oversight

Energy Policy: Developing Strategies for Energy Policies in the 1990s

Published by the Government Accountability Office on 1990-06-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United   States   General   Accounting   Office
                 Report to Congressional Committees                c’



lune   1990
                 ENERGY POLICY
                 Developing Strategies
                 for Energy Policies in
                 the 1990s




GAO/RCED-90436
GAO                United States
                   General Accounting  Office
                   Washington, D.C. 20548

                   Resources, Community,          and
                   Economic Development           Division

                   B-239501

                   June 19,199O

                   Congressional Energy and Environmental Committees

                   Our November 1988 transition report on the Department of Energy
                   (DOE)  summarized a number of major policy, management, and program
                   issues facing the new Secretary of Energy.’ That report described our
                   concern for the nation’s increasing vulnerability to oil supply disrup-
                   tions; the growing uncertainty regarding future electric generating
                   capacity; and the health, safety, and environmental problems associated
                   with various energy options. In an effort to address a broad range of
                   energy issues, the President announced in July 1989 that DOE would
                   develop a national energy strategy to guide future energy policy
                   decisions.

                   The information contained in this report updates and supplements the
                   information contained in our transition report and discusses our contin-
                   uing concerns about several energy issues: energy consumption,
                   increased dependence on imported oil from Persian Gulf sources that are
                   more likely to be interrupted, uncertainty over the adequacy of future
                   electric generating capacity, and concern for the potentially adverse
                   environmental effects of energy consumption. In addition, the Presi-
                   dent’s initiative to develop a national energy strategy is discussed.

                   We believe the information contained in this report, which draws on
                   numerous energy-related reports GAO has issued over the past several
                   years, will be useful to the cognizant congressional committees and sub-
                   committees involved with energy and environmental issues (listed at the
                   end of this letter) in monitoring the development of the national energy
                   strategy. We also believe that the information can be used by DOE as it
                   develops this strategy.


                   Securing sufficient and reliable future energy supplies to meet the
Results in Brief   increased I’.S. energy demand projected for the 1990s is a major issue
                   facing the nation. Since 1983. U.S. energy consumption has increased by
                   about 16 percent, and an upward trend is expected to continue through
                   the year 2000. Petroleum is used more than any other energy source in
                   the Iynited States, supplying about 41 percent of the nation’s total
                   energy needs.


                   ‘Energy Issues: GAO Transitm   .Senes (GtZOXKX-89-1GTR.   Nov. 1988).




                   Page 1                                        GAO ‘RCEDW-85     Energy Strategies   for the 1990s
    B239501




    With the increase in total energy consumption, two potentially dis-
    turbing energy supply trends are emerging:

l   The U.S. is becoming increasingly dependent on imported oil, particu-
    larly from the strategically sensitive Persian Gulf, to meet its petroleum
    energy needs. This trend increases the nation’s vulnerability to potential
    oil supply disruptions and increased oil prices.
l   Questions are being raised as to whether there will be adequate gener-
    ating capacity to meet the nation’s future electricity needs. While elec-
    tricity consumption has been steadily increasing in recent years and is
    projected to continue through the year 2000, much of the additional gen-
    erating capacity projected to come on line is in the early stages of con-
    struction and may not be completed in time to meet the nation’s future
    electricity needs during the 1990s.

    It is also increasingly being recognized that energy consumption creates
    potentially serious environmental, health, and safety consequences,
    whose possible solutions can be costly to address.

    As indicated by our previous work, a number of options are available to
    improve the nation’s ability to cope with the trend toward increased
    dependence on imported oil and to ensure adequate supplies of future
    electric generating capacity. These options also recognize the importance
    of protecting the environment.

    As directed by the President, DOE is developing a much needed national
    energy strategy that it expects will integrate and balance concerns for
    energy choices against other national concerns, such as environmental
    protection and economic growth. On April 2, 1990, DOE issued its interim
    report on the national energy strategy, which outlined goals for the
    strategy, obstacles to achieving the goals, and options for resolving
    these obstacles. Between April and December 1990, DOE plans to analyze
    the information in the interim report along with other data to develop
    energy strategy options. These options will be considered for inclusion
    in the strategy to be released by the President in January 1991. The
    effort to develop a national energy strategy is a step in the right direc-
    tion toward addressing the nation’s future energy needs and the envi-
    ronmental and budgetary implications that should be considered when
    developing energy policies.




    Page 2                              GAO/RCED-9@85   Energy Strategies   for the 1990s
                         B-239501




                         Although the United States has made impressive gains in the efficient
Increasing U.S. Energy   use of energy since 1973, recent low world energy prices have
Consumption              encouraged increased consumption, offsetting efforts to improve effi-
                         ciency gains in certain energy sectors. Over the last six years, domestic
                         energy consumption has increased by about 16 percent to an all-time
                         national high of 84.2 quadrillion BTUS in 1989.’ DOE’S Energy Information
                         Administration (EIA) projects U.S. energy consumption will continue to
                         increase between 1989 and the year 2000 by about 14 percent.

                         Currently, petroleum provides about 41 percent of the nation’s energy
                         needs; the other fossil fuels-coal and natural gas-each provide about
                         23 percent; nuclear powerplants are the source of about 7 percent; and
                         hydropower and other renewable energy sources together account for
                         about 7 percent. While an increase in energy consumption is projected
                         during the next decade, EIA expects the relative percentages of energy
                         provided from the above sources to change very little during this time
                         frame. Thus, petroleum is likely to remain the nation’s primary source
                         of energy for some years to come. Appendix I provides a more in-depth
                         discussion of trends in overall U.S. energy consumption.


                         As reported in August 1988, the United States is better able to respond
Increasing Dependence    to an oil crisis than it was during the 1970s when U.S. oil supplies were
on Imported Oil          disrupted by the 1973-1974 oil embargo of the Organization of Petro-
                         leum Exporting Countries (OPEC), the 1978-1979 Iranian revolution, and
                         the subsequent outbreak of war between Iran and Iraq:; However, in
                         that report, we also cautioned that trends toward increased oil consump-
                         tion and increasing dependence on Persian Gulf oil imports were begin-
                         ning to emerge, and that, if these trends continue, they could have an
                         unfavorable effect on our ability to respond to an oil disruption in the
                         decade to come. These trends have in fact continued, and EIA projects
                         they will continue through the 1990s. In our opinion, the nation is more
                         vulnerable to an oil supply disruption today than it was in 1986, and its
                         vulnerability to such a disruption is likely to increase if current energy
                         trends remain.



                         ‘One Quadrillion British Thermal LTnits (BTUs) of heat equals approxlmatelg        171 mllhon barrels of
                         crude oil, 1 trillion cubic feet of natural gas. and about 46 million short tons (a unit of weight equal to
                         2000 pounds) of coal.

                         ‘Energy Security, An Overview    of Changes in the World Oil Market (GAO/RCEDS8-170,           plug. 31,
                         1988)




                         Page 3                                             GAO :RCED-SO-85 Energy Strategies         for the 1990s
                                 B-239501




Increasing Oil                   According to EIA, U.S. daily oil consumption decreased steadily from
Consumption                      about 18.5 million barrels in 1979 to about 15.2 million barrels in
                                 1983-the lowest level in over a decade. However, as seen in figure 1,
                                 by 1988 oil consumption had increased by about 2.08 million barrels per
                                 day to 17.28 million barrels per day. This increase was sparked by the
                                 sharp decline in world oil prices in 1986-a 56-percent drop from about
                                 $27 per barrel to below $15 per barrel. In 1989, U.S. oil consumption
                                 leveled off to about 17.24 million barrels per day. However, EIA expects
                                 the trend toward increased oil consumption to continue through the year
                                 2000.


Figure 1: U.S. Oil Consumption
                                 lo.!!        Wlliofl BmNb pu Day
                                 19.0
                                 185
                                 16.0
                                 175
                                 17.0
                                 16.5
                                 16.0
                                 1!5.!i
                                 15.0
                                 14.5
                                 14.0
                                 135
                                 13.0
                                 125
                                 12.0

                                       1973       1975     1977     1979    1oBl    1983    1985    1987     lss9       la%      2oa
                                       Y-m

                                 Source Energy InformatIon Admlnlsiration




Decreasing Domestic              While oil consumption has been increasing, domestic oil production has
Production                       been decreasing. As shown in figure 2, U.S. crude oil production gener-
                                 ally increased from 1979 to 1985 as a result of high world oil prices, but
                                 the decline in oil prices in 1986 reversed this trend. Since 1985, domestic
                                 crude oil production has decreased by about 1 million barrels per day,
                                 and EIA expects this trend to continue. In 1989, domestic crude oil pro-
                                 duction was about 7.7 million barrels per day. EIA projects it will be
                                 about 5.9 million barrels per day by the year 2000.



                                 Page 4                                            GAOIRCED-90-85   Energy Strategies   for the 1990s
                                         5239501




Figure 2: U.S. Petroleum   Imports and
Domestic Production                      12      Y1llion BarNIs     pu Day




                                          1973          1975       1077      1379     1-1   1933      1oBs   1987     1339     1330     1935    2ooo
                                         YSW

                                                 -             Gross FWdeum Imports
                                                 -1-1          Net Petroleum lmpow
                                                 m             Domssticproductioll

                                         Source Energy Information Admlnrstratlon




Increasing Imports From                  As indicated in figure 2, since 1985, U.S. oil imports have increased as
the Persian Gulf                         domestic production has decreased. In 1989, net daily imports (gross
                                         imports minus exports) had increased by about 3 million barrels per day
                                         over 1985 levels to about 7.2 million barrels per day. EIA projects that
                                         net imports will increase from 42 percent of total US. oil consumption in
                                         1989 to 55 percent of total U.S. oil consumption by the year 2000. Per-
                                         sian Gulf oil imports accounted for 26 percent of total U.S imports in
                                         1989-a 19-percent increase from its 1985 share of total imports. The
                                         trend toward increased imports from Persian Gulf nations is also
                                         expected to continue since this region has 63 percent of the world’s
                                         proven oil reserves and has more than 70 percent of the world’s idle oil
                                         production capacity. Adding to the concern caused by increasing oil
                                         imports from the strategically sensitive Persian Gulf area is the fact that
                                         efforts to fill the U.S. Strategic Petroleum Reserve (SPR), which is
                                         designed to buffer against supply disruptions, have not kept pace with
                                         rising imports. Also, it is recognized that the nation’s transportation
                                         sector, which is 97-percent dependent on oil, has limited ability to



                                         Page 5                                                    GAO,/RCEDW85     Energy Strategies   for the 1990s
                           F&239501




                           switch from oil to other fuels in the event of a supply disruption or
                           rapid price increase.


Options to Improve the     The nation has a number of options for improving its ability to cope
Nation’s Ability to Cope   with a protracted oil supply disruption. Among these options are to (1)
                           expand the size of the SPR beyond its original mandate of 750 million
With
-.    an Oil Supply        barrels, (2) improve the drawdown and distribution capability of the
Disruption                 SPR, and (3) reduce oil consumption in the critical transportation sector.

                           We testified in May 1989 before the Senate Committee on Energy and
                           Natural Resources that we agreed in concept with a provision of S.694,
                           1Olst Cong., 1st Sess. (1989) that calls for DOE to plan for the expansion
                           of the SPR beyond the original mandate of 750 million barrels to 1 billion
                           barrels.-’ Also, we reported in March 1989, on DOE’S planned efforts and
                           related costs to improve the drawdown and distribution capability of
                           the SPR.' In addition, we reported in August 1988 that certain options are
                           available to policymakers which could help moderate our nation’s
                           growing dependency on foreign oil. For example, options to displace or
                           reduce oil consumption in the critical transportation sector include
                           encouraging the development and use of alternative fuels for motor
                           vehicles-which      was a provision of the President’s proposed July 1989
                           amendment to the Clean Air Act-and further improving motor vehicle
                           fuel efficiency. Appendix II contains more detailed information on U.S.
                           oil consumption, production, and dependence on foreign oil.


                           According to the North American Electric Reliability Council (NERC), the
Uncertainty                electric utility industry is planning to bring on line about 72,200 mega-
Surrounding Future         watts (MW) of additional generating capacity by 1998 to meet the
Electric Generating        nation’s anticipated electricity needs. However, the current construction
                           status of these generating facilities as well as regulatory, environmental,
Capacity                   and other issues create uncertainties as to whether these powerplants
                           will be available when needed.

                           NERC reported that the additional capacity needed by 1998 is to be met
                           by the generating options shown in figure 3 below. As indicated, oil- and



                           ‘The Strategic Petroleum Resene -4mendments of 1989 (GAO/T-RCED-89-38.           Ma)- 4. 1989).

                           ‘Strategic petroleum   Resenes   .4nalysis of AlternatIve   Financing Methods (GAO/RCED-89-103.
                           Mar. 16. 1989)



                           Page 6                                              GAO ,‘RCED-90-85 Energy Strategies    for the 1990s
                                          B-239501




                                          natural gas-fired generators are expected to make the largest contribu-
                                          tion to future capacity providing 28.0 percent of the additions; non-
                                          utility generators-firms,   such as chemical plants, that use the steam
                                          from generators for their industrial processes to also generate electricity
                                          and other facilities constructed solely to sell power to utilities-are
                                          expected to provide about 25.1 percent of the new capacity by 1998.


Figure 3: Projected   U.S. Additions to
Electric Generating   Capacity by 1998
                                                ,




                                                               7                                    %ped      Storage




                                                     r                                              ~~~~kty    Generators
                                          Source North American Electric Reliabtllty Counctl


                                           Powerplant construction and licensing times for new generating
                                           capacity are concerns affecting whether planned electricity supplies will
                                           be available when needed. Currently, only about 37 percent of the pro-
                                          jected additions to capacity are under construction. Of those under con-
                                           struction, about one-third are less than 50 percent complete. Experience
                                           indicates that the time required to plan, construct, and license large-
                                           scale central station power plants can take between 7 and 10 years, or
                                           longer. However, EM expects that nonutility power producers will be


                                          Page 7                                               GAO ‘RCED-90-85 Energy Strategies   for the 19SOs
                           B-239501




                           able to construct their facilities in less time. Even if these nonutility
                           sources are constructed on time, a shortfall in meeting future electricity
                           needs could still exist, because these sources represent only about 25
                           percent of new needed capacity.

                           In addition to the concerns about the construction status of the planned
                           capacity additions, a number of regulatory, environmental, and other
                           issues could affect when utilities complete the needed new facilities, or
                           when these power-plants come on line. For example, there are concerns
                           whether natural gas supplies can be delivered to meet the expected
                           increase in demand by electric utilities. Also, the timing and pace of
                           future additions to electric capacity from coal-fired generators will be
                           affected by the stringency of requirements to reduce acid rain-causing
                           emissions, which are being debated in amendments to the Clean Air Act.
                           In addition, public concern for the potential health and safety hazards of
                           nuclear-powered generators may impede or stop altogether the eventual
                           start-up of nuclear plants presently under construction-as      it did for
                           the Shoreham facility in New York-and plans for future capacity from
                           this source. Finally, although concerns for the reliability of power from
                           nonutility generators have been minimized through negotiated contracts
                           with electric utilities, uncertainty remains about this generating option
                           because utilities have had little experience with such facilities.


Options to Ensure          Policymakers have a number of options to ensure adequate supplies of
Adequate Future Electric   future electric generating capacity. Among these options are (1) concen-
                           trating on the more promising clean coal technologies that could be used
Generating Capacity        to generate electricity while meeting emission reduction requirements,
                           (2) supporting the Nuclear Regulatory Commission’s (NRC) effort to com-
                           press the time needed to license a nuclear plant by reducing the process
                           from two steps to one step, and (3) supporting the effort to develop a
                           standard design for nuclear plants that would enhance safety and speed
                           construction times.

                           As we reported in October 1989 and in March 1990, remaining funds in
                           DOE’S clean coal technology program could be focused on multiple dem-
                           onstrations of the technologies with the most promise for reducing emis-
                           sions that contribute to acid rain.” This approach could speed the
                           ultimate deployment of these technologies and enable utilities to expand

                           ’ Perspectwes    on the Potential of Clean Coal Technologies to Reduce Emissions From Coal-Fired
                           Power Plants    (GAO/T-RCED-90-3,       Oct. 18. 1989): Fossil Fuels: Pace and Focus of the Clean Coal
                           Technologies    Program Need to & Assessed (GAOiRCED-90-67             Mar. 19, 1990); Iltilities’ Potential
                           I-se of Clean   Coal Technologies (GAO T-RCED-90-56, %lar. 28. ; 990).




                           Page 8                                                GAOIRCED-90-85        Energy Strategies    for the 1990s
                        El-239501




                        the use of coal-our nation’s most abundant domestic energy resource.
                        In the nuclear area, as we reported in March 1989, consideration should
                        be given to supporting the NRC’S proposal for preapproved, standardized
                        nuclear plant designs.; Reducing the NRC’S license approval process for
                        nuclear facilities from two steps to one step could shorten construction
                        times and ease the concerns electric utilities have for regulatory review.
                        Standardized plant designs could also lead to a set pattern of mainte-
                        nance procedures and training activities that could contribute to safer
                        nuclear operations. Finally, as reported in November 1988, policy-
                        makers should monitor the changing nature of utility regulation. For
                        instance, widespread concern exists over the issue of nonutility genera-
                        tors’ access to the transmission lines of electric utilities. Appendix III
                        contains more detailed information on these electricity generation
                        issues.


                        In recent years, energy issues have become increasingly linked to envi-
Increasing Concerns     ronmental problems caused by energy fuel choices. The use of fossil
Over the                fuels, in particular, has contributed to global warming, ozone pollution,
Environmental Effects   and acid rain. US. coal reserves are expected to last at least 300 years.
                        However, an increase in U.S. coal consumption during the next decade
of Energy Choices       will depend, in part, on the successful reduction of environmentally
                        damaging emissions from coal-fired generators, especially sulfur dioxide
                        and nitrogen oxide emissions, which contribute to the formation of acid
                        rain.

                        More recently, additional concern has been expressed about carbon
                        dioxide emissions which. thus far, can only be reduced by decreasing
                        fossil fuel consumption. There is general consensus that these carbon
                        dioxide emissions contribute to a warming of the earth’s surface temper-
                        ature, which could have serious adverse health and environmental
                        effects. The concern for increased levels of carbon dioxide emissions has
                        focused attention on actions to mitigate the negative environmental
                        effects of fossil fuel use. Nuclear power is a potential option to meet the
                        nation’s energy needs while reducing the environmental concerns of
                        fossil fuel consumption. However, the particular health, safety, and
                        environmental concerns of this energy option cause problems about its
                        continued or increased use. The future of nuclear power in the United
                        States will be determined, in part, by whether new technologies can


                        ‘Electricity   Supply   What Can Be Done to Revive the Nuclear Option? (GAOjRCED-89-67,      Mar. 23.
                         1989)



                        Page 9                                            GAO ‘RCED-90-85 Energy Strategies       for the 1990s
                        Is239501




                        improve the nuclear safety record and by resolution of the nuclear
                        waste disposal issue.

                        Resolving the concerns for energy production and consumption, particu-
                        larly in light of the projected increases in energy demand, requires that
                        U.S. policymakers increasingly consider the environmental impact when
                        deciding on policies about energy choices. Appendix IV discusses the
                        environmental issues associated with fossil fuel consumption and
                        nuclear power in more detail.


                        In announcing the need to develop a national energy strategy, the Presi-
The Administration Is   dent stated that the United States is at a critical juncture in ensuring the
Developing a National   availability of reliable, competitively priced supplies of clean energy in
Energy Strategy         the 1990s. According to DOE, the national energy strategy will enable
                        policymakers to chart a course, set a pace, and evaluate U.S. progress in
                        providing the reliable energy supplies the economy needs while pro-
                        tecting the nation’s health, safety, and environment. The strategy is
                        being developed with public, industry, and congressional input, and DOE
                        expects it to be announced by the President in January 1991. On April 2,
                        1990. DOE issued an interim report on the national energy strategy,
                        which is a compilation of publicly identified goals for the strategy, and
                        obstacles to achieving these goals along with options for resolving the
                        obstacles. Between April and December 1990, DOE plans to analyze this
                        information and other data to develop energy policy options for inclu-
                        sion in the strategy to be approved by the President.

                        We support the initiative to develop a national energy strategy and
                        believe that such a strategy is sorely needed and long overdue as evi-
                        denced by the trends toward increased U.S. energy consumption and the
                        related concerns for the reliability of energy supplies and environmental
                        protection. Timely completion of the strategy is also important because
                        the electric utility industry, the automotive industry, and others in the
                        energy sector will be making decisions about what technologies and
                        energy sources to pursue, particularly as changes to the Clean Air Act
                        occur. Because of its importance, we plan to monitor DOE'S efforts to
                        develop a national energy strategy. Appendix V contains more detailed
                        information on the national energy strategy.


                        The information in this report was obtained primarily from prior GAO
                        reports (see Related GAO Products on p. 64) and reports prepared by
                        ELA, DOE, and others involved in the analysis of energy usage and future



                        Page 10                             GAO/RCEIHJO-M   Energy Strategies   for the 1999s
R-239501




energy supply. EL4 base case projections of energy trends (supply, pro-
duction, and consumption) were used in this report.* However, the
Administrator, EIA, has cautioned that base case projections of future
energy supplies and consumption should not be considered predictions
because some past projections have differed from what actually
occurred. During the preparation of this report we met with DOE’S
Deputy Director, Office of Policy, Planning and Analysis, who is respon-
sible for coordinating the development of the national energy strategy.

Although we did not provide this report for formal agency comment, we
did meet with officials from the Environmental Protection Agency (EPA)
and DOE to discuss its contents. Both the EPA and DOE officials agreed
with the factual content of the report. However, the DOE officials were
concerned that the overall tone of the report was more alarming than
their perception of the U.S. energy situation. We took EPA’S and DOE’S
specific comments into consideration and modified the report where
appropriate.

Copies of this report are being sent to the Secretary of Energy; the
Administrator, EPA; and other interested parties. This work was per-
formed under the direction of Victor S. Rezendes, Director of Energy
Issues, who may be reached at (202) 275-1441. Other major contributors
are listed in aDDendix VI.




  Dexter Peach’
Assistant Comptroller General




‘EL4 develops three forecasting assumptions based on proJected future energy conditions. GAO uses
EIA’s base case assumption as it reflects EIA’s best assessment of future energy conditions.



Page 11                                        GAO/RCED-99-85     Energy Strategies   for the 1990s
 B-239601




 Congressional Committees

 Senate Committee on Energy and Natural Resources

 Senate Committee on Environment and Public Works

 Subcommittee on Energy and Water Development, House
 Committee on Appropriations

 Subcommittee on Economic Stabilization, House Committee on Banking,
 Finance and Urban Affairs

 House Committee on Energy and Commerce

 Subcommittee on Energy and Power, House Committee on Energy
 and Commerce

 Subcommittee on Health and the Environment, House Committee
 on Energy and Commerce

  Subcommittee on   International Economic Policy and Trade,
  House Committee    on Foreign Affairs
   /
J jubcommittee on   Environment, Energy and Natural Resources,
  House Committee   on Government Operations

 Subcommittee on Energy and the Environment, House Committee
 on Interior and Insular Affairs

 Subcommittee on Mining and Natural Resources, House
 Committee on Interior and Insular Affairs

 Subcommittee on Water, Power and Offshore Energy Resources,
 House Committee on Interior and Insular Affairs




 Page 12                            GAO/RCED9O-86   Energy Strategies   for the 1990s
Page 13   GAO/RCED-90-85   Energy Strategies   for the 1990s
Contents


                       A

Letter                                                                                                       1

Appendix I                                                                                                  18
Overall U.S. Energy
Consumption Trends
and Projections
Through the 1990s
Appendix II                                                                                                 22
Oil Trends Cause           Increased U.S. Oil Consumption                                                   22
                           Falling Domestic Production                                                      25
Concern                    Increasing Oil Imports                                                           27
                           U.S. Strategic Petroleum Reserve                                                 30
                           Where to Focus Attention                                                         34

Appendix III                                                                                                35
The Electric Utility       Trends in Electricity Demand                                                     35
                           Trends in Electricity Supply                                                     35
Industry Faces             Projected Additions to Electric Generating Capacity                              36
Difficult Supply           Other Issues Facing Capacity Additions                                           40
                           Options to Mitigate the Need for Capacity Additions                              42
Choices                    Where to Focus Attention                                                         44

Appendix IV                                                                                                 47
Environmental Issues       Global
                               Warming                                                                      47
                           Ozone Pollution                                                                  49
Will Affect Future         Acid Rain                                                                        51
Energy Choices             Environmental Concerns Regarding Nuclear Power                                   54

Appendix V                                                                                                  55
The Need for a             Reasons for a National Energy Strategy                                           55
                           Development of the Strategy                                                      56
National Energy            Observations                                                                     58
Strategy




                           Page 14                            GAO/RCED9O-86   Energy Strategies   for the 1990s
                        Contents




                    -
Appendix VI                                                                                               60
Major Contributors to
This Report
Related GAO Products                                                                                      63

Figures                 Figure 1: U.S. Oil Consumption                                                     4
                        Figure 2: U.S. Petroleum Imports and Domestic                                      5
                             Production
                        Figure 3: Projected U.S. Additions to Electric Generating                          7
                             Capacity by 1998
                        Figure I. 1: Total U.S. Energy Consumption                                        18
                        Figure 1.2: Total U.S. Energy Consumption by Source                               19
                        Figure 11.1: U.S. Oil Consumption                                                 23
                        Figure 11.2: End-Use Sources of Oil Consumption                                   24
                        Figure 11.3:U.S. Petroleum Imports and Domestic                                   26
                             Production
                        Figure 11.4:U.S. Imports From the Persian Gulf                                    29
                        Figure 11.5:World Oil Reserves                                                    30
                        Figure 11.6:Strategic Petroleum Reserves                                          31
                        Figure III. 1: Projected U.S. Additions to Electric                               37
                             Generating Capacity by 1998
                        Figure 111.2:Status of Projected U.S. Electric Utility                            41
                             Capacity Additions in 1989
                        Figure IV. 1: Increasing Global Concentrations of Carbon                          48
                             Dioxide
                        Figure IV.2: Areas Violating Ozone NAAQS During 1986-                             50
                             88
                        Figure IV.3: Acidic Deposition Cycle                                              52




                        Page 15                            GAOiRCED-90-85   Energy Strategies   for the 1990s
Cantents




Abbreviations

BTU        British thermal unit
C4FE       Corporate Average Fuel Economy
CRS        Congressional Research Service
CCT        Clean Coal Technology
DOE        Department of Energy
EIA        Energy Information Administration
EPA        Environmental Protection Agency
EPRI       Electric Power Research Institute
IEA        International Energy Agency
IPPS       Independent Power Producers
GAO        General Accounting Office
GNP        Gross Xational Product
MIS’       Megawatts
NAAQS      Kational Ambient Air Quality Standard
NARI’C     Kational Association of Regulatory Utility Commissioners
NAP.4P     National Acid Precipitation Assessment Program
SERC       North American Electric Reliability Council
NRC        Nuclear Regulatory Commission
OPEC       Organization of Petroleum Exporting Countries
PI’RPA4    Public Iltility Regulatory Policies Act
QI’AD      quadrillion British thermal units
SPR        Strategic Petroleum Reserve


Page 16                            GAO/RCED-90-85   Energy Strategies   for the 1990s
Page 17   GAO/RCED!W-85   Energy Strategies   for the 1990s
Appendix I

Overall U.S. Energy Consumption Trends and
Projections Through the 1990s

                                Securing sufficient and reliable future energy supplies to meet the
                                increased U.S. energy demand projected for the 1990s is a major issue
                                facing the nation. As shown in figure I. 1 below, energy consumption has
                                been steadily increasing since 1983. From 1983 to 1989, U.S. energy con-
                                sumption increased by 16.3 percent, and in 1989 domestic energy con-
                                sumption, at 84.2 quadrillion BTUS (QUADS),' was higher than any
                                previous year in U.S. history. EIA projects that, at an annual growth rate
                                of 1.1 percent, energy consumption will increase to 97.4 QUADS by the
                                year 2000.’


Figure 1.1: Total U.S. Energy
Consumption
                                199   Qumdrllllon   Btu




                                  1973     1975       1977   1979     1991     19s3       1995    1997     1999     19w      1999     2999
                                  Year (197%2ooo)

                                Source Energy Informalton Admlnlsiratlon


                                According to DOE, U.S. energy use has increased only 8 percent since
                                1973 while the gross national product (GKP) increased 46 percent, indi-
                                cating a substantial increase in the efficiency of energy use. However,
                                according to EIA, recent low world oil prices appear to have diminished


                                ‘One quadrilhon British thermal umts (BTI:s) of heat equals approximately         171 million barrels of
                                crude oil, 1 trillion cubic feet of natural gas. and about 45 million short tons (a unit of weight equal to
                                2000 pounds) of coal.

                                ‘El4 develops three forecasting assumptions based on world 011pnces. GAO uses EIA‘s base case
                                assumptmn as it reflects EIA‘s best assessment of energy conditions




                                Page 18                                               GAO/RCEDSO-85      Energy Strategies   for the 1990s
                                             Appendix I
                                             Overall U5. Energy Consumption      Trends   and
                                             Projections Through the 1990s




                                             U.S. interest in both efficiency improvements and in developing alterna-
                                             tive energy sources.

                                             Figure I.2 below shows U.S. consumption of energy by source since
                                             1973, along with EIA projections through the year 2000. Between 1973
                                             and 1989, the nation’s consumption of renewable fuels, nuclear power,
                                             and coal increased; natural gas consumption declined; and oil consump-
                                             tion remained at the same level. Through the year 2000, the U.S. is
                                             expected to increase its use of all energy sources. As discussed below,
                                             the percentage that the consumption of each source contributes to the
                                             nation’s total energy needs will shift some over the next decade. Natural
                                             gas consumption is projected to experience the biggest gain-about 1.8
                                             percent-and oil consumption the biggest loss-about 2.3 percent-as a
                                             share of total U.S. energy consumption.



Figure 1.2: Total U.S. Energy Consumption   by Source
100   Qmdrillion      Btu




                   Hydropower/Other
                   Nudear
                   Natural Gas

                   coal

                   Petroleum
                                             Source Energy InformatIon Admlnlstratlon




                                             Page 19                                            GAO ‘RCED-90-85 Energy Strategies   for the 1990s
Appendix I
Overall U.S. Energy Consumption   Trends and
Projections  Through the 1990s




As shown in figure I.2 above, petroleum has been the primary source of
US. energy over the last decade, and it will continue as such. EIA
expects the nation’s oil use to increase from about 34 QUADS in 1989 to
about 37 QCADS by the year 2000. However, as a percentage of overall
energy consumption, oil use is projected to decline slightly from 40.5
percent of all energy consumed in 1989 to about 38 percent of all energy
needs in the year 2000.

Since 1973, the consumption of coal has been increasing and reached
19.0 QUADS in 1989? accounting for 22.6 percent of all energy consumed
in the United States. EIA projects that coal consumption through the year
2000 will increase to 22.0 QUADS. However, coal use, as a share of total
energy consumption, is not projected to increase but to remain at 22.6
percent of all energy consumed. As we reported in November 1988, con-
cerns for the environmental damage caused by emissions from coal-fired
plants may lead to new laws or regulations that could affect future coal
use:!

Natural gas consumption, declining since 1973, experienced a turn-
around in demand in 1987. EIA expects natural gas consumption to
increase from 18.9 QLIADS or 22.5 percent of total energy consumption in
1989 to 23.6 QUADS or 24.3 percent of total energy consumption in the
year 2000. According to DOE, this increase is expected partly because of
the recent deregulation of natural gas prices and concerns for the envi-
ronment-natural      gas combustion is relatively free of the soot, carbon
monoxide, sulfur oxides, and nitrogen oxides that are associated with
the burning of other fossil fuels. Also, according to revised estimates by
DOE and the Department of the Interior, there may be enough natural gas
reserves to last until the year 2050. These anticipated reserves are
expected to give consumers of natural gas new confidence about the
availability of this fuel.

In 1973, U.S. consumers used 0.9 QUADS of nuclear power, which
accounted for 1.2 percent of total U.S. energy consumption. By 1989,
nuclear energy consumption increased to 5.6 QIJADS, or 6.7 percent of all
energy consumed in the nation. However, according to DOE, unless nega-
tive public perceptions, regulatory complexities, and construction costs
diminish, no new additions to 1’S capacity are expected within the next
decade. Consequently, EIA projects that nuclear power use will decrease
slightly as a percentage of total ITS. energy consumption in the 1990s.


'Energy Issues. GAO Transltwn Smes (GAO;OGCRR-1GTR. Nov. 1988)



Page 20                                        GAO.‘RCED-90-85   Energy Strategies   for the 1990s
Appendix I
Overall U.S. Energy Consumption   Trends and
Projections  Through the 1990s




By the year 2000, EIA expects nuclear power to produce 6.2 QUADS of
energy or about 6.4 percent of the nation’s total energy needs.

In 1973, U.S. consumers used about 3.1 QUADS of energy generated from
renewable sources such as hydropower, geothermal, and wind power,
which amounted to about 4 percent of all energy consumed that year. In
1989, renewable energy accounted for 6.6 QUADS or about 7.8 percent of
total U.S. energy consumption. EXAexpects the consumption of hydroe-
lectric power and other renewable energy sources to increase through
the end of the century. By the year 2000, renewable energy sources are
expected to account for 8.5 QUADS or 8.7 of the nation’s total energy
needs.




Page 2 1                                       GAO/RCED9O-85   Energy Strategies   for the 1990s
Appendix 11

Oil Trends CauseConcern


                         The United States is better able to respond to an oil crisis today than it
                         was in the early 1970s. Principal aspects of the nation’s improved
                         ability to respond include significant growth in the SPR, the continued
                         development of the International Energy Agency (IFLA) as a multilateral
                         forum for coping with energy disruptions, improved auto fuel efficien-
                         cies, and modest improvements in the ability to switch from oil to other
                         fuels in certain sectors of energy consumption. However, some dis-
                         turbing trends in U.S. oil consumption, domestic production, and imports
                         have occurred since 1985. Specifically,

                     l   consumption has increased by about 1.5 million barrels perday;
                     l   production has decreased by about 1.2 million barrels per day; and
                     l   imports have increased by about 2.9 million barrels per day.

                         These trends indicate an increased dependence on foreign oil and, conse-
                         quently, the potential for increased vulnerability to oil supply
                         disruptions.

Increased U.S. Oil       In 1985, U.S. oil consumption amounted to about 15.7 million barrels per
                         day. In 1986, the average US. daily oil consumption jumped by 550,000
Consumption              barrels to its highest level in 5 years. This trend continued, and by 1989,
                         oil consumption was 1.5 million barrels per day greater than in 1985.
                         Substantially lower oil prices since 1986-prices dropped sharply in
                         1986 from about $27 to under $15 per barrel-contributed        to reversing
                         the trend toward lower IJS. oil consumption. Figure II.1 shows overall
                         U.S. oil consumption since 1973. As indicated, U.S. daily oil consumption
                         had been decreasing steadily from about 18.5 million barrels in 1979 to
                         about 15.2 million barrels in 1983-the lowest level in over a decade. In
                         1984, oil consumption began an upward trend, which was later sparked
                         by the sharp price decrease noted above.




                         Page 22                             GAO,‘RCED-90-85   Energy Strategies   for the 1990s
                                   Appendix II
                                   Oil Trends Cause Concern




Figure 11.1:U.S. Oil Consumption
                                   19.5         Yilllon    Barrob   pu Day
                                   10.0
                                   15.5
                                   18.0
                                   17.5
                                   17.0
                                   16.5
                                   15.0
                                   15.5
                                   15.0
                                   14.5
                                   14.0
                                   13.5
                                   120
                                   125
                                   120

                                         1973             1975      1m       1979   198l   1983    1985    1987      1989      19%     2ooo
                                         Y-a
                                   Source Energy InformatIon AdmInIstratIon


                                   Although U.S. daily oil consumption leveled off from about 17.28 million
                                   barrels in 1988 to about 17.24 million barrels in 1989, EIA expects the
                                   nation’s trend toward increased oil consumption to continue-increasing
                                   to 18.8 million barrels per day by the year 2000-partly    because of
                                   increases in consumption by the transportation sector. The transporta-
                                   tion sector, which consumed about 10.9 million barrels of oil per day in
                                   1989 and accounts for nearly two-thirds of total U.S. oil consumption, is
                                   97-percent dependent on oil and lacks the ability to switch from oil to
                                   alternative fuels. U.S. transportation alone uses more oil each year than
                                   the nation produces. Figure II.2 demonstrates oil consumption by end-
                                   use sector between 1973 and 2000.




                                   Page 23                                                 GAOiRCElMO-85   Energy Strategies   for the 1990s
                                            Appendix II
                                            Oil Trends Cause Concern




Figure 11.2:End-Use Sources of Oil Consumption
12   Million   Bsrluls   pr      Dsy




     1973
     Yaar


     I         1 EktricUtiliis

                 Transportation

                 ResidentiaVCommsfcial

                 ltldUStfid

                                            Source. Energy InformatIon AdminIstratIon


                                            Further, 76 percent of the oil used for U.S. transportation is concen-
                                            trated in highway vehicles. According to an EPA official, low world oil
                                            prices have contributed to a slowdown in fuel efficiency gains for
                                            highway vehicles in recent years. The EPA official pointed out, for
                                            example, that U.S. consumers are buying more mini-vans than station
                                            wagons, even though mini-vans are less fuel efficient. However, the
                                            industry has made significant fuel efficiency improvements over the last
                                            decade. For example, the implementation of Corporate Average Fuel
                                            Economy (CAFE) standards in 1979 contributed to improved highway
                                            vehicle fuel efficiency in the United States. Efficiency improved from
                                            about 14.4 miles per gallon in 1979 to about 19.2 miles per gallon in
                                            1988-about a 25percent increase.

                                            Still, an EPA official pointed out that the effect of improved auto fuel
                                            efficiency on U.S. oil consumption has been offset to some extent by the
                                            continual growth in the number of motor vehicles, number of miles these


                                            Page 24                                     GAO/RCED-90-65   Energy Strategies   for the 1990s
                   Appendix II
                   Oil Trends Cause Concern




                   vehicles travel, and traffic congestion. The increase in vehicle miles
                   traveled is a concern: the only way to reduce oil consumption in the
                   short term should an oil supply disruption occur would be for people to
                   drive less since highway vehicles have limited ability to switch from
                   gasoline to other fuels.

                   The long term prospects for fuel-switching capability in this sector could
                   improve if proposed amendments to the Clean Air Act, which contain
                   provisions requiring the use of alternative fuels to gasoline, such as eth-
                   anol or methanol, are passed. However, an EPA official cautioned that a
                   number of issues, including cost competitiveness, may limit the ability of
                   alternative fuels to displace oil consumption in the transportation
                   sector.

                   While oil consumption has been increasing, domestic oil production has
Falling Domestic   been decreasing. U.S. crude oil production generally increased from
Production         1979 to 1985 as a result of high world oil prices and the decontrol of
                   domestic oil prices, but the decline in oil prices, which occurred in 1986,
                   reversed this trend. Since 1985, domestic crude oil production has
                   decreased by about 1 million barrels per day, and EIA expects this trend
                   to continue. In 1989, domestic crude oil production was about 7.7 million
                   barrels per day. According to EIA'S 1990 assessment of energy condi-
                   tions, U.S. domestic oil production will continue to decline to about 5.9
                   million barrels per day by the year 2000. Figure II.3 demonstrates the
                   declining trend in U.S. oil production and upward trend of U.S. oil
                   imports.




                   Page 25                             GAO/‘RCED-90-85   Energy Strategies   for the 1990s
                                            Appendix II
                                            Oil Trends Cause Concern




Figure 11.3: U.S. Petroleum   imports and
Domestic Production                         12      YilllonBmldspuDay




                                             1973          197s       1977     1979     1981   1993      1985   1987     1999    loo0      1996    2ooo
                                             YOU

                                                    -             Gross Petroleum hnpor~s
                                                    -1--          Net Petroleum lmporla
                                                    m             llomeakPmduaion

                                            Source Energy lnformatton Admmlstratlon


                                            Lower world oil prices have discouraged investment in U.S. oil explora-
                                            tion and development and shut down cost intensive stripper wells that
                                            had accounted for about 15 percent of total U.S. oil production. The cost
                                            to find and produce oil in the United States is higher than in any other
                                            major producing country, in part because most of the nation’s oil fields
                                            have been explored and drilled extensively and remaining fields are
                                            expensive to find and tap. About 80 percent of all the wells ever drilled
                                            worldwide-2.9    million-are   in the United States, and most have been
                                            in production for many years. According to one industry source, few
                                            unexplored basins are left in the United States, and these areas are
                                            smaller or more remote. Consequently, these areas are more costly to
                                            explore and develop than sites from which oil has been obtained in the
                                            past.

                                            DOE officials stated that! although low world oil prices have had a nega-
                                            tive effect on domestic oil production, these low world oil prices have
                                            been good for the U.S. economy. DOE believes that when U.S. economic
                                            efficiency and growth are considered, the options for increasing
                                            domestic oil production are fairly limited. However, the officials did


                                            Page 26                                                   GAO/RCED9O-85    Energy Strategies   for the 1990s
                         Appendix II
                         Oil Trends Cause Concern




                         point out that enhanced oil recovery techniques could increase domestic
                         production from existing oil fields as world oil prices increase.
                         According to DOE, conventional recovery of the U.S. oil discovered, to
                         date, has left about 300 billion barrels of oil remaining in the ground.

                         Environmental concerns are also a factor affecting potential increased
                         domestic production. According to DOE, an area of promise for future
                         U.S. oil exploration and development is the discovery of large offshore
                         oil fields and oil fields in Alaska and off its shore. However, the environ-
                         mental consequences of the March 24,1989, oil spill by the tanker
                         Exxon Valdez in Alaska’s Prince William Sound and subsequent tanker
                         spills elsewhere in the United States have led to congressional and
                         public debate over the relative benefits and costs of expanded oil explo-
                         ration in fields in Alaska.

                         The Valdez oil spill also demonstrated how susceptible the U.S. market
                         is to the fear of supply disruption. After the accident, the temporary
                         closing of the port of Valdez, Alaska caused relatively small oil disrup-
                         tions in oil supplies that were largely confined to the west coast. How-
                         ever, uncertainties about the length of the closure, in addition to tight oil
                         inventories in the months preceding the spill, contributed to a percep-
                         tion of tight oil and gasoline markets and to a rapid but brief increase in
                         oil and gasoline spot market prices. The retail price of U.S. gasoline rose
                         by 10 cents per gallon in 3 weeks, the fastest price increase in history.


                         As the demand for oil continues to rise and U.S. production declines,
Increasing Oil Imports   imports have been increasing in order to make up the shortfall. The con-
                         sumption of imported oil is expected to increase steadily through the
                         year 2000. As shown in figure 11.3,net daily imports (gross imports
                         minus exports) increased by about 3 million barrels per day between
                         1985 and 1989. According to EIA, net daily imports will increase from
                         about 7.2 million barrels per day in 1989 to about 10.0 million barrels
                         per day by the year 2000. Thus, U.S. net oil imports would increase from
                         about 42 percent to about 55 percent of total oil consumption.

                         In 1989. average gross U.S. oil imports increased to about 8.0 million
                         barrels per day. Another indicator of growing U.S. dependency on oil
                         imports, this marked only the second time-the first was in 1977-that
                         gross ITS. oil imports exceeded domestic oil production.

                         Increased imports from the Persian Gulf have heightened awareness of
                         1r.S. vulnerability to another oil crisis. Rapid oil price increases brought


                         Page 25                              GAO,/RCED-SO-85 Energy Strategies   for the 1990s
Appendix       II
oil   Trends    Cause   Concern




on by the OPEC oil embargo in 1973-74 and again in 1978 by the Iranian
revolution and the outbreak of war between Iran and Iraq, created eco-
nomic havoc in the United States. The 1973-74 oil embargo, for example,
resulted in an estimated $35 billion to $45 billion reduction in gross
national product and the loss of about 500,000 jobs. Many industry ana-
lysts have pointed to excessive dependence on imported oil in the late
1970s as a principal cause of U.S. economic problems in the wake of the
oil price shocks.

Between 1985 and 1986, U.S. imports from the Persian Gulf area
increased significantly, tripling from about 304,000 barrels per day to
about 909,000 barrels per day. During this l-year period, consumption
of imports from this region increased from 2 percent to 6 percent of
total U.S. oil consumption. Since 1986, imports from the Persian Gulf
have further increased from 909,000 barrels per day to 1.87 million bar-
rels per day by November 1989, or about 11 percent of total U.S. oil
consumption. In 1989, Persian Gulf imports represented 26 percent of
all U.S. oil imports- a 19-percent increase from their 1985 levels. Figure
II.4 depicts the rising level of U.S. oil imports from the Persian Gulf
nations.




Page 28                            GAO/RCED-90-85   Energy Strategies   for the 1990s
                                            Appendix       II
                                            Oil Trends          Cause   Concern




Figure 11.4:U.S. Imports From the Persian
Gulf
                                            20     Hut&d          Thounnd    Bamls   Par Day

                                            18

                                            18

                                            14

                                            12

                                            10

                                             8

                                             6

                                             4

                                             2

                                             0
                                                                 B--I
                                                   1982            1993       1984      1985   1999       1987     1989        1989
                                                   YOWS


                                            PersIan Gulf nations Include Iran, Kuwait, Iraq Qatar Saud1 Arabia. Unlted Arab Emirates, and Bahrain
                                            1989 Data IS Averaged Through October
                                            Source Energy lnformatron Admlnistratlon


                                            This trend is expected to continue, barring discoveries of oil reserves
                                            elsewhere in the world. According to EIA, about 63 percent of the proven
                                            remaining worldwide oil reserves are located in five Persian Gulf
                                            nations (Saudi Arabia, Kuwait, Iran, Iraq and the United Arab Emir-
                                            ates); whereas, the United States, the world’s biggest consumer of oil,
                                            has only 3 percent of the total proven worldwide reserves. In addition to
                                            the concentration of proven oil reserves in the Persian Gulf, idle oil pro-
                                            duction capacity in this region is greater than elsewhere in the world.’
                                            The Persian Gulf countries hold more than 70 percent of the world’s
                                            surplus oil production capacity. Because of the region’s enormous oil
                                            reserves and surplus production capacity, the Congress has expressed
                                            concern that the Persian Gulf countries could exercise control over oil
                                            supplies and prices for years to come. Figure II.5 illustrates where the
                                            proven worldwide oil reserves are located.



                                            ‘Idle oil production capacity refers to dtAling equpment. pipeline, and skilled labor capable of being
                                            placed in op+wtlon withln 30 dap. or such capacity. that may be under actwe repair, and that can be
                                            placed into opcratlon wlthin HO days.



                                            Page   29                                                 GAO i RCEDM-85      Energy      Strategies   for the 1990s
                                 Appendix II
                                 Oil Trends Cause Concern




Figure 11.5:World Oil Reserves
                                                                                          Other Non-OPEC




                                                                                          Persian Gulf




                                                                                          Other OPEC


                                 Perslan Gulf Natlons Include Kuwait, Iraq, Bahrain, Qatar. Saud1 Arabia, Iran, and the Unlted Arab
                                 Emirates
                                 Bahram IS the Only Persian Gulf Natlon not a Member of OPEC
                                 Source Energy InformatIon Admtnlstratlon


                                 Mindful of the vast oil reserves and political instability of the area, the
                                 United States dispatched military forces between 1987 and 1988, during
                                 the Iran-Iraq war, to provide safe passage to U.S. flagged oil tankers in
                                 the Persian Gulf. Continuation of U.S. trends toward increased imports,
                                 particularly from the Gulf, could pose future energy security problems
                                 for the nation.

                                 The nation is better able to sustain a supply disruption today than at the
U.S. Strategic                   time of the 1973-1974 OPEC oil embargo. However, as stated previously,
Petroleum Reserve                in recent years imports have increased. Increased imports, particularly
                                 from the strategically sensitive Persian Gulf area, renew concern for
                                 U.S. vulnerability to oil supply disruptions.




                                 Page 30                                           GAO/RCEDW85         Energy Strategies    for the 1990s
                                               Appendix II
                                               Oil Trends Cause Concern




                                               In 1974, as a first step toward improving our energy security, the United
                                               States along with 21 other countries affected by the embargo formed the
                                               International Energy Agency (IRA) to develop a coordinated response to
                                               a potential energy crisis.:! With this international energy agreement in
                                               mind in 1975, the Congress authorized the creation of up to 1 billion
                                               barrels of government-owned oil reserves-the Strategic Petroleum
                                               Reserve (sPH)-to minimize the effects of future supply disruptions or
                                               shortfalls. However, no administration has ever planned for the expan-
                                               sion of the SPR beyond 750 million barrels of oil. As shown in figure 11.6,
                                               the SPR contained 580 million barrels of oil in 1989, or about 77 percent
                                               of its projected 750 million barrel capacity. These reserves are stored in
                                               Texas and Louisiana salt dome caverns.


Figure 11.6:Strategic   Petroleum   Reserves
                                               so0      YIllIolls of aarmb

                                               700




                                               500

                                               400

                                               300




                                               100


                                                    0
                                               XT                                                       L        IL           IL          L             L
                                                        1980      1981       1982    1963      1984      lses         1986      1987          1988          1909
                                                        YOM

                                               Source Energy Information AdmInIstratIon


                                               As we testified in November 1989, there are concerns about the SPR’S
                                               effectiveness as a buffer against supply disruptions.? While the size of
                                               ‘Through the IEA’s emergency sharing system, participating nations agree to (1) maintain emergency
                                               reserves equal to 90 days of net oil imports, (2) establish measures to reduce demand by at least 7 to
                                                10 percent or substitute emergency stocks held in excess of the go-day requirement, and (3) subJect
                                               their oil supplies to an international allocation formula to calculate each country’s right to receive oil
                                               or obligation to provide oil durmg a serious disruption

                                               ‘Energy Security and the World Oil Market (GAO/T-RCED-90-12.             i%ov. 8, 1989).




                                               Page 31                                            GAO ‘RCED-90-85        Energy Strategies           for the 1990s
Appendix II
Oil Trends Cause Concern




the SPR has expanded in recent years, the import protection it affords
has been declining due to rising levels of U.S. oil imports and consump-
tion For example, in December 1985 when the SPR contained 500 million
barrels of oil, net U.S. oil imports amounted to 4.3 million barrels per
day. The SPR, therefore, represented about 115 days of reserves, or 25
more days than required by the IEA agreement, that would be available
to offset a cutoff or disruption in U.S. oil imports. Although the SPR
reached 580 million barrels in 1989, the days of imports it could replace
decreased to 81 days because average net daily imports had increased to
about 7.2 million barrels.

Also, since U.S. oil imports continue to grow, by the time the SPR reaches
its authorization of 750 million barrels, this amount might not be enough
to ensure the agreed upon 90 days of reserves. Even when the SPR
reaches its mandated 750 million barrels, it will only represent 90 days
of protection if net imports do not exceed 8.3 million barrels per day-a
level they are expected to reach by 1992. As far back as the 1974 IEA
agreement, U.S. policymakers have agreed that 90 days of reserves
without imports is necessary to buffer against potential supply
disruptions.

DOE  officials pointed out that, under the IEA agreement on oil stockpiles,
the formula for days of reserves without imports is based on govern-
ment-owned stocks as well as commercial working inventories. Adding
U.S. commercial working inventories to the SPR would increase the
number of days of oil consumption the nation could sustain without
imports. However, as pointed out in our February 1989 report, in 1986
the United States urged other IEA members to increase the size and gov-
ernment control of their emergency oil stocks because the capabilities of
members were exaggerated by including all company-owned stocks
above the minimum operating level in the formula for measuring emer-
gency reserves4 The U.S. position was that company stocks cannot be
counted on in the event of an oil supply disruption because companies
will tend to react to higher oil prices by building rather than drawing on
oil stocks.

Additional concerns about the SPR are how quickly the oil could be taken
out of reserve and how quickly it could be distributed from its reservoir
salt caverns to other regions of the country. The projected drawdown
capability for the SPR (the rate at which the oil can be drawn out of the

 ‘International Energy Agency: Effectiveness   of Members’ Oil Stocks and Demand Restramt Measures
( GAO/h’SIAD-89-42.    Feb. 6. 1989)




Page 32                                           GAO/RCED90-85     Energy Strategies   for the 1990s
Appendix II
Oil Trends Cause Concern




salt caverns) is 3.2 million barrels per day. After the SPR reaches 750
million barrels and certain system enhancements have been completed,
the drawdown rate is expected to be 4.5 million barrels per day. Even
with the projected improvements to the drawdown capacity, the relative
amount of imports that could be replaced by stocks from the SPR during
a disruption decreases as the nation’s oil imports increase.

In our 1989 report and related testimony, we estimated that expendi-
tures of between $5 billion and $6 billion may be needed to (1) increase
the SPR inventory to 750 million barrels, (2) enhance its drawdown capa-
bility, and (3) improve its distribution capacity.” We also reported that
our analysis of alternative financing proposals for funding the SPR
showed that no single alternative was superior to the current method of
funding the SPR through annual appropriations.”

A concern related to the nation’s diminished number of days of SPR
reserves, is that the 580 million barrels of oil are subject to the alloca-
tion formula between IEA member countries. As reported in our
November 1989 testimony on energy security, a majority of the member
countries participating in the IRA energy program have not emphasized
developing strategic stocks. Instead, these countries plan to use such
demand restraint measures as compulsory orders, allocation/rationing,
and persuasion as their primary responses to an oil supply disruption.;
The United States, meanwhile, emphasizes the early coordinated use of
oil stocks and market activities as the best way to mitigate the economic
damage associated with an oil supply disruption. As we reported in
August 1988 and in our November 1988 transition report, because of the
interdependent nature of world oil markets, the United States should
continue to encourage other IRA countries to develop strategic stocks and
to clarify agreements on the use of these stocks.s




%rategic Petroleum Reserves: Analysis of Alternative      Financing Methods (GAO/RCED-89-103,
Mar. 16. 1989).

“Alternative   Financing Methods for the Strategic Petroleum Reserve (GAO/T-RCED-89-27.          Apr. 19).
1989).

‘The 1-S. government    defines strategic stocks as those reserves either owned or controlled   by the
government.

‘Energy Security~ An Overview of Changes in the World Oil Market (GAO/RCEDS&I              70. Aug. 3 1
 1988): Energy Issues. GAO Transition Series (GAO/OGC-89-16TR,   Nov. 1988).



Page 33                                            GAO/RCED-SO-66      Energy Strategies    for the 1990s
                   Appendix II
                   Oil Trends Cause Concern




                   In light of current trends indicating increased oil supply vulnerability in
Where to Focus     the 199Os, policymakers will be increasingly faced with concerns about
Attention          reducing overall dependence on oil and about the possibility of future oil
                   supply disruptions. We continue to believe, as pointed out in our August
                   1988 report, that the following measures are key to addressing these
                   issues:

                 . emphasis on energy efficiency, particularlyin the transportation sector,
                 . continued building of oil stocks, and
                 . adoption of standby measures to avoid over-reliance on the SPR.

                   Efforts to reduce U.S. oil dependency could begin with an emphasis on
                   energy efficiency and fuel-switching capability in the transportation
                   sector, stressing continued improvements in (1) fuel efficiency for
                   highway vehicles and (2) the development of alternative fuels to gaso-
                   line such as methanol and ethanol. Second, as we stated in our testimony
                   on the SPR amendments of 1989, the U.S. should work toward filling the
                   SPR as quickly as is fiscally responsible, and as imports continue to rise,
                   DOE should plan for its expansion to 1 billion barrels.!’ Third, while the
                   SPR is the nation’s principal response to an oil supply disruption, if the
                   SPR does not operate as planned, the federal government could consider
                   other measures to mitigate the effects of an oil shortage. Demand
                   restraints, such as temporary emergency driving restrictions, could also
                   be considered to help cope with an oil disruption. Other measures that
                   may have to be taken could include providing financial assistance to
                   low-income consumers to offset the price increase an oil disruption can
                   cause.




                   “The Strategic Petroleum Reserve Amendments of 1989 (GAO/T-RCED-89-38.    Map 4, 1989).




                   Page 34                                      GAO/RCED-90-85    Energy Strategies   for the 1990s
Appendix III

The Electric Utility Industry FacesDifficult
Supply Choices

                        As the U.S. electric utility industry enters the 199Os, it has reported a
                        need for about 72,200 megawatts (MW) of new generating capacity
                        before the end of the decade. However, regulatory, environmental, and
                        other concerns related to these planned capacity additions, as well as
                        their current construction status, create uncertainties that these power-
                        plants will be available when needed.


                        Annual increases in the demand for electricity have varied widely over
Trends in Electricity   the past three decades. During the 196Os, the average annual increase in
Demand                  electricity sales was about 7.4 percent. However, following the oil price
                        shocks resulting from the 1973-74 OPEC oil embargo, the increases in
                        electricity demand fell off significantly. For example, increases in
                        demand for electricity during the 1970s averaged 4.5 percent annually,
                        and between 1980 and 1986 the increase amounted to the low rate of 1.9
                        percent per year. Since 1986, U.S. electricity demand has experienced a
                        turnabout, partly because of a strong economy to which low oil prices
                        contributed, and EIA expects this increased demand to continue at an
                        annual rate of about 2.3 percent through the year 2000.


                        The reduced rate of demand growth, below the levels anticipated in the
Trends in Electricity   197Os, occurred at a time when utilities had substantial amounts of new
SUPPlY                  capacity under construction. Many of the plants planned or under con-
                        struction were not needed at that time and were later cancelled. State
                        public utility commissions found that some past utility decisions to con-
                        struct plants were not prudent and are now giving more scrutiny to new
                        powerplant construction. In addition! the 1979 accident at Three Mile
                        Island heightened safety concerns causing an increase in the technical
                        requirements and costs for nuclear powerplant construction. This
                        increasing concern also made it difficult to obtain operating licenses for
                        these plants. Finally, new emission reduction requirements under con-
                        sideration in the proposed amendments to the Clean Air Act will likely
                        affect existing and new coal-fired electric generat,ing capacity in future
                        years.

                        According to EIA, through the early 1990s the utility industry should be
                        able to meet the rising demand for electricity. through programs to
                        reduce cust,omer demand. excess generating capacity in some regions of
                        the country, and imported power in other regions of the country. How-
                        ever. by the mid-1990s. even with these options, EIA expects utilities in
                        many regions of the country to be using all their existing capacity, and,
                        hence, expects a need for new generators. Further, according to DOE,


                        Page 35                            GAO RCED90-85   Energy Strategies   for the 1990s
                         Appendix III
                         The Electric Utility   Industry   Faces Diffkult
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                         additional capacity will be needed because about 50 percent of the cur-
                         rent inventory of electrical generating plants will be over 30 years old,
                         or near the end of their projected useful life, by 1997.


                         The North American Electric Reliability Council (NERC), which repre-
Projected Additions to   sents virtually all of the electric utility systems in the United States,
Electric Generating      Canada, and a northern portion of Mexico, has reported that U.S. elec-
Capacity                 tric utilities have projected they will need an additional 72,200 MW of
                         new generating capacity by 1998 to satisfy expected demand growth.
                         Figure III. 1 shows which generating options NERC projects to contribute
                         to U.S. capacity additions needed by 1998. However, as discussed below,
                         regulatory, environmental, and other concerns related to the proposed
                         mix of generating options, and their current construction status, create
                         uncertainties about whether these options will be available when
                         needed.




                         Page 36                                            GAO/RCED-96-86   Energy Strategies   for the 1990s
                                           Appendix IIl
                                           The Electric Utility   Industry   Faces Difficult
                                           Supply Choices




Figure 111.1:Projected U.S. Additions to
Electric Generating Capacity by 1998




                                                                                                    Nuclear
                                                      I                                             Non-Utility Generators
                                           Source North Amencan Electnc RellabWy Council




Additions to Capaci tY                     NERC  expects oil- and gas-fired boilers to make the largest contribution to
From Oil/Gas-Fired                         future additions of electric generating capacity. As seen in figure III. 1,
                                           such new electrical generating capacity is projected to add about 28.3
Turbines                                   percent or 20,200 MW to generating capacity by 1998. In 1989, genera-
                                           tors fired by these two fuels produced 15 percent of all U.S. electricity-
                                           petroleum contributed 6 percent and natural gas 9 percent.

                                           As in the case of other sectors of energy consumption, electric utilities
                                           have increased their use of oil with lower world oil over the last few
                                           years. According to EIA, electric utilities increased their use of oil by 22
                                           percent (42 million barrels) between 1987 and 1988, in part because the
                                           average cost of petroleum declined by 19 percent during this period.
                                           According to the Petroleum Research Industry Foundation, new mea-
                                           sures under consideration to reduce acid rain may also cause the



                                           Page 37                                             GAO/RCED-SO-85   Energy Strategies   for the 1990s
                        Appendix Kl
                        The Electric Utility   Industry   Faces Difficult
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                        demand for low-sulfur residual fuel oil to rise in the electric power
                        sector.

                        The completed deregulation of natural gas prices in July 1989, coupled
                        with environmental concern for other fossil fuels, will likely lead to
                        increased utility consumption of this relatively clean burning fuel.
                        According to new DOE estimates, domestic natural gas reserves could last
                        until about the year 2050. Nonetheless, uncertainty remains about
                        whether gas supplies can accommodate the expected increase in demand
                        for this fuel by electric utilities. The Kational Association of Regulatory
                        Utility Commissioners (MRUC) has expressed concerns that deliverable
                        quantities of gas at affordable prices may not be sufficient to support all
                        needed electricity capacity. However, DOE officials told us they believe
                        increased gas consumption will have an impact on gas prices but will not
                        engender shortages.


Additions to Capacity   NERC  expects electric generating capacity from coal-fired generators in
From Coal-Fired         the United States, as a percentage of total electricity produced, to
                        decline over the next decade. In 1989, coal-fired generating plants
Generating Units        accounted for 56 percent of the total electricity produced in the United
                        States. but EIA expects that total to decline to 52 percent of total electric
                        capacity by the year 2000. Although NERC expects additional coal-fired
                        power plants to be constructed over the next decade, a greater per-
                        centage of the projected additions to electric generating capacity are
                        expected from units powered by other energy sources.

                        About 18.7 percent of the projected additions to capacity by 1998, or
                        13,500 MW,as shown in figure III. 1, is to come from coal-fired genera-
                        tors. However, the burning of coal to generate electricity contributes to
                        various types of pollution, including acid rain. The concern over the
                        environmental impact of coal burning has resulted in proposed amend-
                        ments to the Clean Air Act aimed at further reducing emissions caused
                        by fossil-fired generators. These requirements will affect future addi-
                        tions to capacity from coal-fired generators.

                        ,4ccording to EIA, rather than retire aging coal-fired generators, the
                        utility industry is giving more consideration to refurbishing many of
                        these facilities in order to delay additions to generating capacity.
                        Repowering technologies or emerging boiler designs being demonstrated
                        under the Department of Energy’s $2.5 billion Clean Coal Technology
                        (cc?‘) program are one option under consideration by the utilities to
                        refurbish fossil-fired facilities between the late 1990s and 2005. These


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                          The Electric Utility   Industry   Faces Difficult
                          Supply Choices




                          boiler types include integrated gasification combined cycle and fluidized
                          bed combustion technologies, which DOE estimates to be more economical
                          and substantially more effective in reducing sulfur dioxide and nitrogen
                          oxide emissions, the precursors of acid rain, than conventional pulver-
                          ized coal boilers. I


Additions to Capacity     Continuing concern exists about future additions to generating capacity
From Nuclear Generators   from U.S. nuclear power plants. About 14.4 percent or 10,391 MW of the
                          projected additions to generating capacity by 1998, depicted in figure
                          III. 1pare to come from nuclear plants that are currently under construc-
                          tion. However, serious doubts remain about whether these units will be
                          completed, and, if completed, when they will be brought on line. State
                          and local authorities in New Hampshire and New York have delayed two
                          recently completed nuclear plants (Seabrook and Shoreham) from
                          starting service partly because of concern that the utility evacuation
                          plans for these facilities in the event of an accident were inadequate.
                          The State of New York recently purchased the Shoreham nuclear plant
                          for the purpose of decommissioning it, and may consider converting this
                          facility to a natural gas-fired powerplant.

                          According to EIA, although since 1984 nuclear power has accounted for
                          more of the annual additions to U.S. electric generating capacity than
                          power generated at conventional coal boilers or other sources, the share
                          of electric generating capacity from this source will decrease in the
                          1990s because no commercial nuclear plants have been ordered in the
                          United States since 1978. The sudden and sharp reduction in electricity
                          demand after the oil embargo and the negative public perception that
                          resulted from the 1979 accident at Three Mile Island contributed to the
                          cancellation of over 100 nuclear plants in the United States since 1973.


Additions to Capacity     As shown in figure III. 1, about 25.1 percent, or 18,100 MU’,of the pro-
From Nonutility           jetted 1998 capacity increase is to be supplied by nonutility generators.
                           Nonutility generators are generally classified into two groups-quali-
Generators                 fied facilities and independent power producers (IPPS). The Public Utility
                           Regulatory Policies Act of 1978 (PI~RPA), directs the Federal Energy Reg-
                           ulatory Commission to require that electric utilities purchase power
                           from qualified facilities. These facilities include firms, such as chemical

                           ’ Integrated gaslfwatwn combined cycle is a boiler configuration that combmes use of hot-combustion-
                          gas turbmes and steam turbmes to generate electricitp. Fluldized bed combustion is a boiler configura-
                          tion that suspends crushed coal on a “bed” of upward-blowing      air dunng tambustlon; the boiler can
                          be operated at atmospheric pressure or may be pressunzed




                          Page 39                                             G-40 RCED-SO-85 Energy Strategies    for the 1990s
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                      plants, that use the steam from generators for industrial purposes and
                      to produce electricity. Qualified facilities also include small power pro-
                      ducers that generate no more than 80 MW of power; use biomass, waste,
                      or renewable resources as their primary fuel (75 percent or more); and
                      have no more than a 50-percent equity interest by an electric utility. IPPS
                      are generating sources that do not qualify under PURPA but that sell
                      power to utilities.

                      Rather than initiate new power plant construction, a growing number of
                      utilities are seeking to purchase power from nonutility generators. PURPA
                      requires electric utilities to purchase power from qualified nonutility
                      generators in their local service areas. However, electric utilities are also
                      seeking to purchase power from nonutility generators outside their
                      immediate service area to meet their capacity needs. Because the experi-
                      ence with nonutility generators is limited, such issues as access to utility
                      transmission systems, legislative constraints on the ownership of inde-
                      pendent power producers, and the methods of pricing power from these
                      nontraditional generators cause uncertainty about the reliability of this
                      generating option. However, according to NERC, these concerns will be
                      minimized because electric utilities are securing increasing amounts of
                      nonutility generation through the bidding process and by negotiated
                      contracts.


                      Meeting the nation’s needs for electric generating capacity is of addi-
Other Issues Facing   tional concern when the construction and licensing times are considered
Capacity Additions    for the capacity additions projected to be needed by 1998. Recent histor-
                      ical experience shows that the time required by utilities to plan, con-
                      struct, and license large-scale, central station power plants can take
                      between 7 and 10 years and sometimes longer. EIA expects that non-
                      utility power producers will be able to construct their facilities in less
                      time than is necessary for an electric utility to build a central station
                      power plant. According to EIA, about 40 percent of the projected non-
                      utility supplies will be from gas-fired units, which take less time to con-
                      struct than large central station coal-fired or nuclear-powered plants.
                      Utilities are, however, beginning to construct some smaller scale units in
                      order to reduce their construction lead times.

                      The status of the projected capacity additions compounds the concern
                      over whether future electricity supplies will be available when needed.
                      As shown in figure 111.2,63 percent of the projected capacity additions
                      are not yet under construction, and 12.7 percent of the power plants
                      whose construction has started are less than 50-percent complete.


                      Page 40                                             GAO; RCEDW-85   Energy Strategies   for the 1990s
                                              Appendix ID
                                              The Electric Utility   Industry   Faces Difficult
                                              Supply Choices




Figure 111.2:Status of Projected U.S.
Electric Utility Capacity Additions in 1989
                                                                                                       Percent of Capacity   AdditionsMore     Than
                                                                                                       One Half Complete




                                                                                                       Percent Of Capacity Additions Not Under
                                                                                                       Construction




                                                                                                       Percent of CapMy      Additions Less Than
                                                                                                       One Half Complete
                                              Source North Amencan Electric Rellablllty Council


                                              Electric utilities are considering emerging technologies, such as certain
                                              clean coal technologies being pursued by DOE, as potential electric gener-
                                              ating options for meeting future demand growth. However, their consid-
                                              eration of these technologies hinges on their commercial availability and
                                              on the emission reduction requirements that are likely to be enacted in
                                              proposed amendments to the Clean Air Act. To increase coal use, DOE
                                              has a $2.5 billion dollar program to co-fund the demonstration of
                                              emerging clean coal technologies that are expected to have enhanced
                                              capabilities to reduce emissions and greater boiler efficiencies than con-
                                              ventional boilers. These new capabilities are expected to be available for
                                              commercial order beginning in the mid-1990s.

                                              In our March 1989 report and related testimony, we recommended that
                                              the clean coal technology program be linked with compliance dates for
                                              emission reduction requirements in proposed amendments to the Clean
                                              Air -4ct because we were concerned that stringent legislative compliance
                                              deadlines to control acid rain might preclude potential use of the
                                              emerging technologies by utilities.’ We also discussed problems, such as
                                              difficulties in negotiating cooperative agreements between the project

                                              ‘Fossil Fuels. Commerc~ahzlng Clean Coal Technologies (GAO/RCED-89-80,   Mar. 29. 1989): Status of
                                              DOE-Funded Clean Coal Technology ProJects (GAO/T-RCED-89-25.     Apr. 13, 1989).



                                              Page 41                                             GAO iRCED-90-85   Energy Strategies   for the 1990s
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                           Supply Choices




                           sponsors and DOE, project financing problems, and equipment failure,
                           that were contributing to delays that could affect the commercial availa-
                           bility of the clean coal technologies.

                           In our March 1990 testimony we expressed reservations about whether
                           these new technologies, at their current pace of development and antici-
                           pated time tables for widespread deployment, would contribute signifi-
                           cantly, during the next 15 years, to the nationwide reduction of acid
                           rain-causing emissions.:1Thus? we concluded that greater emphasis on
                           funding multiple demonstrations of the more promising clean coal tech-
                           nologies could accelerate their successful demonstration and allow them
                           to play a greater and more timely role in reducing emissions that cause
                           acid rain.

                           Further, in our March 1990 report we suggested that the Congress may
                           want to have DOE delay selecting projects for rounds four and five of the
                           clean coal technology program until it obtains additional demonstration
                           results from the 38 projects already selected through the first three
                           rounds; as of December 31, 1989, only 3 of these projects were in the
                           demonstration or operation phase and none had been fully demon-
                           strated. This delay would allow DOE to target the remaining funds to the
                           more promising technologies and, in view of the nation’s current budget
                           constraints, help ensure that program funds are used efficiently and
                           effectively.


                           Improved energy conservation, which the administration has noted as a
Options to Mitigate the    primary national goal, and the purchase of excess electric generating
Need for Capacity          from electric utilities in Canada and Mexico could delay the need for
Additions                  additional electric generating capacity.


Demand Reduction Efforts   Efforts to reduce the demand for energy may help delay the need for
                           capacity additions. These efforts range from utilities directly controlling
                           electricity consumption, such as reducing power provided to consumer
                           water heaters and air conditioners at certain time periods of each day,
                           to providing information and assistance to the consumer on more effi-
                           cient electricity use. According to the Electric Power Research Institute
                           (EPRI), these efforts helped reduce electricity consumption by 13,000 MW
                           from 19’77 to 1983 and offer continued potential for reducing demand in

                           ‘l.tllities’   Potential I:se of Clean Coal l‘echnologles   [GAO 'T-KCED-90.5fj, Mar, 28. 1990).




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                           Appendix ID
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                           the 1990s. Further, NARLIC believes these efforts are the best short-term
                           strategy for reducing electricity demand and harmful utility emissions
                           and for moderating the impact of increased costs on consumer electric
                           bills.

                           However, the Congressional Research Service (CRS) points out in its
                           November 1989 report that, while demand reduction efforts appear to
                           be a viable resource option for electric utilities, some barriers discourage
                           their use. Evaluative information about the contribution that can be
                           expected from demand side strategies is not available, and uncertainty
                           exists about consumer response to these efforts. Also, measuring the
                           benefits of conservation efforts is difficult because it involves tracking
                           the decisions and activities of millions of customers.’ DOE’S Oak Ridge
                           National Laboratory issued a report that noted EIA'S shortcomings in
                           developing measures to quantify the possible reductions in fuel use that
                           result from energy conservation.

                           NERC   agrees that these efforts may only provide limited assistance in
                           reducing demand because pilot. programs do not indicate strong cus-
                           tomer participation, and the benefits of these programs vary across
                           utility systems. However, NERC also believes that while demand manage-
                           ment techniques may not forestall the need for capacity additions indef-
                           initely, economic savings such as avoided fuel purchases and reductions
                           in acid rain-causing emissions can be benefits of these measures.


Electricity From Foreign   Purchasing excess power generated by foreign utilities in Canada and
Sources                    Mexico may also delay the need for capacity additions by U.S. electric
                           utilities in some regions of the country. According to EIA. on the basis of
                           contracts, licensing agreements. and negotiations between U.S. utilities
                           and their counterparts in Canada and Mexico, net imports of electricity
                           are projected to grow from 26 billion kilowatt hours in 1989 to 60 billion
                           kilowatt hours by the year 2000. Thus. imported power would con-
                           tribute about 1.7 percent of total electricity demand. However, rx)E offi-
                           cials informed us that the regional impacts of Canadian imports are
                           much larger; in certain regions of the country these imports could
                           supply 15 percent of total electricity demand.

                           As discussed in our April 1986 report, since 1981, I’S utilities have
                           purchased increasing quantities of Canadian electricity to meet their




                           Page 43                                             GAO RCED-90-85 Enera   Strategies   for the 1990s
                 Appendix m
                 The Electric Utility    Industry   Faces Difficult
                 Supply Choices




                 electricity generation capacity needs.s These purchases have saved U.S.
                 consumers hundreds of millions of dollars because the Canadian provin-
                 cial utilities offered this power to U.S. utilities at a cost that was less
                 than it otherwise would have cost the U.S. utilities to produce this elec-
                 tricity in their own plants. Furthermore, these purchases deferred the
                 construction of domestic power plants that otherwise would be needed.

                 As in the case of some domestic supply options, concerns have existed
                 about the reliability of power generated by foreign utilities. In our 1986
                 report, we addressed New England utility representatives’ concern
                 about the technical reliability of the Hydro-Quebec electric system and,
                 more specifically, the vulnerability of that system to major power out-
                 ages. The concern centered around the likelihood that possible outages
                 could, in turn, affect interconnected U.S. systems. We reported that
                 Hydro-Quebec had experienced eight system-wide outages between 1969
                 and 1978, but since had reduced the incidence to two outages by con-
                 structing new transmission facilities. In our March 1989 report, we dis-
                 cussed actions since 1986 and further action being considered by Hydro-
                 Quebec and U.S. utilities interconnected with Hydra-Quebec’s main
                 power transmission grid to reduce the risk of possible future power out-
                 ages by the Canadian utility.”

                 Another cause for concern over imports of Canadian electricity is that
                 hydroelectric power, a primary source of Canadian power, requires ade-
                 quate water levels to spin the turbine connected to the electric gener-
                 ator. According to EIA, a 1988 drought in midwestern Canada and low
                 reservoir levels in British Columbia and Quebec contributed to a 33-per-
                 cent drop from 1987 levels in electricity exports to U.S. utilities.


                 We continue to believe, as pointed out in our March 1989 report, that the
Where to Focus   questions affecting each of the electricity generating options point to a
Attention        need for an intensive congressional review of the nation’s electric utility
                 industry.; Sufficient uncertainty has surfaced concerning the source of
                 future electricity supplies. Given issues related to the changing utility
                 industry infrastructure, the environmental implications of fuel choices,
                 the future of nuclear power, and the nation’s growing dependence on

                 %knadian      Power Imports: A Growing Source of U.S. Supply (GAO/RCED-86-119,         Apr. 30, 1986).

                 “Canadian     Power Imports: Lipdate on Electricity   Imports in the Northeast (GAO/RCED-89-51,    Mar.
                 3. 1989).

                 ‘Electncity   Supply: What Can Be Done to Revive the Nuclear Option? (GAO/RCED-89-67,          Mar. 23,
                 1989).




                 Page 44                                               GAO/RCED-90-86    Energy Strategies   for the 1fJBOa
                            Appendix III
                            The Electric Utility   Industry   Faces Difficult
                            Supply Choices




                            imported oil, it will be important to address and debate the difficult elec-
                            tricity supply choices that the nation is confronting.


Expanding the Use of Coal   Expanding the use of coal is one of the major options for meeting future
                            U.S. electricity needs. Since coal is the nation’s primary domestic fossil
                            energy source, with proven reserves expected to last at least 300 years,
                            greater reliance could be placed upon the use of this fuel. To develop
                            additional electric generating capacity for expected demand increases in
                            the 199Os, utilities will need to decide whether to build new coal-fired
                            powerplants or upgrade existing ones. However, environmental concerns
                            for the effects of coal combustion have retarded the expanded use of
                            this energy source and may affect the industry’s technology choices for
                            future generating capacity.

                            As we have suggested, the Congress may want to have DOE                            target the
                            remaining funds in the CCT program on the more promising                           technologies
                            that offer the electric utility industry the best and quickest                      options for
                            increasing the clean use of coal. This delay would also help                        ensure that
                            program funds are used efficiently and effectively.

                            Ultimately, the industry must weigh the costs of continued reliance on
                            coal against other fuel options to generate electricity. According to
                            growing scientific consensus, in addition to the environmental concerns
                            about acid rain-causing emissions produced when coal is burned, the pri-
                            mary product of coal combustion-carbon      dioxide-may      also be con-
                            tributing to global warming. The significant implications of coal’s
                            contribution to the atmospheric effects of carbon dioxide will need to be
                            weighed by the Congress as it reviews the nation’s reliance on fossil
                            fuels.


Reviving the Nuclear        As reported in March 1989, the Congress should consider enacting legis-
Option                      lation to reform the licensing process and promote utilities’ use of NRC
                            preapproved nuclear plant designs to help revive the nuclear option.
                            Because of U.S. uranium ore reserves and technical knowledge of
                            nuclear power, electricity produced at nuclear facilities could play a
                            major role in meeting future energy demands and in displacing fossil
                            fuel consumption, thereby reducing harmful emissions.

                            To build the public’s confidence in nuclear power, the nation must
                            resolve issues of nuclear waste disposal and safe plant operations. To
                            that end, the Congress selected a national repository for nuclear waste


                            Page 45                                             GAO,‘RCEDM-85   Enera   Strategies   for the 1990s
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                            The Electric Utility   Industry   Faces Difficult
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                            to be built below Yucca mountain, Nevada. However, because of contro-
                            versy surrounding the choice of this site, the repository may not open on
                            schedule. DOE also recently announced it would co-fund a project to
                            demonstrate a standard design for smaller nuclear reactors with
                            inherent safety features. As reported in March 1989, the Congress
                            should weigh the costs and benefits associated with nuclear power as it
                            resolves the issues with the repository for radioactive waste and con-
                            sider supporting these efforts to demonstrate standardized nuclear plant
                            designs.


Monitoring Nonutility       Nonutility electric power producers are another option for meeting
Generators                  future electric capacity needs. However, we reported in November 1988
                            that the Congress will need to carefully consider issues such as access to
                            transmission lines as competition increases between the regulated elec-
                            tric utility industry and independent power producers and other non-
                            traditional sources.”


Improving the Information   Finally, programs to manage energy demand could delay the need for
on Demand Management        new electric generating capacity. However, to broaden utility use of
                            these programs, better information is needed on the contributions these
Contributions               demand side strategies could make to reducing electricity consumption,
                            demand for fossil fuels and nuclear fuels, and, in turn, the harmful emis-
                            sions and radioactive waste materials produced when these fuels are
                            consumed. Also, better information on the potential economic savings
                            and other benefits of these programs for the consuming public could
                            promote more acceptance of demand management efforts.




                            ‘Energy Issues: GAO Transitlon     Series (GAO/KC-89-16TR,    Nov. 1988).




                            Page 46                                             GAO/RCED!W85    Energy Strategies   for the 1990s
Environmental Issues Will Affect Future
Energy Choices

                 In recent years, energy policy issues have become increasingly linked
                 with environmental policy issues, and the decisions affecting one issue
                 cannot be made without some consideration of the other. For instance,
                 proposed amendments to the Clean Air Act aimed at reducing harmful
                 automotive emissions include provisions for alternative fuels that are
                 cleaner burning than gasoline and automobiles capable of using these
                 fuels. In 1989, coal, oil, and other fossil fuels provided nearly 90 percent
                 of the total energy consumed in the United States. However, fossil fuel
                 combustion is the primary source of carbon dioxide emissions as well as
                 other “greenhouse” gases. These gases contribute to global warming,
                 ozone pollution, and acid rain.

                 In addition, while nuclear power has provided one-third of all electricity
                 supplied since 1974, health, safety, and environmental concerns exist
                 regarding the risk of radiation releases from nuclear plants and the
                 storage and disposal of the hazardous radioactive waste produced by
                 their reactors. The environmental consequences of meeting our energy
                 needs will continue to be a key issue in the 1990s as the United States
                 formulates its energy policies.


                 Global warming has quickly emerged as an international concern
Global Warming   because the five warmest years of the century all occurred in the 1980s
                 and the consumption of fossil fuels is projected to increase worldwide.
                 According to EPA, the greatest single contribution to potential global
                 warming is increasing amounts of carbon dioxide in the atmosphere.
                 Carbon dioxide is a colorless, odorless, nontoxic gas formed by the com-
                 bustion of carbon and carbon compounds found in fossil fuels-coal,
                 petroleum, and natural gas. Green plants remove a significant amount of
                 carbon dioxide from the atmosphere. However, increased worldwide use
                 of fossil fuels and extensive deforestation have caused a buildup of
                 carbon dioxide in the environment.

                 The earth’s temperature is regulated largely by atmospheric gases.
                 Carbon dioxide and other gases such as methane-the main constituent
                 of natural gas-allow the sun’s energy to pass through the atmosphere
                 and reach the earth’s surface, but they also trap heat that would other-
                 wise be radiated away from the earth’s surface. This “greenhouse
                 effect” occurs naturally and contributes about 59 degrees Fahrenheit to
                 the earth’s average surface temperature. However, scientists are con-
                 cerned that increasing concentrations of carbon dioxide, (shown in
                 figure IV.l) and the other greenhouse gases being added to the atmos-
                 phere by human activities could raise the earth’s surface temperature.


                 Page 47                             GAO/RCED-90-85   Energy Strategies   for the 1990s
                                          Appendix IV
                                          Environmentai  Issues Wlll Affect         Future
                                          Jhergy Choices




Figure IV.l: Increasing Global
Concentrations    of Carbon Dioxide
                                          350      CO2(parls pw   million)




                                          350



                                          340



                                          339




                                          339




                                          310

                                            1959       lw3        1955       1959   1979     1973   1975       1979      1999      1983     1985      1968
                                            YOU

                                          Source: C.D. Keeltng, Scripps lnstltutton of Oceanography,       Unwerslty of Callforma, La Jolla, Callfornla


                                          While man-made releases of carbon dioxide into the atmosphere have
                                          been increasing since the beginning of the industrial revolution nearly
                                          200 years ago, two-thirds of these carbon dioxide releases have been
                                          added in the past 15 years. Recent analyses with advanced computer
                                          models of the atmosphere suggest that, if current emission trends con-
                                          tinue, the atmospheric buildup of these gases could result in a 3 to 10
                                          degree Fahrenheit increase in average global temperature by the middle
                                          of the next century.

                                          According to some studies, a warming of this magnitude could have sig-
                                          nificant effects:

                                      l   Sea levels could raise worldwide because of the breakup of Antarctic
                                          and Greenland ice caps, the thermal expansion of the oceans and the
                                          melting of small, land-based glaciers.
                                      l   Agriculture and forestry, in some parts of the world, could suffer
                                          adversely from higher temperatures caused by decreases in rainfall and
                                          soil moisture.
                                      l   Water supplies, which depend on the timing and distribution of regional
                                          rainfall, could be reduced.




                                          Page 48                                               GAO/RCED90-85         Energy Strategies    for the 1990s
                      Appendix IV
                      Environmental  Issues Will Affect    Future
                      Energy Choices




                      Concern for the effects of fossil fuel consumption has focused attention
                      on immediate actions to reduce carbon dioxide emissions through the
                      following measures:

                  . improving the efficiency of energy use, for example, in buildings, trans-
                    portation, and electricity generation;
                  l strengthening LJ.S.commitment to the research and development of
                    other renewable energy sources, such as solar power; and
                  9 implementing more reforestation programs to offset losses of tropical
                    forests.

                      Many environmentalists and industry groups differ on whether to
                      increase the use of nuclear power as another measure to reduce the
                      greenhouse gases caused by the combustion of fossil fuels.


                      Ozone pollution can seriously impair health, particularly in children and
Ozone Pollution       people with respiratory ailments. When trapped in the lower atmos-
                      phere, ozone pollution is a key component of smog. It is produced when
                      volatile organic compounds (hydrocarbons) and nitrogen oxides react in
                      the presence of sunlight. Hydrocarbons, a broad class of pollutants,
                      come from man-made sources including automobile and truck exhaust,
                      solvent and gasoline evaporation, chemical manufacturing, and petro-
                      leum refining. In some regions, natural vegetation can produce these
                      emissions. Nitrogen oxides are primarily emitted during the combustion
                      of fossil fuels. At least 40 percent of all nitrogen oxide emissions come
                      from mobile sources such as automobiles, trucks, and other vehicles;
                      other emissions come from a combination of stationary sources such as
                      industrial boilers and processes and electric power plants.

                      Based on ozone’s known health effects, EPA has established a national
                      standard for maximum ozone concentration. Any area experiencing con-
                      centrations exceeding the standard more than once a year, on average. is
                      declared a “nonattainment” area. As we reported in November 1988,
                      most metropolitan areas have yet to meet the national safe ozone level
                      established by EPA.' According to EPA, nearly 100 cities and counties now
                      exceed the national ambient air quality standard (NAAQS)for ozone. In
                      1988, this list included cities comprising about half of the ITS. popula-
                      tion. The nonattainment areas on this list are depicted below in figure
                      n7.2.


                      ’ Envnmnwntal   Protection   Agency Issues: GAO Trdnsitlon   Series (GAO 'OGC-8%2OTH.   Nov. 1988)



                      Page 49                                           GAO RCED90-85     Energy Strategies   for the 1990s
                                                                                                                                       -
                                           Appendix N
                                           Environmental  Issues Will Atfect   Future
                                           Energy Choices




Figure IV.2: Areas Violating Ozone NAAQS During 1986-88




                                           Source, U.S EnvIronmental Protectton Agency


                                           Since mobile sources account for a significant portion of total hydro-
                                           carbon and nitrogen oxide emissions, efforts to reduce ozone pollution
                                           have been proposed for the auto industry. One such effort is the use of
                                           vapor recovery systems. However, there has been debate between the oil
                                           industry and automakers about whether gasoline vapors that escape
                                           from vehicles during refueling should be controlled by tubing placed
                                           over the nozzle of the gas hose to withdraw hydrocarbon vapors or by
                                           canisters placed on board vehicles to capture the vapors.

                                           Other proposed controls for mobile sources include:

                                       l   stricter tailpipe standards,




                                           Page 50                                       GAO/RCED-9035   Energy Strategies   for the 1990s
                Appendix N
                Environmental  Issues Will Affect         Future
                Energy Choices




            l   limits on gasoline volatility,’
            l   use of alternative fuels,
            l   enhanced vehicle inspection and maintenance programs, and
            l   new highway vehicle emissions standards,

                Proposals for stationary sources include:

            l   stricter controls on facilities that treat, store, and, dispose of hazardous
                wastes;
            l   control technologies on all existing stationary sources that emit more
                than 100 tons per year of nitrogen oxide and more than 25 tons per year
                of hydrocarbons;
            l   new control guidelines for smaller stationary sources for which no cur-
                rent legislation exist; and
            l   federal controls on the solvent content of architectural surface coating
                such as paints and stains.


                Acid rain has become a major air quality issue since harmful U.S. sulfur
Acid Rain       emissions affect not only our nation’s environment but the environment
                of neighboring Canada as well. Acid rain is produced when sulfur
                dioxide and nitrogen oxides emitted to the atmosphere react with other
                atmospheric gases and return to the earth as acidic substances. Fine sul-
                fate particles formed in the atmosphere from sulfur dioxide are a major
                contributor to visibility reduction and particulate pollution, and acidic
                sulfate particles may contribute to health problems. Some studies also
                suggest acid rain is responsible for killing aquatic life in lakes and
                streams in the northeast United States and Canada. However, uncer-
                tainty continues over how much environmental damage acid rain has
                caused.

                Most concentrated sulfur dioxide emissions in the United States come
                from older coal-burning plants in the Midwest. Over 80 percent of the
                sulfur dioxide emissions originate in states east of the Mississippi River;
                about one-half of these emissions originate at electric utility plants.
                Nitrogen oxide emissions come from automobiles, power plants, and
                other combustion sources. Therefore, nitrogen oxide sources are not as
                geographically concentrated as sulfur dioxide sources. Studies have
                shown that the effects of these emissions can be far from the source of
                the problem. For example, while the greatest concentration of sulfur
                dioxide sources is located in the Ohio River Valley, prevailing winds can

                ‘Gasohnr   volatihty   1s dcflnrd   as the tendenc), of gas to evaporate.



                Page 51                                                 GAO ;‘RCED-90-85 Energy Strategies   for the 1990s
                                         Appendix N
                                         Enviroumental  Issues Will Affect   Future
                                         Energy Choices




                                         carry some emissions hundreds of miles to the northeast, where they are
                                         transformed and fall to the ground as acid rain (see figure IV.3).

Figure IV.3: Acidic Deposition   Cycle




                                         Source Nattonal Academy of Sciences


                                         In 1980, Congress created the national acid precipitation assessment
                                         program (NAPAP) to study and evaluate approaches to control acidic dep-
                                         osition. NAPAP estimates that between 1973, the peak year of sulfur
                                         dioxide emissions, and 1988, sulfur dioxide emissions in the United
                                         States decreased by 23 percent from approximately 31 to 24 million
                                         short tons, despite a 45-percent increase in coal use. Most of the reduc-
                                         tion was achieved by 1982; through 1988 sulfur dioxide emissions
                                         remained relatively constant. NAPAP attributed the decrease in sulfur
                                         dioxide emissions to increased use of low sulfur coal and flue gas desul-
                                         furization equipment (scrubbers), increased nuclear power plant produc-
                                         tion, and decreased utilization of some higher emitting plants and
                                         industrial sources. NAPAP also estimates that nitrogen oxide emissions
                                         have declined since peaking in 1978 at 23 million short tons. Data for


                                         Page 52                                      GAO ‘RCED-90-85   Energy Strategies   for the 1990s
Appendix N
JQwironmental  Issues Will Affect   Future
Energy Choices




1988 indicated that nitrogen oxide emissions were 20 million short tons,
or down 14 percent from 1978.

Recent proposed amendments to the Clean Air Act call for further
reductions in both sulfur dioxide and nitrogen oxide emissions. In July
1989, the President proposed an amendment to the Clean Air Act that
would require annual reductions of sulfur dioxide emissions from fossil-
fueled generators to about 10 million tons below 1980 levels and annual
reductions of nitrogen oxide emissions to about 2 million tons below
levels projected for the year 2000, to be achieved by December 31, 2000.

According to some environmentalists and industry groups, the nation
could reduce the annual sulfur dioxide and nitrogen oxide emissions
that contribute to acid rain in a variety of ways, including the following:

Technological remedies could be used (anti-pollution devices including
clean coal technologies could be added to existing power plants, and
more effective emission controls could be required for automobiles);
Utilities could switch to low-sulfur coal found mostly in the West and
Central Appalachia;
Alternative fuels could be developed for the automobile industry;
Clean burning natural gas could be substituted for high sulfur oil in elec-
tricity generation; and
Electricity conservation could be encouraged, particularly in areas with
a heavy reliance on high-sulfur coal.

However, controversy surrounds these remedial actions because of their
potential negative impacts. Controversial issues include the following:

Costs to the midwest region of the country for emission control of utili-
ties would be greater than in other regions;
Eastern coal companies could lose customers and eastern coal miners
could lose jobs due to utilities switching to low-sulfur western coal;
An increased consumption of natural gas for electricity generation may
engender price increases and supply shortages for this fuel; and
An increased consumption of some alternative fuels may be corrosive to
automobiles.

In addition, it is difficult to measure electricity savings resulting from
utilitv conservation Drof!rams.
      Y                    I    ”




Page 53                                      GAO ‘RCED-90-85 Energy Strategies   for the 1990s
                     Appendix N
                     Environmental  Issues Will Affect   Future
                     Energy Choices




                     Because of environmental and energy security questions facing certain
Environmental        alternative energy sources, the administration wants to ensure that
Concerns Regarding   nuclear power remains a viable option to meet the nation’s energy needs.
Nuclear Power        Further, according to one study, the nation’s 112 licensed nuclear plants
                     contribute to lower levels of sulfur dioxide and nitrogen oxide emis-
                     sions-the precursors of acid rain-because electricity generated by
                     nuclear power would otherwise likely be produced by fossil fuels. How-
                     ever, many environmentalists as well as the general public continue to
                     have a negative perception of the nuclear option in light of the waste
                     disposal problem, accidents, unsafe operations, and mismanagement of
                     certain nuclear facilities.

                     Decisions regarding nuclear waste disposal remain politically and tech-
                     nologically complex as environmental concerns continue to affect solu-
                     tions to this problem. For example, as discussed in appendix III,
                     controversy continues over the selection of Yucca Mountain, Nevada, as
                     the nation’s underground repository for about 70,000 metric tons of
                     utility generated high-level nuclear waste and may delay its scheduled
                     opening in the year 2003. According to EIA, as of 1987, cumulative dis-
                     charges of spent heavy metal fuel from US. nuclear power plants were
                      15,900 metric tons and are expected to continue to grow.:’ Also, while
                     advances are being made in reactor designs, concern continues over the
                     disposal of a reactor once it has reached the end of its useful life.

                     In addition to waste disposal problems, environmentalists charge that
                     during the last decade U.S. electric utilities have reported nearly 30,000
                     mishaps at their nuclear power plants, including the partial meltdown in
                     1979 at Three Mile Island. Furthermore, some U.S. health authorities
                     predict that cancer deaths in the Soviet Union will increase by as much
                     as 70,000 over the next 70 years as a result of radiation releases from
                     the Chernobyl nuclear plant accident in 1986. The economic losses from
                     this accident are estimated at $3 billion, and it is not yet clear how wide-
                     spread the damage is to the land, water, and wildlife. The future of
                     nuclear power in the United States will be determined, in part by
                     whether new technologies can improve the nuclear safety record and by
                     resolution of the nuclear waste disposal issue.




                     ‘Spent fuel, Fuel removed from a nuclear reactor after it has completed a fuel cycle.




                     Page 54                                          GAO/RCED90-85       Energy Strategies   for the 1990s
Appendix V

The Need for a National Energy Strategy


                         On July 26, 1989, the administration announced its plan to develop a
                         national energy strategy. With this announcement, the President stated
                         that the nation is at a critical juncture regarding the availability of
                         future energy supplies and cited specific concerns over the U.S. oil situa-
                         tion, future electricity supplies, and the environment. The strategy,
                         which is to be released by the President in January 199 1, is to serve as
                         an action plan for providing the nation with a balanced array of com-
                         petitively priced, clean energy supplies well into the future. Since the
                         strategy was announced, DOE has conducted several public hearings
                         around the country and issued an interim report on the strategy on
                         April 2, 1990, which summarizes the comments received at these hear-
                         ings. Between April and December 1990, DOEplans to analyze this infor-
                         mation as well as other data to develop a completed national energy
                         strategy.

                         We believe DOE’S effort to develop a national energy strategy is a step in
                         the right direction toward addressing the nation’s energy situation. Once
                         completed, the strategy is expected to help decision makers examine leg-
                         islative and policy choices on energy issues, by providing a framework
                         that integrates the potential impacts these choices could have on envi-
                         ronmental, economic, and other national concerns. As the strategy is
                         being developed, the administration and the Congress will continue to
                         make policy or legislative decisions on energy issues. For instance, the
                         Clean Air Act amendments currently being debated could affect deci-
                         sions by the automobile industry and the electric utility industry
                         regarding alternative fuels and coal burning technologies that could
                         alter energy choices and affect the nation’s environment for years to
                         come.


                         The President is required by law to submit a national energy plan to the
Reasons for a National   Congress every 2 years. Previous energy plans (1) indicated current
Energy Strategy          domestic and international energy conditions, (2) stated the administra-
                         tion’s views on the general policy direction the nation should take
                         regarding its energy choices, and (3) declared new policy initiatives.
                         However. according to DOE’S Deputy Director, Office of Policy, Planning,
                         and Analysis, these energy initiatives were not specific enough.

                         DOEexpects the national energy strategy being developed to differ from
                         prior national energy plans in several respects. The most notable differ-
                         ence is that the strategy is expected to serve as a blueprint for energy
                         decisions-not just a policy statement. The strategy will generate sev-
                         eral energy policy options, illustrate how each of the options will be


                         Page 55                             GAO RCED-90-85 Enera   Strategies   for the 1990s
                                                                                                                     -
                             Appendix V
                             The Need for a National   Energy Strategy




                             implemented at the program level, and indicate the budgetary require-
                             ments of these programs. Also, the Secretary of Energy expects the final
                             strategy to contain specific recommendations on how to best balance
                             energy, economic, and environmental concerns.

                             In announcing the development of the strategy, the Secretary of Energy
                             expressed a number of concerns: domestic oil production is at the lowest
                             level in 25 years; oil imports are 65-percent higher than in 1985; envi-
                             ronmental problems are putting new pressures on the nation’s ability to
                             use coal, our most abundant domestic fuel; and the nation’s margins of
                             electricity reserves are shrinking. DOE officials said that the national
                             energy strategy is needed to focus attention on the difficult choices of
                             balancing these concerns against US. economic efficiency and growth.


                             The national energy strategy is to be completed by December 1990 for
Development of the           the President’s consideration. The report will present a range of options
Strategy                     to the President on a national energy strategy for three baseline years:
                             fiscal year 1992, the year 2010, and the year 2030. These options will
                             also include guidance for fiscal year 1992 budget decisions. According to
                             DOE, in January 1991 the President will be able to release:

                         l   a clear statement of the administration’s national energy strategy,
                         l   the program and budget priorities    for the strategy,
                         l   DOE'S program implementation plans, and
                         l   the administration’s legislative energy proposals to support the
                             strategy.


Process of Development       In August 1989, DOE initiated a multi-stage process to forge a strategy
                             that would reflect a consensus of opinion on the nation’s energy situa-
                             tion. According to DOE, the public’s acceptance and implementation of
                             the strategy will determine its success. To begin the process of devel-
                             oping the strategy, DOE

                         l   planned several fact-finding public hearings to obtain input from state
                             officials, energy producers, consumers, environmentalists, and the gen-
                             eral public on goals and concerns to include in the strategy;
                         l   sought the participation of other federal agencies, such as EPA, in the
                             public hearings;
                         l   initiated several special studies by the DOE national laboratories on
                             energy conservation, global climate change, technology transfer, and
                             renewable energy resources; and


                             Page 56                                     GAOiRCED90-85   Energy Strategies   for the Boos
                            Appendix V
                            The Need for a National   Energy Strategy




                        l   requested EIA to begin the development of new improved modeling capa-
                            bility, to be called the national energy modeling system, that would
                            extend projections of energy supply and demand up to forty years into
                            the future.

                            Staff from EIA, DOE headquarters, and DOE'S national laboratories are
                            jointly developing the national energy modeling system. DOE expects that
                             the national energy modeling system will continually track the future
                             availability of energy supplies and the impacts the various energy
                             supply options will have on such issues as global warming and emerging
                             energy technologies. This new modeling system, which is to be com-
                             pleted by 1992, is expected to improve upon EIA'S capability to project
                             energy trends through (1) the development of end-use models able to
                             reflect a variety of assumptions about the cost and performance of
                             demand-side technologies, (2) the development of ways to integrate
                             renewable energy resources with other models of energy supplies, (3)
                            the development of new forecasting capability to explore long-term
                            trends-20 years and 40 years into the future, and (4) the collection of
                             data for these new or enhanced energy models.


Status of Development       On April 2, 1990, DOE issued its interim report on the national energy
                            strategy for further public comment and also issued the national labora-
                            tories special studies on energy issues. The interim report represents a
                            considerable effort by DOE. It is a compilation of about 1,000 written
                            comments and about 380 testimonies received at the 15 public hearings
                            DOE conducted around the country between August 1989 and February
                            1990. In the report, DOE organized these written and oral comments
                            around four publicly identified themes-increased efficiency of energy
                            use, secure future energy supplies, respect for the environment, and for-
                            tifying the foundations of scientific achievement-and      listed the pub-
                            licly identified energy goals, obstacles to these goals, and possible
                            options suggested to overcome these obstacles for each of these themes.

                            However, the report did not contain all the information that DOE had
                            originally planned to include for public comment before issuance of the
                            completed strategy in December 1990. DOE's September 1989 manage-
                            ment plan for the strategy stated that the interim report would also
                            include the Department’s proposed set of recommendations for new
                            energy activities or changes to existing energy programs, budgetary pro-
                            posals for fiscal year 1992, and EIA'S new baseline forecasts for U.S.
                            energy supply and demand. Thus, this report will not serve as the



                            Page 57                                     G-40 ‘RCED-90-85 Energy Strategies   for the 1990s
               Appendix V
               The Need for a National   Energy Strategy




               vehicle for public comment on the Department’s proposed energy recom-
               mendations and budgetary proposals, nor on the assumptions used by
               EIA to develop its baseline forecasts of future energy supply and
               demand.

               As the interim report was being prepared, and, subsequent to its release,
               DOE testified before several congressional committees on the status of
               the strategy and information that had been developed for it. The Con-
               gress is likely to continue to monitor the progress of the strategy.

               In May 1990, DOE decided not to develop recommendations for the final
               draft. In response to a request by the administration’s Economic Policy
               Council-a cabinet level group of executive agencies-DOE decided to
               present the President with a range of options rather than recommenda-
               tions in its draft of the national energy strategy.

               According to DOE, the most difficult choices for the strategy are yet to
               come as it moves away from the information collection effort of the
               interim report to data analysis and the development of a range of
               options. Completing this effort by January 1991 would seem to be a for-
               midable task. However, some efforts have already been completed. For
               instance, according to EIA, it has completed the baseline forecasts to be
               used for the national energy modeling system. EIA has now turned its
               efforts to constructing scenarios from the forecasts that will be used in
               developing the strategy. These scenarios are expected to model how
               plausible U.S. government policy options and technological innovations
               might change U.S. energy costs, U.S. energy security, and the natural
               environment.


               We believe the effort to develop a national energy strategy is a step in
Observations   the right direction. The strategy is expected to provide new information
               and propose initiatives for guiding future energy choices at a time when
               concerns are increasing about energy consumption, reliable energy sup-
               plies, and environmental protection. Timely completion of the adminis-
               tration’s strategy is important because the electric utility industry, the
               automotive industry, and others in the energy sector will be making
               decisions about what technologies and energy sources to pursue, partic-
               ularly as changes to the Clean Air Act occur. For example, as discussed
               in appendix III, the electric utility industry will soon be making deci-
               sions about what technologies and fuels to use for future generating
               capacity. A completed strategy could provide new information that may
               lead these industries to consider the use of alternative energy sources or


               Page 58                                     GAO ,RCED-90-85 Energy Strategies   for the 1990s
Appendix V
The Need for a National   Energy Strategy




technologies that contribute to the balanced goals of reduced U.S. depen-
dence on unreliable energy suppliers, a safer and healthier environment,
and economic growth. Finally, while the strategy is being developed, we
encourage DOE to continue to provide the Congress new important infor-
mation that may be useful in deliberations on energy and environmental
legislation.




Page 59                                     GAO ‘RCED-90-85   Energy Strategies   for the 1990s
Major Contributors to This Report


                        Judy A. England-Joseph, Associate Director
Resources,              James A. Fowler, Assistant Director
Community, and          Barry R. Kime, Assignment Manager
Economic                Brian T. McLaughlin, Evaluator-in-Charge
                        Margaret W. Price, Staff Evaluator
Development Division,
Washington, D.C.        Charles M. Adams, Advisor
                        Paul 0. Grace, Advisor
                        Mary Ann Kruslicky, Advisor
                        William F. McGee, Advisor




                        Page 60                           GAO/RCEDMG   Energy 8tmt+?@es for the 1fRRk~
Page 61   GAO ‘RCEDW-85   Energy Strategies   for the 1990s
Page 62   GAO/RCED-SO-85   Energy Strategies   for the ISSOs
Page 63   GAO/R~90-65   Enemy Strategies   for the 1990~
Related GAO Products


               Canadian Power Imports: A Growing Source of U.S. Supply                  (GAO/
               RCED-86-119, Apr. 30, 1986).

               Energy Security: An Overview of Changes in the World Oil Market                    (GAO/
                         Aug. 31, 1988).
               RCED88-170,

               Energy Issues:     GAO   Transition Series   (GAO/oGC-89-16TR,   Nov. 1988).

               International Energy Agency: Effectiveness of Members’ Oil Stocks and
               Demand Restraint Measures (GAo/Nsm89-42,    Feb. 6, 1989).

               Canadian Power Imports: Update on Electricity Imports in the Northeast
                             Mar.3, 1989).
               (GAO/RCED89-51,

               Strategic Petroleum Reserves: Analysis of Alternative Financing
               Methods (GAO/mm-89-103,  Mar. 16, 1989).

               Electricity Supply: What Can Be Done to Revive the Nuclear Option?
               (GAO/RCED-89-67,Mar. 23, 1989).

               Fossil Fuels: Commercializing Clean Coal Technologies             (GAO/RCED-89-80,
               Mar. 29, 1989).

               Alternative   Financing Methods for the Strategic Petroleum Reserve
               (GAO/T-RCED-89-27, Apr. 19, 1989).

               Status of Do&Funded Clean Coal Technology Projects               (GAO/T-RCED89-38,
               May 4, 1989).

               The Strategic Petroleum Reserve Amendments of 1989                 (GAO/T-RCED-89-38,
               May 4, 1989).

               Perspectives on the Potential of Clean Coal Technologies to Reduce
               Emissions From Coal-Fired Power Plants (G-40/T-RCED-90-3, Oct. 18, 1989).

               Energy Security and the World Oil Market (GAO/T-RCED-90-qNov. 8,
               1989).

               Fossil Fuels: Pace and Focus of the Clean Coal Technology Program
               Need to Be Assessed (GAO!RCED-90-67, Mar. 19, 1990).

               Utilities’ Potential     use   of Clean Coal Technologies   (GAO/T-RCED-90-56,       Mar.
               28, 1990).


(308813)       Page 64                                   GAO,‘RCED!W35   Energy Strategies   for the 1990s
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