,i .. i,. United States GAO General Accounting Office Washington, D.C. 20548 Resources, Community, and Economic Development Division ES-276443 April 9, 1997 The Honorable John R. Kasich Chairman, Committee on the Budget House of Representatives Subject: Energv Policv: DOE’s Policv. Programs, and Issues Related to Electricitv Conservation Dear Mr. Chairman: As requested, we are providing you with information on the Department of Energy’s (DOE) energy policy and programs as they relate to electricity conservation. We used this material to brief your office on March 20, 1997. As a component of the administration’s overall sustainable energy strategy, DOE integrates electricity efficiency into its energy-efficiency and renewable- energy policy and programs. However, neither the administration nor DOE has an explicit electricity conservation policy. For fiscal year 1998, the administration requested a budget for DOE’s Office of Energy Efficiency and Renewable Energy of about $1.02 billion, which represents a 27-percent increase over the Office’s appropriation for fiscal year 1997. In the recent past, the Congress passed legislation to facilitate greater competition among wholesale suppliers of electricity. Currently, the Congress is considering, and several states have passed, legislation that would restructure the electric utility industry to facilitate greater competition among retail suppliers. Restructuring may result in lower electricity prices, on average; thus, some consumers may be3ess willing to invest in energy- efficiency technologies. If electricity prices are lowered and consumption and generation subsequently increase, restructuring could possibly lead to greater power plant emissions and affect environmental quality. At this tin-te, it is uncertain whether DOE’s current energy-efficiency and renewable-energy programs are the most cost-effective means for addressing environmental damages. GAOBXED-97-107R Electricity Conservation B-276443 Enclosure I provides you with background data, information on DOE’s policy and programs, and our preliminary thoughts on the consistency of DOE’s current policy and programs in the light of current and anticipated changes in economic conditions and public policies. We reviewed the National Energy Policy Plan’ and DOE.‘s statements regarding the Department’s current energy policy and programs. In addition, we reviewed the literature on energy policy and consulted with several experts. We performed our review from December 1996 through March 1997 in accordance with generally accepted government auditing standards. AGENCY COMMENTS AND OUR EVALUATION We provided DOE with a draft of this report for review and comment. DOE said that (1) our report fails to accurately reflect the proven value and cost- effectiveness of the programs and policies of the Office of Energy Efficiency and Renewable Energy and (2) DOE’s policies and programs are among the most cost-effective options for addressing the environmental damages associated with an increase in the demand for electricity services arising from the restructuring of electric utilities. We believe that the cost-effectiveness of DOE’s programs in addressing the environmental damages that may result from the restructuring of the electric utility industry will depend to a great extent on how restructuring unfolds and on the path of future electricity prices. Thus, it is uncertain whether DOE’s current programs will reduce additional environmental darnages in the most cost-effective way. Even if DOE’s current projections were to indicate that the estimated benefits of the Department’s programs exceed their costs, possible alternative programs or measures might provide equal or greater environmental benefits for less cost. DOE also commented that our audits and analysis have shown that DOE’s Office of Energy Efficiency and Renewable Ener,sy’s programs and policies are among the most cost-effective ways of addressing environmental concerns. However, we have never reported that DOE’s programs and policies are among the most cost-effective ways to address environmental concerns. Enclosure II ‘Sustainable Energy Strategy: Clean and Secure Energy for a Competitive Economy, Pursuant to Section 801 of the Department of Energy Organization Act (U.S. Government Printing Office, July 1995). 2 GAOIRCED-97-107R Electricity Conservation B-276443 contains the complete text of DOE’s comments, along with our detailed responses. We will make copies of this report available to others upon request. If you have any questions or need additional information, please call me at (202) 512- 3841. Major contributors to this report include Charles W. Bausell, Jr.; Timothy J. Guinane; Michael J. Wargo; and William K. Garber. Sincerely yours, Victor S.‘Rezende Director, Energy, sources, and Science Enclosures - 2 GAO/RCED-97-107X Electricity Conservation ENCLoSURE I :,:‘7’ ENCLOSURE I ELECTRICITY CONSERVATION MO RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION ENERGY POLICY DOE’s Policy, Programs, and Issties Related to Electricity Conservation 4 GAOLEtCED-97-107R Electrici& Conservation ENCLOSURE I ENCLOSURE I GM Background Demand for Energy Is Increasing 0 Total energy consumption was up by 36% during 1970-95; is expected to grow by 1% annually during 1995-2015. Source: GAO’s analysis of data from the Energy Information Administration (EIA). 5 GAOIRCED-97-107R Electricity Conservation ENCLOSUREI ENCLOSURE1 GM Background Index,19704 Use of Energy per GDP Is Declining 1.2 - Actual Forecast 1 0.8 - --.. . ..-----._.._.__.....-..-.-. 0.6 - 0.4 - 0.2 - I I I 0 ’ 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 - Per capita ---- Per dollar of gross domestic product (GDP; energy intensity) Index is the ratio of energy use per GDP or capita; 1970 value equals 1. Source: EIA. 6 GAO/RCED-97-107R Electricity Conservation ENCL~SU~~EI ENCLOSURE1 CA* Background Demand for Electricity Is increasing l Electricity sales were up by 116% during 1970-95; are expected to grow by an average of 1.5% annually during 1995-2015 for all sectors. l Although small as a proportion of total sales, electricity sales to the - transportation sector are expected to grow by 11.4% annually during 1995-2015. Source: GAO’s analysis of EM’s data. GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GAO Background Electric Utilities’ Fuel Source Is Changing 16.1% 6.1% 22.4% 1974 1995 17 Coal q Natural Gas 1 Petroleum k!fdNuclear q Renewable Data are a proportion of total net generation (excludes plant use). Source: GAO’s analysis of EM’s data. 8 GAOLRCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GQ Background Electric Utilities’ Fuel Source Is Changing 1.8% 2015 Forecast q Coal q Natural Gas n Petroleum q Nuclear ‘@ ifiRenewable Forecast data are a proportion of total generation. Source: GAO’s analysis of EM’s data. 9 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE1 - GAf> Background Short Tons (thousands) Sulfur Dioxide Gas Emissions Are Declining 25,000 20,000 15,426 15,000 8,950 10,000 5,000 0 1985 Actual Forecast Electric utility emissions; forecast is the limit mandated by the Clean Air Act Amendments of 1990. Source: EIA. 10 GAO/RCED-97-107.R Electricity Conservation ENCLOSURE I ENCLOSURE I MCI Background Metric Tons (millions) Carbon Emissions Are Increasing 800 678.1 626.4 600 418.3 400 200 0 1980 Actual Forecast Actual data are for carbon emissions from electric utilities; forecast includes emissions from all electric power generators except cogenerators. Source: EIA. 11 GAO/RCED-97-107R Electricity Conservation _’ :. ENCLOSURE I ENCLOSUliE I MYO Background Competition in the Utility Industry Is Increasing l Public Utility Regulatory Policies Act of 1978. l Energy Policy Act of 1992. - l Federal Energy Regulatory - Commission’s Order Nos. 888 and 889 (1996). l Current federal/state efforts. 12 GAO/RCED-97-107R Electricitg Conservation ENCLOSTJREI ENCLOSURE I MCI Background Prices for Electricity Are Changing Average retail price declined by 26% during 1982-95. EIA and Gas Research Institute project annual declines in residential electricity prices of 0.5% and 1.2% , respectively, during 1995-2015. WEFA projects annual increases in electricity prices of 0.4% per year during 1995-2015. Prices are adjusted for inflation. WEFA is a forecasting service. Source: GAO’s analysis of EIA’s and Gas Research Institute’s data; WEFA. 13 GAO/RCED-97-107R Electricity Conservation ENCLOSUREI ENCLOSURE1 MO DOE’s Energy Policy The administration and DOE integrate electricity efficiency into a broader energy policy. Neither the administration nor DOE has an explicit electricity conservation policy. Energy-efficiency and renewable-energy programs are the DOE programs that are most related to conservation. 14 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I MO DOE’s Energy Policy DOE’s energy-efficiency and renewabie- energy policy and programs l involve a range of energy sources and end-users l involve programs (e.g., electric vehicle research and development (R&D)) that could result ip an increase in the use of certain energy sources (e.g., electricity) and a decrease in the use of other sources (e.g., petroleum). 15 GAORCED-97-107Ft Electricity Conservation ENCLOSURE I ENCLOSURE I ‘.- GM DOE’s Energy Policy The objectives of DOE’s energy- efficiency and renewable-energy policy and programs include l improving energy productivity and strengthening the economy, l cost-effectively preventing pollution, l reducing U.S. vulnerability to global energy shocks, l lowering the cost of emerging technologies, which helps firms to compete overseas, .- 16 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I C&W DOE’s Energy Policy DOE’s rationale for policy and programs includes market failures, which lead to inefficient resource allocation, such as l the failure of energy markets to account for external environmental degradation costs associated with energy production and use -0 the private sector’s inability to profit sufficiently from investments in R&D involving electricity infrastructure and energy-efficient technologies, GAOIRCED-9’7-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GM DOE’s Energy Policy DOE also identifies market barriers that, according to DOE, inhibit cost-effective investments in efficient technologies and practices, such as the l lack of customer incentives to adopt economical energy-saving measures; l strong tendency of home builders and - buyers to minimize up-front costs; l absence of credible data regarding the performance and cost of energy technologies; GAOAZCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GM DOE’s Energy Policy l fragmentation of the home-building industry, which impedes large-scale, industry-sponsored R&D; l long life-times of residential structures and energy systems, which inhibit the incorporation of new more - energy-efficient technologies; 1)lack of building management’s attention to energy costs due to fact that energy costs are a small fraction of business expenses. 19 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GAY Selected DOE Energy Programs Energy-Efficiency and Renewable- FY 1997 FY 1998 Energy Budget Categories Appropriation Request (000) (000) I, Energy conservation (a) R&D $419,917 $516,600 (b) Building technology, state 149,845 191,100 and community-sector grants 2. Solar and renewable resource 269,952 342,500 technologies - Prior-year balances and adjustments -38,932 -35,000 Total $800,782 $1,015,200 20 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I w Selected DOE Energy Programs \ Budget Categories Examples of FY 97 Programs/Activities Enacted (000) (1) Energy conservation -Electric vehicle R&D $17,820 (a) R&D -Motor challenge 5,150. -Lighting and appliance 6,902 R&D (b) Building technology, -Weatherization assistance 120,845 state, and community- -State energy program 29,000 sector - (2) Solar and renewable -Geothermal 30,000 resource technologies -Biofuels energy systems 55,300 -Photovoltaic energy sys. 60,000 21 GAOLRCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I MCI DOE’s Views on Energy Policy and Programs DOE views its policy and programs as consistent with current and anticipated economic conditions and public policies l Federal R&D funding and deployment activities are needed to mitigate the lack of private sector funding. l Whether prices rise or fall, efficiency - investments are needed to maximize energy productivity and offset environmental degradation. GAOLRCED-97-107R Electricity Cckservation ENCLOSURE I ENCLOSURE I GACI Preliminary Thoughts on Energy Policy and Programs DOE identifies market barriers that inhibit cost-effective investments in efficient technologies and practices. l Eliminating market barriers may not lead to more efficient resource allocation. l It is uncertain whether DOE’s programs to eliminate market barriers are the most cost-effective means for addressing the environmental costs of energy production and use. 23 GAOLRCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I GM Preliminary Thoughts on Energy Policy and Programs Restructuring may result in lower electricity prices, on average, and possibly higher emissions of pollutants from a subsequent increase in consumption and generation. l At this time, it is uncertain Whether DOE’s programs are the most cost-effective way to address the environmental degradation costs associated with an increase in the emis.sions of pollutants. 24 GAO/RCED-97-107R Electricity Conservation ENCLOSURE I ENCLOSURE I MO Preliminary Thoughts on Energy Policy and Programs ’ Even though, on average, electricity prices may fall, restructuring may result in higher prices during peak demand periods. During these periods, consumers would likely use less electricity and adopt more energy-efficient technologies. Thus, restructuring may facilitate the adoption of energy-efficient technologies by some households and businesses. 25 GAO/RCED-9’7-107R Electricity Conservation ENCLOSURE I ENCLOSURE I w Preliminary Thoughts on Energy Policy and Programs In a restructured and more competitive energy market, investor-owned utilities may be less likely to sponsor R&D. l The private sector alone may undersupply investments in certain types of R&D, such as the electricity-related infrastructure. - l It is unclear what other types of R&D investments may be undersupplied by the private sector. 26 GAO/WED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II COMMENTS FROM THE DEPARTMENT OF ENERGY Note: GAO’s comments supplementing those in the Department of E-y report’s text Washington,0C 2G5435 appear at the end ,..._ -’ of this appendix. MEMORANDUM 3iw&‘i6, 1997 /-----.--‘ TO: From: subject: Corrnnen~ on GAO Report on I3ectric;ty Conservation Policy We request that the foIlowing general comments be included in the letter &om Mr. Rczfzndes 10 Mr. Wch in the section set aside fiK “agency comments.” If thegenmal unnmen~s art not inclu&d in this section. the Department would consider this a serious breach of GAO’s obtigatian t<J f.~rCscnt a&?nCy ViC~pofntS. See comment 1. The W S Department of Enera believes that the report fails to acamtely refkza the px~von value and cost4ktivcness of the programs and policies of the Of&e of En= ISk$ncy and Renewable Energy (EELS). Many asscrtiow are unfwnded and lack substantiation. * iiERE’s progams and policies am among the most cost&ve ways of addressing environmental co- as evidenced by GAO’s own audits and UlidjSiS. * The report question’s whether EERE’s programs axe wst-e&ctive even though an an&& conducted by Lhe GAO ttcelfsbows that the cost savinys to consumers from only two ‘LTEREprograms is gvaatcf than the entire research and &?Ve10pmen1ill&l OTEERE oyef the y&U-s 1978 :o 1396 (see alfacbcd rabJe> * By inacarrarclv scveriug the link betsvcen market tihuerr and marlcet barriers in the @XfUlW ‘s @icy rationale, the -II u&Gly criticizes the Depertmcnt’s policy of removing mark& btiers ia mcrgy efficiency invesfinents. In fiq EJZRE *o&s lo remove mark& liarriar to v efliciency invcsbmeats in order to addrus rhe man& failvn of extend efkrmmentiil costs delacuicity 27 GAOLRCED-97-107R Electricity Conservation ENCLOSTJRE II ENCLOSURE II p~n%~ction and use. See comment 2. t The report prematurely queslions the ef%cacy of EERE’s programs in a restructured ekctricity industry for tic following reasons: - Becauseekctric industry r&xucturing is still in its formative stages, it is prematorc to spewlate on what the ultimate effect of rcstnrcturing will be or exactly how the Department’s progams will need to adapt - No evidence is citcdto indicate why tbe problcrn ofsub-optimaf privae research and development will disappear once the eleceicity industry iu res3ructured. -- In the long term, refail ahxtricity prices will be important in determihing whether corsumers will invest in cuagy e5ciency. On the one hand, if eiectrkity prices rise, then energy &ciency will be even more needed to maximLe our Nation’s cntrgy productitity to fuel our economy. On the other hand, if electr;ci~ prices dalinc and dectrkity consumption increases, energy efficiency investments will be needed to OEW the environmental degradation caused by an increase in electricity generation. Under say scmatio, energy eEir5~~1~ investments will be needed to improve our Nation’s energy productivity. prevenl pollution, keep America secure, and ettg8ge the international market. Indeed, thcsc investmeals will became increasingly important as the international cormnunit)r moves to meet the challen&of climate change. See comment 1. These general comtncnts art: discussed in more detail in 3 memos from DOE 10 the GAO dated March 25, 1997. February l&1997, and Januarj~29,1997. See comment 1. l 0~ page 1 ofthe cover letter afli4r. Rczendesto Mr. Kasich, tbc fonotig smemcm is made: lf’deotricity prices are !owcrcd and corwmption and genemtion subscquentty itmcax, rtirucnring could possibly lead to greater power plant emissions and atfcd environmcztal quality. At this time, it is uncertain whether DOE’s current eneqpzffiaency and rcnewable~ programs are tbc nxxt cus%effkczivc means fur impwry fzntiotunelit83 quatity. Now on p. 24. On page 23 of the report. a similar statement is made. Both of these rtatemtnts sho~ti be deleted or repkced becausehey unfairly question whether W’s programs are cost-cffmtive withod air’ a reason why or what aknative might be more WS- effective. in f&t, hased on a study conducted by the GAO itself, it would be 2 28 GAOLRCED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II appropriate to assert lhat DOE’s programs appear to be the most cost-effective option in dressing envirnnmcntal costs associated with an increase in the demand for e!ectricity services. Based on GAO’s audit of the programs of the Office of Energy Efficiency and Renewable Programs, xhe attached table a&led Wigbest Retums on Govemment Investmenu” shows how cost-effective EERE’s pqrams are, The cost savings to consumers from only two JZERE progams more than doubles the entire research and development budget of EERE over the years 1978 to 1996. See comment 2. l The report seems to imply that ifrestrucmring lowers elecuicity prices there will be no need fir the Department’s energy c%ciency progranx This reasoning is fglkious fbr rho following ISuorls: 1 l3ecase ekrric industry restructuring is till in irk formative stages, it is pmmritum to speculate on wb.at the uttimate effect of r-ngwill be or exactly how the Department’s programs will need to adapt Even if the price of electricity is reduce on average,there may be large segments of the market (e.g. some residential and small commercial entetprises) for which the price till increase. * After restructuring, rhe problem of sub-optimal private research and dcveiopmcct will remain because industry support of techaolqyy devclopmmt will still be hindered by 8 focus on short-term profitability. a lack ofresou~ the inability of individual firms to capture the full benefits of specific teehmibgy improvements. and the general under investment in research that be&% the common good more than the cmporatc bottom line * Undu any sceuario, cotxgy efkiency investments will be needed to improve our Nation’s meqgy productivitqr, prevent polhzicm, keep America secure, and engage the international market Indeed, the Department’s ef?kicncy prom will besome increasingly important as the intfzmational community moves 10 meet the chalIcoge of ch-nate change. . The report &ils to put into context the role of mark& barriers in DOE’s policy rationale Now on p. 18. for enqy efliciency programs. For cxamplq on page 17. the repti states: ofsehdary imporwcc for ratio&e, DOE cites market barriers that inhibir cost-ef%eclivc inwstmmts in cfkient reAnologics and practices. such as: To chri@ DOEs rationale, that sentence should be repbtced with the follakng: See comment 3. Because cneq-cfficient kchnologk and practices can mitigate the environmental external costs of electricity generaCon and transmission (a mar&n 3 29 GAOLRCED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II failure), DOE seeks to elintinae market barriers that inhibit co?-e&&e hvestmerrts in &icient technologies and pfactiees, such as: Now on p- 23. Also, on page 22, to clarify WE’s rationale, the first sentence and the first bullet shod See comment 3. be dclesed and replaced with ~olloting: Because of thefailae of the ntDrkd to adequately consider ekc&icity-related e.xtcrnef environmcntai costs, DOE is working to remOve market bat-r&~ for tcchnobgies that arct no1 itam6.d to the emironme~~ t BeCausethis tttmh?foilve is not sdliciently addrssed, the reduction of min-ket bainh in energyhkimt technologies may lead to a more economicaIly efficient resource aUocation Now on p. 25. . On page 24, the report states the following: See comment 4. Even though on average electricity prices mq fan, -ring may result in higher prices during pe& demand periods. During these pcrioda, consumers would likdy WC less electricity and adopt more energy-efficient tochnol@es. Thw restructuring may fxihate iheadoprion of enncrgy-effidest tesbnologies by some households and buW. Atthou@ electricity reamxhuing may indeed facilhte the adoption of energy-efficient technologies by some households and busksq the rcysotig stated above is flawed It is impom to make the distinction bet&~ taad-sliifsirrg and faackesbrtin Higher pikes duhug peak demand peti& may .iM rhe dgmand fM eiecvicity To rimes when the price is lower (id-.&$iq). For -* a consunxx EwklirIstauatimcr on their dishwashex to run it in the middle oftie Right witen demand and prices are low. Howcucr, if on average electricity prices remain the same or lower than before the intr~ction of time4day rates, there would be no additiooaI incentivefor consumers to install techuolo~es whidt are more energy-efficient. In 0th words. peak prkg would offer no additional ineentivc for the consumer to educe the total amount of electricity consllmed each day (i.e., Irwd reLiroction). Now on p. 26. . On page 25, the following statement is made about a reszructured electricity industry: See comment 5. Privatti sector alone may undampply investments in certain types of R&D such as electricity tiestructure. It i.5unclczr whaL other m of R&D investment t-my bc undzrsupplicd by the private scctor~ These statements unfairly imply that whereas public funding of eieckcity hfkstructurc R&D may be appropriate, finding of other types such as energy ei?iciency R&D may not be. ~Sowever,there is reason to believe that R&D on both energy ef&iency and e&ticizy i&astrucxu:e ;vill be undersup&zl. It is commonIy recognized that induwry 4 30 GAO/RCED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II See comment 7. s~ppxt of technology development is ofien hindered by a focus on short-term pr&akility, a lack of resources, the inability ofindividual firms to capture the &II ben&s of‘specific technology improvements, or the general under investment in research that benefits the common good more than the corporate bottom line Now on p. 22. I The bullets on pse 2 1 appesr to be a paraphrase of tie Department’s dratt policy See comment 6. statement in a memo to the General Accounting Of&e dated January 29: 1997 (pages 5 and 6). tioweser, iz tie translatitm, important meaning was lost. The simplest way of making the bukts accurate would SC to ddere the phrase “in near term” in the first bullet ml ddetc the phrase “in longtcnn” in the second bullet. . The pie charts on pages 7 and 8 appear to be inaccurate - the data should be Now on pp. 8 and 9. reexamined and the charts sho11Hdearly poinl out the assumptions &id& were made in See comment 7. their develapment: * The percent share attributable to renew&s appears to bc inaccurate with Mated numbers in 1974 and underestimates in 1995 and 2015. * It appears chat the pie-charts do not include data from independent pow= producers @pi%). For imfibrmation otl bistotical dectricity data contact Howard Walton from the Energy JnSorrnatbn Administraticm at 202/426- 1223. For infbrmation on f”“ts of electricity, contact Mary Hutder from EIA at 202/5&S-2222. See comment 8. l As indicated in the Febq 18, I997 memoto the GAO, the exampks of programs Now on pp. 20 listed in the tables on pages 19 Itnd 20 do not provide a representative sample of the and 21. programs of the 0%~ of Energy Deficiency and Renewable Technologies. The t;ebruaty memo pmvides a more appropskte sanrple.. See comment-9. . As noted in previous comments, we would prefer that the term “conxxvation” be Now on p. 14. r@aced with the lerm efickncy (p&c 13, sexnd b&t). * On page IS, fourth bullet, it would be more accurate to replace the word “and” with the Now on p. 16. vrd %hich.” See comment 10. 5 31 GAOLRCED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II The following are GAO’s responses to comments made by the Department of Energy in its memorandum dated March 26, 1997. GAO’S COMMENTS 1. Whether or not a particular program will be cost-effective in addressing the environmental degradation that may result from electric utility restructuring depends to a great extent on how restructuring unfolds and on the path of future electricity prices. As a result, it is uncertain whether DOE’s current programs will reduce additional environmental damages in the most cost-effective way. Other alternative programs could achieve the same or greater reductions in environmental degradation for less cost. The term cost-effective has a specific economic meaning. For example, a cost-effective program is one that achieves a specific reduction in emissions of pollutants at the lowest possible cost, among possible alternative programs. On the other hand, a program for which the estimated benefits exceed the estimated costs may not be cost-effective if an alternative program achieves the same or a greater reduction in emissions for less cost. Regarding DOE’s comment that our audits and analysis have shown that DOE’s Office of Energy Efficiency and Renewable Energy’s policies and programs are among the most cost-effective ways to address environmental concerns, GAO has never reported that DOE’s policies and programs are among the most cost-effective ways to address environmental concerns. Our statement that DOE cites market barriers as of secondary importance for its policy rationale reflects language suggested by DOE officials during their review of our draft report on February 26, 1997. We welcome DOE’s clarification that DOE is seeking to remove market barriers as a means to address the market failure aspect of environmental degradation rather than using the existence of these market barriers as a specific rationale for the policy and programs. It remains uncertain, however, whether eliminating these market barriers is the most cost-effective means for reducing environmental degradation., 2. We agree with DOE’s comments that electric industry restructuring is still in its formative stages. As a result, it is uncertain whether restructuring will result in greater environmental degradation than otherwise would be the case, and if so, whether DOE’s current programs are the most cost-effective means for addressing additional environmental damages. In addition, our report states that in a restructured and more competitive energy market, the private sector alone may undersupply investments in certain types of research and development such as the electricity infrastructure. We also agree that in the long term retail electricity prices will be important in determining whether consumers will invest in energy efficiency. If electricity prices rise, 32 GAOLRCED-97-107R Electricity Conservation ENCLOSURE LI ENCLOSURE II we would expect some consumers and businesses to undertake more energy-efficiency investments than they would have otherwise. As a result, there should be less need for a federal role in encouragmg the adoption of energy efficiency technologies. If on the other hand electricity prices fall, lower prices may induce an increase in the emissions of certain pollutants through an increase in the consumption and generation of electricity. In this case, a federal role may be needed to help reduce environmental degradation. Finally, the issue of climate change is currently being studied and the best approach for resolving this issue has not yet been determined. 3. We have revised our report to clarify that DOE has identified market barriers that, according to DOE, inhibit cost-effective investments in energy efficiency technologies. 4. We agree that electricity restructuring may facilitate the adoption of energy-efficiency technologies by some households and businesses. We also agree that higher prices during peak periods (for example, during 4 p.m to 7 p.m.) will induce some consumers to shift their demand to off-peak periods (for example, after 7 p.m.). Some consumers and businesses, however, may not have the flexibility to shift their demand to off-peak hours. For example, restaurants provide services during peak hours and thus may not have the flexibility to shift their electricity demand. Indeed, in response to higher electricity prices during peak hours, restaurants may choose to adopt more energy-saving equipment as a way to reduce energy costs. 5. From an economic perspective, a federal role in supporting research and development may be justified in cases where private Erms are unable to capture all of the benefits of their research investn-tents. Zn such cases, the research may provide important spillovers in the form of benefits captured by other firms for which the Grm making the investment does not receive compensation. This type of research may benefit society by leading to greater innovation and higher economic growth than would otherwise be the case. Conversely, a federal role may not be economically justified if the research primarily benefits the firm conducting the research, or for which the benefits to society are limited. 6. We deleted the words “In the near term” and “In the long term” from the report. 7. The data are from EIA’s Annual Energy Review 1995 and Annual Energy Outlook 1997, With Projections to 2015.’ As stated in our report, the data are for electric utilities, and as a result, do not include data for nonutility generators like independent power producers. ELI’s Annual Energy Review does not include a comparable historic ‘Annual Energy Review 1995, Energy Information Administration (DOEYEXA-0384(95), July 1996) and Annual Energy Outlook 1997 With Projections to 2015, Energy Information Administration (DOE/EL&0383(97), Dec. 1996). 33 GAO/WED-97-107R Electricity Conservation ENCLOSURE II ENCLOSURE II data series for non-utility generators. The Annual Energy Outlook forecast indicates that for electric utilities and non-utility generators combined, the proportion of generation attributable to each fuel source in 2015 would be 49.6 percent for coal, 28.6 percent for natural gas, 1.5 percent for petroleum, 10.8 percent for nuclear, and 9.5 percent for renewable. 8. As indicated in our report, the list of programs represents selected examples of current DOE programs, which are related to electricity production, use, and conservation, and is not meant to be comprehensive. In addition, the programs listed in our report are a subset of those identified by DOE in its memo dated February 18, 1997 as an appropriate sample. 9. We have revised the report to clarify that neither the Administration nor DOE has an explicit electricity conservation policy. 10. We have replaced the word “and” with “which.” (141004) 34 GAO/XCED-97-107R Elecixicitg Conservation Ordering Information The fist copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the foIlowing address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by caIl.ing (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a Iist of newly available reports and testimony. To receive facsimile copies of the daiIy list or any list from the past 30 days, please caII (202) 512-6000 using a touchtone phone. A recorded menu wilI provide information on how to obtain these lists, For information on how to access GAO reports on the INTJZRNET, send an e-mail message with ‘7nfo” in the body to: email@example.com United States General Accounting Office Washington, D.C. 20548-0001 Official Business Penalty for Private Use $300 Address Correction Requested
Energy Policy: DOE's Policy, Programs, and Issues Related to Electricity Conservation
Published by the Government Accountability Office on 1997-04-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)