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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 ?
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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
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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.
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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 ?
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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.
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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
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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.
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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
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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.
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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 :
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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
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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
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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
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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.
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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 ?
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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.
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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
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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
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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 ,
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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
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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
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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
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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-
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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
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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
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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-
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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.
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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.
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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
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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.
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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.
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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
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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
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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
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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.
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LEGAL ISSUES
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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 .
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LEGAL ISSUES
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(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
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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
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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 ,
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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
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Twenty-seven
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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
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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
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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
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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.
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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,
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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
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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.
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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-
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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."
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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
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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
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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
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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,
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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?
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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
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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.
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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.
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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 ?
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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.
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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
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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.
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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
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$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.
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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.
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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.
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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
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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
@FedFRASER