instead of 12,000 B t u coal, and stop the biases. I t just doesn't make sense to take coal f r o m W y o m i n g t o West V i r g i n i a , but t h a t is the basis of the administration's coal production program. F o r synthetic fuels, sir, I want to t e l l you, because t h i s is very important, we do not oppose the production of synthetic fuels. There w i l l undoubtedly come a time when synthetic fuels w i l l be necessary and we w i l l have to inject them i n t o our economy. B u t i f you subsidize the commercial development of synthetic fuels before there is a market f o r the fuels, you are going to bias the region of the country t h a t produces those f ueis. F r o m our point of view, the Midwestern coals, I l l i n o i s and Ohio, t h a t region, w o u l d be the natural basis f o r synthetic f u e l production when the economy can genuinely use synthetic fuels. T h e C H A I R M A N . M a y I ask you, M r . Browder, i f you, perhaps f o r the record, because this m i g h t take some thought on your p a r t , I 317 mean a l i t t l e more thought on your part, f o r the record i f you could give us your proposal as t o how we m i g h t be able to translate this legislation or get new legislation, legislation you t h i n k you would work, t h a t w o u l d enable this administration or an administration w i t h a similar viewpoint, to achieve this b i g stimulus of the coal industry, w o u l d give us the k i n d of energy production we need ? M r . B R O W D E R . Could I make a last short point ? T h e CHAIRMAN. Yes, sir. M r . B R O W D E R . The difference between a 1 5 percent and a 2 5 percent reserve m a r g i n i n capital construction f o r electric power companies over the next 10 years would come to capital investment of $63 billion. The range of financial opportunities both f o r saving and investment i n t a k i n g an objective look at the need f o r u t i l i t y construction, the relationship between reserve margins to u t i l i t y financing, the relationship between investment i n large central station facilities and increased u n r e l i a b i l i t y t h a t results f r o m that, as compared t o diverse and smaller facilities where you have less outage risk, these kinds of analyses can show that there is such a range, w i t h i n a level influenceable by policy, but that does not require Federal subsidy, such a range of options f o r investment i n the u t i l i t y industry t h a t we would t h i n k at least that a h a r d analysis of u t i l i t y financing should precede any k i n d of legislation t h a t just says, "okay, the utilities say they need X amount of capital, let's make sure they get i t . " Because the electric u t i l i t y industry takes more capital f o r p l a n t property and equipment per dollar of sales than any industry i n the country. T o the degree that we invest i n electric power as opposed to less capital-intensive ways of achieving the same energy purposes, all we are doing is s h i f t i n g money out of other sectors of the economy into that electric power plant, property and equipment w i t h o u t regard to the p r o d u c t i v i t y of the u t i l i t y . The C H A I R M A N . Let me ask you, M r . Cameron, I t h i n k M r . Browder has made quite a strong case here. This is legislation that would provide f o r $100 b i l l i o n f o r i n effect subsidizing below the market rate, so you could come on w i t h synthetic fuels, among other things, and atomic energy i n a bigger way. H e argues, and I t h i n k the argument is a very logical one, t h a t the market f o r a l l its weaknesses does have great strength only going where the most efficient operation is and selecting the most efficient and discriminating against the inefficient, incompetent. The government doesn't do that. The government w i l l do the opposite. I t w i l l come in and subsidize that which the market won't take. T h a t is what this b i l l asks the government to do. W h a t is your answer ? M r . C A M E R O N . I would be opposed to any continuing subsidy of any energy source, including synthetic fuels. The C H A I R M A N . T h a t is what the b i l l does. I t subsidizes i n the sense M r . C A M E R O N . T O the extent that the b i l l does that, I am opposed to it. The C H A I R M A N . Then you are opposed to the b i l l because what the b i l l does is provide t h a t these investments w i l l go into those areas that would provide more fuel, but where the private market w i l l not finance them. 318 T asked Governor Rockefeller specifically, I said supposing the private market would only finance a particular project at a 12 percent rate because of the risk involved; w o u l d you come i n at 8 or 9 percent? H e said yes, that is what the legislation, i n his view, w o u l d do. H e is the p r i n c i p a l architect of the legislation. T h a t is a subsidy. M r . C A M E R O N . O f course, I m i g h t differ i n the way t h a t I w o u l d administer whatever government p r o g r a m m i g h t come out of the Congress. F i r s t of all, I don't t h i n k any energy source should be subsidized because t h a t causes wasteful use of t h a t energy source. The C H A I R M A N . I s n ' t t h a t the whole t h i n g this b i l l does? W h a t does this b i l l have i n i t aside f r o m a subsidy ? M r . C A M E R O N . Second: I w o u l d hope t h a t we w o u l d establish a competitive market f o r energy i n this country so t h a t by the n o r m a l processes of a t t r i t i o n , we w i l l find out w h i c h energy sources are most economical. I f , f o r instance, after we have established what synthetic fuels' costs really are, i f they cannot compete i n a free market, I w o u l d say t h a t they have been determined not to be feasible at t h a t p a r t i c u l a r moment. Now, w h a t we really are doing, I t h i n k , i n even considering Federal p a r t i c i p a t i o n i n the financing of new energy sources is t o o l i n g u p f o r the latter p a r t of the century. I agree w i t h M r . B r o w d e r and others who say we are not going to produce many barrels of o i l or cubic feet of gas d u r i n g the next 10 years. B u t what we w i l l do is get ourselves prepared to make the best choices of energy supply when we really have to have more domestic sources. A n d that, I believe, is an appropriate role f o r Government—to share the risk w i t h i n d u s t r y ; not pay f o r i t ; not take a l l the risks— but to share the extraordinary risks of b r i n g i n g these expensive new fuel sources into practice. I would like to make one clarification. M r . B r o w d e r suggested t h a t I have some proprietary interest i n the technologies t h a t are being proposed here. T have absolutely none. T h i s is a misinterpretation on his part. I believe all available technological approaches t h a t are ready t o go to commercial operation at the present time should be encouraged. I do not believe that ideas i n the R. & D . stage should be pushed into a commercial application before they are ready. B u t we have i n the synthetic fuels area numerous technologies t h a t have been practiced over the past 20 years, i n Europe, South A f r i c a , and elsewhere, that we should learn how to use and learn where they fit i n our own energy economy. The C H A I R M A N . X O W , I would like to get t o M r . C u r y and M r . Simpson on the Jacksonville matter, because I t h i n k this is fascinating. 1 notice i n the Jacksonville story, first M r . Simpson, I notice t h a t the U.S. News and W o r l d Report, w h i c h is a h i g h l y reputable publication, says t h a t since Offshore Power Systems arrived 3 years ago, Jacksonville has done the f o l l o w i n g : f o r a l l practical purposes, given the f i r m 850 acres of choice industrial l a n d ; promised t o b u i l d a 319 $137 m i l l i o n bridge to provide access to the plant's location; offered to buy t h r o u g h the municipal power company t w o floating plants at a cost critics insist the city can i l l afford, $2.2 billion. Spend more than $1 m i l l i o n f o r the purchase of enriched uranium fuel f o r Jacksonville's t w o floating powerplants, which now appear w i l l never be b u i l t . Launch construction of a vocational rehabilitation center at a cost of $11 m i l l i o n to t r a i n thousands of O P S employees. Offer to sell $180 m i l l i o n i n low-interest, tax-exempt revenue bonds to provide the company w i t h ready cash. I n view of a l l of this, and i n view of the fact that the article f u r t h e r said that since 1974, the Offshore Power Systems has had f o u r of its eight orders canceled and the other four delayed f o r 5 years, went on to say t h a t O P S ' president was now t r y i n g to persuade the Federal Government to buy f o u r floating plants and lease them to troubled utilities. A letter received f r o m Westinghouse—and I have i t r i g h t here— dated A p r i l 12, "Dear Senator P r o x m i r e , " a letter I received yesterday, backed up this point. I t described O P S as an excellent candidate f o r E I A financing, an excellent example of a company looking f o r a Federal bailout. M r . S I M P S O N . N O , sir, i t is not. I don't know w h y the State of F l o r i d a decided to b u i l d a bridge. I am not i n the bridge-building business or traffic business. Westinghouse d i d attempt, as we always attempt to sell our products, to sell not only t o Jacksonville Electric A u t h o r i t y , but to F l o r i d a Power and L i g h t , M i d d l e South U t i l i t i e s and the Southern Companies floating nuclear plants. T h e city of Jacksonville, Jacksonville Electric A u t h o r i t y , at one point intended t o buy those plants and f o r their own reasons went ahead and bought some uranium. T h a t is a perfectly reasonable t h i n g f o r them to have done i f they had intended to go ahead w i t h the plant. W e have had the p l a n t delayed, as I have explained, because of the low load g r o w t h on the public service electric and gas u t i l i t y system. There was help i n t r a i n i n g people, almost every State of the U n i o n has a f a c i l i t y or organization that helps t r a i n industrial employees t o b r i n g industry into their area. They offered i t ; we accepted it, we used i t when we came in. I do not believe there has been any $180 m i l l i o n bond issue. They said they offered t o do it. This is something that they do normally. I do not believe t h a t has yet been done and i t may never be done. Let's see. The other t h i n g was, yes, Westinghouse does believe i t would be i n the U n i t e d States' interest to buy two of these plants. T h a t is not a bailout. The fact that we would like to sell two or f o u r plants to the U n i t e d States, i f the U n i t e d The C H A I R M A N . W h y do you have to sell to the U . S . Government? W h y can't you simply operate these, i f they are efficient ? M r . S I M P S O N . W e don't operate them, sir! W e b u i l d them. The C H A I R M A N . W h y can't they be operated ? M r . S I M P S O N . W e have no customer. The C H A I R M A N . T h a t is because the market won't pick i t up. Y o u have to go to the Federal Government w i t h a $100 b i l l i o n project. 320 M r . S I M P S O N . Sir, i t is not a b a i l o u t ; th© fact t h a t we have a product we believe is desirable f o r the U n i t e d States t o buy. T h e C H A I R M A N . W h y do you b u i l d this i f you have no customers ? M r . S I M P S O N . W e have four—we have a customer f o r f o u r plants, and we have a perfectly viable operation. T h e C H A I R M A N . I thought you said you had no customer f o r t h i s particular offshore plant. M r . S T M P S O N . W e don't b u i l d them u n t i l we have orders f o r them, sir. W e have orders f o r four. W e are b u i l d i n g four. I f the U n i t e d States w o u l d like t o buy any, we w i l l be glad t o sell them to them. T h e U n i t e d States w o u l d only do this, i f thev believe at the present time i t was undetermined as to w h a t the load g r o w t h i n an area w o u l d be, like F l o r i d a , Georgia, Alabama, Mississippi, and none of the utilities f e l t t h a t they could go ahead; the Government m i g h t decide that i t w o u l d be i n the interest of energy assurance f o r the f u t u r e to buy the plants and then resell them t o whichever of these utilities at the time need them. I f the U n i t e d States doesn't believe this is a good t h i n g , they don't have to buy them. W e w i l l continue, and we w i l l s t i l l have a good business. T h e C H A I R M A N . N O W , may I ask M r . C u r y to comment. M r . C U R Y . I differ quite a b i t w i t h a lot of statements M r . Simpson said. Number one, I would l i k e t o make a l i t t l e statement here. I t h i n k i t is well established that w i t h o u t very, very large Federal subsidies, Westinghouse cannot sustain O P S w i t h o u t resorting t o a k i n d of atomic socialism. They came to Jacksonville. They jumped i n t o the government process, they joined the r i g h t clubs, they rubbed shoulders, and anybody that opposed them f e l t the w T rath of Westinghouse Corp. I am a small independent grocer w i t h a very small store. M y w i f e and f a m i l y . The Westinghouse Corp.—and I say this f o r the record— harassed, threatened, and r i g h t now i t is i n f r o n t of a Federal g r a n d i u r v , where the vice president of Westinghouse or Offshore Power is being charged w i t h extortion to do bodily h a r m t h r o u g h the mails. I w o u l d like to make another statement on the bonds t h a t he said they have already accepted; the p o r t authority t h a t doesn't answer to any one passed a resolution to issue the bonds f o r O P S , tax-exempt bonds. I t so happens t h a t members of the p o r t a u t h o r i t y were promised contracts f r o m Offshore Power Systems, members of the Jacksonville Electric A u t h o r i t y , the man who is no longer there t h a t was going to buy the nuclear plants, M r . Weinard, he is under t w o grand i u r v investigations and has l e f t Jacksonville. T h e bridge is not $137 m i l l i o n . I t is being pushed, and i t is $160 million. B u t I w o u l d like t o make one statement. T h e m a i n man t h a t came to this town, M r . Staten—and I am very involved i n this Offshore Power thing—he just so happens to be President Ford's chief f u n d raiser f o r the State of F l o r i d a . A n d I w o u l d like t h a t t o go i n t o the record. I don't know M r . Simpson. B u t they came to this t o w n and p a i d no taxes. They deceived, they deceptively marketed their merchandise. 321 They couldn't give anybody a straight answer, and anybody t h a t opposed them, and a very small group i n the beginning, holy hell broke loose. They sent out smear letters on me. They r u n background checks on myself. They have done things that are unbelievable i n the history of the U n i t e d States. M r . SIMPSON. A n d I don't believe them. The CHAIRMAN. W h o r a n the background checks ? M r . CURY. M r . Staten admitted i t to a television station. H e had a file on me. H e is the executive vice president. H e admitted on public television, C B S , they had a l l these documents. I n fact, he called people i n the community. H e spread false propaganda about me. I f he was so worried that this u n i t was so good and he had customers, what was lie worried about a l i t t l e grocer? I went and bought shares i n Westinghouse, Public Service and the company he mentioned, M i d d l e South Utilities. There is a letter here I wrote t o M r . K i r b y , chairman of the board. I got a letter back and found out he is an amateur magician. H e d i d not give me an answer. I say, does Jacksonville have any money invested i n Jacksonville? H e referred me to M r . Zachelda. I turned around and found out that Public Service and Gas dreamed up this idea; i t was w r i t t e n up i n New Y o r k e r Magazine t h a t Public Service and Gas has p u t a l l the money i n this project. They have not proved to me as a stockholder t h a t they have any money i n i t . I n other words, i f Jacksonville—and let me mention F l o r i d a Power and L i g h t , and I w o u l d like to b r i n g this up, 4 of the directors and major stockholders of Westinghouse control 23 percent of F l o r i d a Power and L i g h t . I do a l i t t l e homework, too. M r . Simpson wasn't aware of it. I am a grocer, but I do a l i t t l e bit on the side. The CHAIRMAN. There is one other point before you ask M r . Simpson to answer and perhaps conclude, that I realize the situation at Jacksonville must be red hot on this issue, the t o w n is divided on i t . W e a l l know the enormous influence the newspapers have. A m o n g other things the " U . S . News and W o r l d R e p o r t " reported that Jacksonville's newspapers, the " F l o r i d a Times," " U n i o n , " and " J o u r n a l , " are wholly-owned subsidiaries of the Seaboard Coast L i n e Railroad, a railroad which stands to g a i n considerably f r o m its real estate holdings, i f O P S proves successful, supported the attempts to buy nuclear plants and so d i d the newspapers i n banner headlines and editorials day-after-day. M r . SIMPSON. They m i g h t even own or have some coal, i f Jacksonville doesn't buy these plants, so they are going to make out either way. The CHAIRMAN. W o u l d you like t o make f u r t h e r response? M r . SIMPSON. Yes, I just t h i n k i t is a misuse of a f o r u m t o discuss the Energy Independence A u t h o r i t y to make statements of the sort that this gentleman has made i n a direct attack, which he is prepared f o r , and i t is clear t h a t I wouldn't know a l l the facts about what somebody said to h i m or anybody else i n Jacksonville. I am f r o m Pittsburgh. 322 T d i d have the responsibility at one time f o r this plant. I have not had responsibility f o r this plant f o r the last 18 months, and I just w o u l d have no way to counter all the details. Basically we have a viable commercial operation, and the things t h a t went w r o n g i n the C i t y of Jacksonville, i f the Jacksonville Electric A u t h o r i t y d i d something w r o n g or the F l o r i d a Power and L i g h t d i d something wrong, that is somebody else's problem. W e went i n there w i t h a perfectly s t r a i g h t f o r w a r d business proposition before the O P E C embargo, when electric utilities were b u y i n g plants, because they believed i n the g r o w t h of 7 or 8 percent a year, instead of 2 years negative growth. Obviously, w i t h a 2-year negative growth, our market d i d n ' t t u r n out t o be as good as we thought. W e had no plants cancelled. W e had some letters of intent t h a t were not firmed up. T h a t is perfectly reasonable. I t h i n k t h a t most of the statements the gentleman has made simply are not factual. T h e CHAIRMAN. A l l r i g h t , sir. W e l l , I t h i n k that is a perfectly proper criticism t h a t you weren't prepared. I w i l l tell you what I would like to do. I f you w o u l d l i k e t o make a detailed response to M r . C u r y f o r the record w i t h i n the next week or so, so that you would have an o p p o r t u n i t y t o consult w i t h people i n F l o r i d a , who are on the spot and f a m i l i a r w i t h i t , I w i l l be happy t o disclose that, release t h a t to the press or handle i t i n any way you feel would be helpful, because you are correct i n that, the purpose of this f o r u m is not to decide a n y t h i n g f o r Jacksonville. I t h i n k i t is a matter of concern, but the purpose of this f o r u m , of course, is to see whether or not we should pass this legislation or m o d i f y i t , or amend i t . T t h i n k all of you gentlemen have contributed to our understanding. M r . SIMPSON. H i s t o r y w i l l show The CHAIRMAN. I w o u l d like t o have you, M r . Simpson, f o r the record, supply us w i t h whatever you w o u l d like to. M r . SIMPSON. I w i l l , sir, and history w i l l show t h a t floating nuclear plants are the cheapest, most environmentally acceptable way of producing electric power that this country has any possibility of achieving i n the next 20 years. The CHAIRMAN. T h a n k you, gentlemen, very much. W e appreciate your testimony. T h e committee w i l l stand i n recess u n t i l 10 o'clock tomorrow m o r n i n g , when we have a number o f witnesses who w i l l appear. [Whereupon, at 12:45 p.m., the hearing was adjourned, to be reconvened at 10 a.m., on Wednesday, A p r i l 13,1976.] [The f o l l o w i n g letter f r o m Offshore Power Systems was ordered inserted i n the record at this p o i n t : ] OFFSHORE POWER SYSTEMS, Jacksonville, F l a . , A p r i l 26, Hon. WILLIAM 1916. PROXMIRE, U.S. Senate, D i r k s e n Senate Office Building, Washington, D.C. DEAR SENATOR PROXMIRE: A t t h e h e a r i n g i n W a s h i n g t o n , D . C . on Tuesday, A p r i l 13, 1976, before y o u r C o m m i t t e e on B a n k i n g , H o u s i n g a n d U r b a n A f f a i r s i n r e g a r d t o S-2532, Energy Independence A u t h o r i t y , J o h n W . Simpson appeared 323 as C h a i r m a n of t h e A t o m i c I n d u s t r i a l F o r u m . A t t h a t h e a r i n g Joseph I I . C u r y of Jacksonville, F l o r i d a , representing Consumer Power, also testified. D u r i n g the h e a r i n g , a number of statements were made i n r e g a r d to Offshore Power Systems, a Westinghouse venture, as w e l l as the C i t y of Jacksonville. Since M r . Simpson is a n Officer-Director of Westinghouse, you agreed to h o l d the record open so t h a t M r . Simpson w o u l d have an o p p o r t u n i t y t o consult w i t h Offshore P o w e r Systems a n d m a k e a response f o r the record. A s P r e s i d e n t of Offshore P o w e r Systems a n d at the reguest of M r . Simpson, I w o u l d l i k e t o offer the a t t a c h m e n t to t h i s l e t t e r f o r i n c l u s i o n i n the record. V e r y t r u l y yours, A. P. Z E C U E L L A , President. Attachment. O F F S H O R E P O W E R S Y S T E M S R E S P O N S E TO A L L E G A T I O N S The f o l l o w i n g responses to subjects raised a t the h e a r i n g a n d the headings used i n the responses are f o r the purpose of c a t e g o r i z a t i o n only. A l l e g a t i o n . — W e s t i n g h o u s e cannot sustain OPS w i t h o u t f e d e r a l subsidies. F o l l o w i n g conversations between M r . Robert K i r b y , C h a i r m a n of Westinghouse, a n d M r . F r a n k Zarb, A d m i n i s t r a t o r of the F e d e r a l E n e r g y A d m i n i s t r a tion, i n M a r c h of 1975 r e g a r d i n g the p o t e n t i a l shortages of electrical generati n g capacity i n t h e U n i t e d States i n the early 1980's. OPS proposed t h a t the F E A purchase f o u r F N P ' s f o r subsequent resale or lease to the electric u t i l i t y i n d u s t r y f o r s t a r t of o p e r a t i o n i n the t i m e period 1982 to 1986. T h i s proposal was made on the basis t h a t the load g r o w t h u n c e r t a i n t i e s a n d f i n a n c i a l d i l e m m a s of the u t i l i t y i n d u s t r y h a d caused the d e f e r r a l of planned generation to such an e x t e n t t h a t there was a r e a l possibility of a shortage of generation capacity by the e a r l y to m i d 1980's. T h i s s h o r t f a l l was one t h a t w a s considered a serious t h r e a t to the N a t i o n a l economy by Westinghouse a n d some p a r t s of t h e F e d e r a l G o v e r n m e n t i n c l u d i n g sections of the F E A . H i s t o r i c a l records show t h a t economic g r o w t h was a l w a y s accompanied by sustained increases i n e l e c t r i c i t y use. T h e s t a r t of the economic recovery t h e n envisioned f o r the 1975-1976 t i m e period and continued g r o w t h i n t o the l a t e 1970's a n d e a r l y 1980's w o u l d r e q u i r e e l e c t r i c a l capacity not planned or delayed. T h e economic r i s k of not h a v i n g sufficient e l e c t r i c a l capacity to s u p p o r t a n d sustain t h e recovery and g r o w t h a r e so great as to be unacceptable. T h e OPS proposal presented a p r o g r a m by w h i c h over 4400 M W of nuclear generat i o n as F N P ' s could be s t a r t e d and scheduled f o r o p e r a t i o n as early as 1982 w i t h o u t h a v i n g a designated u t i l i t y or site. T h e f e d e r a l f u n d s used f o r t h i s p r o g r a m w o u l d be recovered i n t o t a l t h r o u g h the resale or lease of these p l a n t s to o p e r a t i n g u t i l i t i e s . T h i s F E A p r o g r a m was never envisioned as a b a i l out f o r OPS i n t h a t OPS h a d p l a n n e d a n d has c o n t i n u e d i n business to sell these p l a n t s to the u t i l i t y i n d u s t r y . I t was conceived out of a r e a l concern f o r the f u t u r e of t h i s c o u n t r y and presented as a m e t h o d to p a r t i a l l y a l l e v i a t e a f u t u r e e l e c t r i c i t y shortage a n d move t h e n a t i o n m o r e r a p i d l y t o w a r d s i t s goal of energy independence. W h e t h e r or n o t t h e r e is f e d e r a l action on t h i s proposal OPS is n o w a n d w i l l r e m a i n an economically v i a b l e u n d e r t a k i n g w i t h the f o u r u n i t s n o w under f i r m c o n t r a c t w i t h P u b l i c Service E l e c t r i c and Gas. N o b a i l out is necessary or requested. A l l e g a t i o n . — P u b l i c Service E l e c t r i c & Gas Company delayed t h e i r orders f o r seven years a n d has p u t a l l the money i n the project. On September 3, 1974, due to a r e e v a l u a t i o n of t h e i r o v e r a l l c o n s t r u c t i o n prog r a m r e s u l t i n g f r o m reduced load g r o w t h projections. P u b l i c Service E l e c t r i c & Gas Company requested t h a t the delivery dates f o r the f o u r F l o a t i n g N u c l e a r P l a n t s under c o n t r a c t w i t h OPS be rescheduled. The d e l i v e r y of the first F N P was rescheduled f r o m J u l y 1979 to J u l y 1984 and the r e m a i n i n g three u n i t s rescheduled t o J u l y 1986, J u l y 1989 and J u l y 1991, respectively. These revised shipment schedules w r ere accommodated t h r o u g h c o n t r a c t negotiations. A t no t i m e since the o r i g i n a l l e t t e r of i n t e n t f r o m P u b l i c Service E l e c t r i c & Gas to Westinghouse i n F e b r u a r y 1972 has P S E & G owned or controlled Offshore Power Systems. U n t i l J a n u a r y 1, 1975, Offshore Power Systems was a j o i n t v e n t u r e of Westinghouse a n d Tenneco. E f f e c t i v e as of t h a t date the interest 324 of Tenneco i n OPS was r e t i r e d a n d Westinghouse became the sole owner of OPS. P u b l i c Service has by no means p u t u p a l l of t h e money f o r OPS. Westinghouse has h a d a n d w i l l continue t o have a s u b s t a n t i a l investment i n OPS. A l l e g a t i o n . — O P S deceptively m a r k e t e d t h e i r product t o t h e J a c k s o n v i l l e E l e c t r i c A u t h o r i t y and t h e A u t h o r i t y spent a m i l l i o n d o l l a r s f o r nuclear f u e l . T h e Jacksonville E l e c t r i c A u t h o r i t y recognized since early i n t h e 1970's t h a t the C i t y of Jacksonville was g r o w i n g a t such a r a t e t h a t t h e A u t h o r i t y w o u l d eventually need to consider nuclear pow r er to s a t i s f y the needs of t h e C i t y . I t was w i t h t h i s i n m i n d t h a t the A u t h o r i t y a u t h o r i z e d a n d received f r o m B l a c k a n d Veetch, consulting engineers, a n in-depth r e p o r t on the new g e n e r a t i o n reco m m e n d a t i o n f o r the J E A system. T h i s report, finished i n early 1972, concluded t h a t t h e J E A system should consider only t h e a d d i t i o n of nuclear powTer a f t e r 1982. T h i s recommendation w a s made m a i n l y upon economic considerations a n d t h i s was i n a t i m e period w h e n oil, our only source of energy f o r o u r e x i s t i n g power plants, was cheap and p l e n t i f u l . Since the B l a c k a n d Veetch report, the J E A staff has been actively i n v e s t i g a t i n g the v a r i o u s nuclear p l a n t concepts. T h i s i n v e s t i g a t i o n has i n c l u d e d t r i p s t o v a r i o u s nuclear p l a n t s i n operation or under construction, v i s i t s and conversations w i t h u t i l i t i e s already i n the nuclear generation era, as w e l l as discussion w i t h vendors of nuclear p l a n t equipment i n c l u d i n g Offshore Power Systems. I n September, 1973 Offshore Power Systems s u b m i t t e d t o the J a c k s o n v i l l e E l e c t r i c A u t h o r i t y a proposal f o r the purchase of t w o F N P ' s by t h e J E A f o r o p e r a t i o n i n 1982 and 1984. T h e proposal w a s based upon the s t a n d a r d F N P and t h e c o n t r a c t t e r m s and conditions t h e n being used by OPS i n negotiations w i t h other u t i l i t i e s . F o l l o w i n g a r e v i e w of t h e proposal by the J E A a n d i t s staff, a c o n d i t i o n a l l e t t e r of i n t e n t was issued by the J E A to OPS. T h i s l e t t e r was v a l i d f o r a period of 120 days and r e q u i r e d t h a t f o u r specific conditions be satisfied p r i o r t o J E A e n t e r i n g i n t o a c o n t r a c t w i t h OPS. These c o n d i t i o n s included: 1. J E A ' s i d e n t i f i c a t i o n of a suitable site f o r FNP's. 2. J E A ' s economic e v a l u a t i o n s h o w i n g t h a t the F N P w a s i t s p r e f e r r e d generat i o n choice. 3. J E A o b t a i n i n g power sales agreements or j o i n t v e n t u r e agreements w i t h other u t i l i t i e s f o r t h e FNP's. 4. J E A o b t a i n i n g a satisfactory method of financing the plants. T h e o r i g i n a l proposal w a s f o r t w o F N P ' s a t a price of $345 m i l l i o n each or a t o t a l of $690 m i l l i o n and n o t $2.2 b i l l i o n . D u r i n g t h e course of discussions a n d negotiations w i t h the J E A staff t o w a r d s the s a t i s f a c t i o n of these conditions, J E A requested t h a t OPS s u b m i t a proposal to manage the t o t a l p r o j e c t i n c l u d i n g t h e design and construction of a l l necessary and related site s t r u c t u r e s such as the p r o t e c t i v e b r e a k w a t e r and b u r i e d cable f r o m the F N P ' s t o shore. A t the request of a n d i n c o n j u n c t i o n w i t h t h e J E A staff and consultants, OPS proceeded t o develop p r e l i m i n a r y site s t r u c t u r e s and f a c i l i t y designs a n d cost estimates. A s r e q u i r e d by the J E A financial consultants and bond specialists, i t wras necessary to estimate the completed cost of the t o t a l p r o j e c t i n c l u d i n g escal a t i o n a n d interest costs. T h e i n i t i a l cost estimate f o r the t w o F N P ' s , site structures a n d f a c i l i t i e s and p r o j e c t management was $981 m i l l i o n . T h e a d d i t i o n of other J E A costs, contingencies, escalation estimates a n d interest costs resulted i n a t o t a l completed estimated cost of $1,960 m i l l i o n . A s r e q u i r e d by J E A bond indentures, a debt service reserve account h a d t o be established. T h i s reserve account was set at $200 m i l l i o n . T h e J E A ' s financial consultant r e p o r t e d the p r o j e c t w a s feasible and financeable. F a i l u r e to s a t i s f a c t o r i l y resolve the conditions of the l e t t e r of i n t e n t resulted i n several m u t u a l extensions of t h e l e t t e r t h r o u g h t h e s p r i n g a n d summer of 1974. D u r i n g t h i s t i m e period, the Energy Research and Development A d m i n i s t r a t i o n i n f o r m e d the u t i l i t y i n d u s t r y t h a t a l l c o n t r a c t i n g f o r e n r i c h i n g services f o r nuclear f u e l t o be used i n p l a n t s f o r operation by 1982 h a d to be c o n t r a c t e d f o r by June, 3974. A s the OPS negotiations w e r e n o t complete b u t w e r e progressing, t h e J E A c o m m i t t e d t o t h e e n r i c h i n g services necessary f o r t h e first core of the first p l a n t w h i c h r e q u i r e d the d o w n p a y m e n t of a p p r o x i m a t e l y $1 m i l l i o n to E R D A w h i c h was subsequently refunded. A l l of the negotiations between OPS and the J E A were conducted i n a n open manner. A l l n e g o t i a t i o n meetings wrere attended by members of t h e J E A staff 325 a n d representatives of t h e C i t y ' s Office of the General Counsel. I n a d d i t i o n , m a n y of the other briefing sessions were held before the A u t h o r i t y itself as w e l l as t h e C i t y Council. M a n y of these briefing sessions were attended by and reported on by t h e local newspapers, T V and r a d i o stations. I n spite of continued negotiations, a satisfactory c o n t r a c t u a l arrangement between J E A a n d OPS was not reached over the summer of 1974. T h e l e t t e r of i n t e n t was t e r m i n a t e d on September 8, 1974 by OPS w h i c h was a r i g h t under the terms of the letter. T h e $1 m i l l i o n d o w n payment made by J E A to E R D A f o r f u e l e n r i c h i n g services has been r e f u n d e d i n f u l l . A l l e g a t i o n . — J a c k s o n v i l l e gave OPS 850 acres of choice i n d u s t r i a l land. T h e Jacksonville P o r t A u t h o r i t y sold Offshore Power Systems 880 acres of l a n d on B l o u n t I s l a n d f o r $2,000 per acre, or $1,760,000. T h i s l a n d h a d been f o r sale f o r many years. Of the acreage, 525 acres was i n m a r s h or w e t lands. I n order to make the B l o u n t I s l a n d l a n d suitable f o r i t s purposes, OPS spent $10 m i l l i o n i n site p r e p a r a t i o n w h i c h included dredging a n d filling. I n a d d i t i o n , i n r e t u r n f o r taki n g the 525 acres of m a r s h a n d wet lands, OPS purchased 1,007 acres of m a r s h a n d w e t lands i n D u v a l County and deeded t h i s p r o p e r t y — a t no cost—to the C i t y of Jacksonville. T h i s l a n d i s so deeded t h a t i t w i l l r e m a i n i n i t s n a t u r a l state i n p e r p e t u i t y . F u r t h e r , OPS p a i d $800,000 to the State of F l o r i d a f o r sovereign m a t e r i a l t a k e n out of the St. Johns R i v e r and placed on B l o u n t I s l a n d by the U.S. A r m y Corps of Engineers as p a r t of t h e h a r b o r deepening project. ( I t should be noted t h a t i t was the first t i m e i n the h i s t o r y of the State t h a t a charge was made by t h e State of F l o r i d a f o r m a t e r i a l dredged f r o m a Corps of Engineers project.) T h i s means t h a t an acre of usable l a n d or w a t e r on B l o u n t I s l a n d a c t u a l l y cost OPS over $14,000 a n acre, i n c l u d i n g the $2,000 per acre p a i d the P o r t A u t h o r i t y . U.S. News and W o r l d Report stated t h a t the price of other i n d u s t r i a l l a n d nearby was r u n n i n g 5-10 times t h e $2,000 figure. The f a c t is t h a t i n mid-1973 and a f t e r l a n d values h a d been raised due t o OPS coming to Jacksonville, OPS purchased 325 acres of p r i m a r i l y u p l a n d p r o p e r t y on t h e m a i n l a n d — i n c l u d i n g about a m i l e of deep w a t e r r i v e r f r o n t a g e — r i g h t across f r o m B l o u n t I s l a n d , f o r a t o t a l p r i c e of $1,225,000, or a p p r o x i m a t e l y $3,677 per acre. Because OPS delayed the exercise of the option on the l a n d one year i t d i d not pay taxes on the p r o p e r t y f o r t h a t period—however, i t p a i d the P o r t A u t h o r i t y $125,000 f o r t h e year's extension. H a d the r a w property at t h a t t i m e been on t h e t a x books, i t w o u l d have h a d t o be appraised a t over $7 m i l l i o n i n order to have cost $125,000 i n p r o p e r t y taxes. A l l e g a t i o n . — J a c k s o n v i l l e is t r y i n g to b u i l d a bridge f o r OPS. A bridge i n the area i n question has been projected on the F l o r i d a H i g h w a y D e p a r t m e n t maps as f a r back as 1960, t w e l v e years before OPS came to Jacksonville. The allegation doesn't m e n t i o n t h a t already i n t h e area the bridge w o u l d serve a r e : Imeson I n d u s t r i a l P a r k w i t h huge regional Sears catalogue c e n t e r ; St. Regis Paper Co.; t h e Jacksonville P o r t A u t h o r i t y ' s present f a c i l i t i e s on B l o u n t I s l a n d ; the Anheuser-Busch p l a n t ; the a i r p o r t ; the zoo; t h e B a c a r d i p l a n t ; a n d H i g h l a n d s and several other subdivisions. F u r t h e r m o r e , studies have shown the bridge to be viable w i t h o u t any reference to revenues projected to be generated by traffic to the OPS f a c i l i t y . A l l e g a t i o n . — S i n c e the a r r i v a l of OPS, u t i l i t y rates, t o l l s and taxes have gone up. WATER AND SEWER RATES The C i t y of Jacksonville began a comprehensive w a t e r and sewer p r o g r a m w i t h a bonded indebtedness i n excess of $100 m i l l i o n . I n an e f f o r t to finance t h i s program, the f o l l o w i n g r a t e changes were made beginning i n 1969—three years p r i o r t o t h e a r r i v a l of O P S : Date effective Prior to 1969 Jan. 1,1969 Feb. 1, 1973 October 1975 March 1976 Water (cu bic feet) Wastewa ter (cu bic feet) $6/3,600/quarter $3/l,200/mo__ $3/800/mo $3.50/300/mo $3.50/500/mo. No charge. $3.50 flat rate/mo. $4/800/mo. $6/300/mo. $6/500/mo. 326 ELECTRIC RATES T h e increase i n electric rates i n Jacksonville results f r o m s k y r o c k e t i n g f u e l o i l costs. T h e generating capacity of the E l e c t r i c A u t h o r i t y is 100% o i l fired. T h e f u e l o i l a d j u s t m e n t charge is t i e d d i r e c t l y to the increased cost of oil. Oct. 1,1973 Oct. 15, 1S73 Jan. 16,1974 1,000 kWn base rate 1,000 kWh fuel adjusted charge $18.38 18.38 18.38 $1.57 7.94 20.00 Taxes i n Jacksonville have been reduced every year since 1969. Year 196 7 196 8 196 9 197 0 197 1 197 2 197 3 197 4 197 5 .. . .... BRIDGE County rate City/county rate $28.04 25.S3 25.41 24.22 24.16 23.05 21.71 18.08 17.82 $40.74 31.93 31.41 29.72 29.66 27.05 22.89 19.30 19.04 TOLLS T h e Jacksonville T r a n s p o r t a t i o n A u t h o r i t y increased the bridge tolls f r o m lotf to effective September 1973, w i t h a p r o v i s i o n t h a t m a i n t a i n e d the 15^ r a t e f o r commuters t h r o u g h the use of t i c k e t books (40 tickets f o r $6.00). A c c o r d i n g to the J T A , t h i s action was t a k e n " t o increase J T A revenues suffic i e n t l y to provide the bonding capacity necessary t o i m p r o v e a n d e x p a n d the expressway system." A l l e g a t i o n . — O f f s h o r e Power Systems has p a i d no taxes. OPS has, to date, paid $292,000 i n F l o r i d a State Sales T a x , $86,000 i n P r o p e r t y ( r e a l and personal) T a x and $4,000 i n Occupational T a x . T h e B l o u n t I s l a n d p r o p e r t y , purchased i n A u g u s t 1975, i s n o w being appraised by D u v a l County and taxes w i l l be payable i n November of t h i s year. A l l e g a t i o n . — J a c k s o n v i l l e is b u i l d i n g a v o c a t i o n a l center f o r OPS. W h e n F l o r i d a J u n i o r College President D r . B e n W y g a l came t o J a c k s o n v i l l e seven years ago—long before OPS—he s t a r t e d e x p l o r i n g w a y s t o p u l l the v a r ious d o w n t o w n f a c i l i t i e s already operated by the F l o r i d a J u n i o r College i n t o one center. Nearly six years ago lie s t a r t e d w o r k i n g w i t h M a y o r H a n s T a n z l e r a n d the FJC- B o a r d C h a i r m a n and others to get u r b a n r e n e w a l l a n d i n t h e d o w n t o w n area. P a r t l y prompted by the a r r i v a l of OPS. a decision was made to go ahead w i t h a f u l l J u n i o r College Campus r a t h e r t h a n a center i n t h e d o w n t o w n area. T h i s campus now under construction is not solely a vocational center, nor is i t dependent upon the f u t u r e of OPS. T h e r e are more t h a n 3,000 students n o w i n the d o w n t o w n area at other f a c i l i t i e s i n v a r i o u s j u n i o r college p r o g r a m s ; easily enough to w a r r a n t the campus i f i t opened today. T h e f a c i l i t y , w h e n opened, w i l l serve the e n t i r e c o m m u n i t y . A l l e g a t i o v . — T h e Jacksonville P o r t A u t h o r i t y issued $180 m i l l i o n i n revenue bonds to give OPS operating revenue. No bonds f o r the OPS f a c i l i t y have ever been issued by t h e Jacksonville P o r t A u t h o r i t y . I n 1973 the A u t h o r i t y authorized the issuance, should OPS so request. of up to $180 m i l l i o n i n i n d u s t r i a l revenue bonds to finance p o r t - r e l a t e d f a c i l i t i e s and p o l l u t i o n c o n t r o l f a c i l i t i e s w h i c h w o u l d be sold or leased t o OPS and used as p a r t of the OPS f a c i l i t y . T h i s a u t h o r i z a t i o n was continued i n October 1975. T h e bonds w i l l not be issued u n t i l the request of OPS a n d t h e a u t h o r i z a t i o n w i l l be reviewed on a year-to-year basis by the A u t h o r i t y . T h e agreement be- 327 tween OPS a n d J P A provides t h a t the issue may n o t exceed the costs of the financed f a c i l i t i e s a n d t h e interest m u s t q u a l i f y as t a x exempt under F e d e r a l and F l o r i d a laws. T h e bonds are to be payable solely f r o m t h e revenue d e r i v e d f r o m the sale, o p e r a t i o n o r lease a n d do n o t c o n s t i t u t e a n indebtedness o r pledge of t h e general c r e d i t of t h e P o r t A u t h o r i t y . I n a d d i t i o n t o t h e leases, r e n t a l s or i n s t a l l m e n t s r e q u i r e d t o pay p r i n c i p a l and i n t e r e s t a n d r e d e m p t i o n p r e m i u m s on t h e bonds, OPS w o u l d pay a l l taxes, g o v e r n m e n t a l charges, u t i l i t y charges, etc., a n d w o u l d have f u l l responsibility f o r expense, operation, r e p a i r a n d maintenance of t h e f a c i l i t i e s . J P A i s a u t h o r i z e d t o issue i n d u s t r i a l revenue bonds u n d e r t h e " F l o r i d a I n d u s t r i a l Development F i n a n c i n g A c t " , Chapter 69-104, L a w s of F l o r i d a , General A c t s of 1969, as amended, a n d has done so a n u m b e r of t i m e s t h r o u g h o u t t h e years as have other agencies i n the State of F l o r i d a i n order to finance v a r i o u s types of i n d u s t r i a l development. I n f a c t , i n d u s t r i a l development financing i s a method of financing long recognized t h r o u g h o u t t h e U n i t e d States a n d i t s t a x exempt status i s p r o v i d e d f o r i n t h e 1954 I n t e r n a l Revenue Code a n d I R S Regulations. A l l e g a t i o n . — T h e local newspapers supported OPS. T h i s a l l e g a t i o n is best answered by one l o c a l newspaper's e d i t o r i a l d a t e d December 28, 1975. " W e supported the OPS p r o j e c t wholeheartedly. W e supported i t openly, honestly, t r u t h f u l l y . W e s t i l l support i t . " O u r support is based on the honest conviction, based on t h e f a c t available, t h a t t h e p r o j e c t w o u l d be good f o r t h e c o m m u n i t y of Jacksonville. "Success has a thousand f a t h e r s , to paraphrase the saying, w h i l e f a i l u r e is a n orphan. " T h e i n i t i a l promise has n o t yet materialized. T h e financial c r u n c h a n d the energy crisis p u t the p l a n t orders f r o m N e w Jersey, upon w h i c h the s t a r t of project was predicated, on the back burner, " I t is by no means dead. T h e orders have not been cancelled. They have been delayed. T h e f u t u r e i s u n c e r t a i n . " W e hope the p o t e n t i a l is realized. I t w i l l have a host of benefits f o r the c o m m u n i t y , i n c l u d i n g a w a y out of the poverty t r a p f o r m a n y w h o a r e unemployed or underemployed. " T h e c o m m u n i t y i n 1972 was u n i t e d i n a w a y seldom seen i n Jacksonville i n i t s desire to have OPS locate here. T h e support cut across social a n d economic lines. T h e e f f o r t was a c o m m u n i t y effort. " W e don't apologize f o r being p a r t of t h a t e f f o r t . " A l l e g a t i o n . — T h e A t t o r n e y General of F l o r i d a is r a i s i n g serious questions about t h e F l o a t i n g N u c l e a r Project. Robert L . Shevin is A t t o r n e y General of t h e State of F l o r i d a and, along w i t h t h e Governor and h i s Cabinet, is a Member of the B o a r d of Trustees of t h e I n t e r n a l I m p r o v e m e n t T r u s t F u n d of the State of F l o r i d a . M r . Shevin, on J a n u a r y 18, 1976, requested t h a t OPS appear before those Trustees at t h e i r J a n u a r y 20th meeting. A t t h a t meeting he expressed s a t i s f a c t i o n w i t h t h e answers received f r o m OPS. On M a y 23, 1972, upon the g r a n t of t h e F l o r i d a Dredge a n d F i l l P e r m i t req u i r e d to do t h e necessary w o r k on B l o u n t I s l a n d , the Trustees by r e s o l u t i o n p r o v i d e d t h a t i f t h e l a n d to be conveyed to OPS f r o m t h e Jacksonville P o r t A u t h o r i t y f o r t h e f a c i l i t y was not used to construct " a m a n u f a c t u r i n g p l a n t t o produce p l a t f o r m - m o u n t e d nuclear p l a n t s " t h e n i t was t o be reconveyed to t h e P o r t A u t h o r i t y . Because t h e U n i t e d States Nuclear R e g u l a t o r y Commission, i n i t s " F i n a l E n v i r o n m e n t a l I m p a c t Statement Related to t h e M a n u f a c t u r e of F l o a t i n g N u c l e a r P l a n t s " issued i n October of 1975 referenced a l t e r n a t i v e uses f o r t h a t land, M r . Shevin f e l t t h a t there m i g h t be a use contemplated by OPS t h a t was inconsistent w i t h the p e r m i t restrictions. I n a d d i t i o n , M r . Shevin w a n t e d an u p d a t e on t h e status of t h e project. Accordingly, a t t h e J a n u a r y 20, 1976 meeting of t h e Trustees, both the Jacksonville P o r t A u t h o r i t y a n d OPS appeared and assured t h e Trustees t h a t the c o n d i t i o n was being complied w i t h . I t was pointed out by OPS t h a t the a l t e r n a t i v e use discussion i n t h e N R C ' s E n v i r o n m e n t a l I m p a c t Statement was r e q u i r e d by the N a t i o n a l E n v i r o n m e n t a l Policy A c t as w e l l as by a series of F e d e r a l C o u r t cases and was r e q u i r e d regardless of w h e t h e r or not the agency involved (here the N R C ) or the owner h a d t h e power t o i m p l e m e n t t h e alternatives. I t w a s also pointed out t h a t OPS correspondence t h a t was p a r t of the I m p a c t Statement specifically called t h e 71-787—76 22 328 requirement of the B o a r d of Trustees to the attention of the Nuclear Regulatory Commission. I n fact, agencies of the State of F l o r i d a i n c l u d i n g the T r u s t ees had expressly commented on the proposed I m p a c t Statement when issued i n proposed f o r m i n J u l y of 1974 and those comments d i d not relate to the altern a t i v e use section. A t the January 20th meeting and i n accordance w i t h t h e A t t o r n e y General's request, the Trustees were also given a status report on the OPS project. A t the end of the OPS presentation by Messrs. Staten and Campbell, A t t o r n e y General Shevin s a i d : " I w o u l d j u s t like to t h a n k M r . Staten and M r . Campbell a n d the C h a i r m a n of the Port A u t h o r i t y f o r being w i t h us today and f o r answering these questions. A n d I hope t h a t everything moves as w e l l and on schedule as possible. A g a i n i t ' s not 12,000 jobs but i t ' s a substantial number of jobs and I w o u l d hope t h a t y o u ' l l get more orders and can employ a lot more people so we are t a l k i n g about an ongoing i n d u s t r y . " OPS knows of no f u r t h e r questions by the A t t o r n e y General of F l o r i d a . Lastly, M r . Cury charged a t the h e a r i n g t h a t he had been threatened and subjected to various f o r m s of personal harassment. A s we understand i t , t h i s m a t t e r is c u r r e n t l y under the j u r i s d i c t i o n of and is being investigated by a Federal grand j u r y . W e w o u l d like to propose t h a t the m a t t e r stand i n abeyance u n t i l the grand j u r y is heard f r o m . ENERGY INDEPENDENCE AUTHORITY ACT OF 1975 W E D N E S D A Y , A P R I L 14, 1976 U.S. SENATE, C O M M I T T E E ON B A N K I N G , H O U S I N G , AND U R B A N A F F A I R S , Washington, B . C . The committee met at 10:05 a.m. i n room 5302, Dirksen Senate Office B u i l d i n g , Senator W i l l i a m Proxmire (chairman of the committee) presiding. Present: Senators Proxmire and Sparkman. The CHAIRMAN. The committee w i l l come to order. This is the last day we have scheduled f o r hearings on S. 2532, the administration's Energy Independence A u t h o r i t y . We are delig