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1975/08/26 - Energy Resources Finance Corporation Meeting
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1975/08/26 - Energy Resources Finance Corporation Meeting
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James M. Cannon Files (Ford Administration)
James Cannon's Meetings Files
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The original documents are located in Box 50, folder "1975/08/26 - Energy Resources
Finance Corporation Meeting" of the James M. Cannon Files at the Gerald R. Ford
Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
MEETING
10:30 a.m.
TUESDAY, August 26, 1975
Roosevelt Room
MR. CANNON:
Here is the material on the 10:30 meeting
on the Energy Resources Finance Corp.
to be held in the Roosevelt Room.
We had to have a messenger hand-carry a
second copy of the papers to us as the
first was either not sent out or lost in
the mail.
j
FORD & LIBRAR GERALD
August 17, 1975
A BILL
To establish the Energy Resources Finance Corporation, a
corporation with authority to make loans, guarantee loans,
and otherwise provide financing and economic assistance for
those sectors of the national economy which are of critical
importance to the development of domestic sources of energy
and the attainment of energy independence for the United
States; to assist in the expediting of regulatory procedures
affecting energy development; and for other purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled, That
this Act may be cited as the "Energy Resources Finance
Corporation Act of 1975. =
Title I. Findings and Purposes
Section 101. Findings. The Congress finds and declares
that:
(1) The expeditious achievement of energy independence
for the United States is a goal which is essential to the
health of the national economy, the well being of our
citizens and the maintenance of national security.
(2) Energy independence for the United States is not
likely to be achieved without financial support and en-
couragement beyond that which is likely to be forthcoming
from traditional private capital sources in the traditional
manner.
FORD is LIBRARY CERALD
'3) Achieving the goal of national energy independence
in an expeditious manner can be facilitated through the
establishment of an independent entity of limited duration
to provide additional capital to assist the development of
domestic energy resources, and by authorizing such entity to
encourage the prompt resolution of questions coming before
governmental regulatory or licensing entities.
Section 102. Purposes. It is the purpose of the Congress,
in this Act:
(1) to encourage and assure the flow of capital funds
to those sectors of the national economy which are of
critical importance to the development of domestic sources
of energy, or which are otherwise important to the attain-
ment of energy independence by the United States, and to
facilitate regulatory and licensing decision-making;
(2) to provide financial assistance, where possible by
the making of loans and the guaranteeing of loans, for those
activities which show the greatest potential of contributing
to the development of domestic energy resources;
(3) to hasten the commercial operation of new energy
technologies subsequent to the research and development
phase;
(4) to supplement and encourage, and not compete with,
private capital investment and activities in the development
of domestic sources of energy; and
- 3 -
(5) to carry out the foregoing purposes through the
creation of the Energy Resources Finance Corporation, an
entity of limited duration which will assert its best efforts
to, on an aggregate basis, either realize profits or minimize
losses; and to provide for the timely and orderly liquida-
tion of such corporation's investments and undertakings.
- 4 -
Title II. Corporate Status and General Powers
Section 201. Establishment.
(1) There is hereby created a body corporate, to be
known as the Energy Resources Finance Corporation (hereinafter
referred to as the "Corporation").
(2) The principal office of the Corporation shall be
located in the District of Columbia, but there may be estab-
lished agencies or branch offices in such other places as
may be determined by the Board of Directors of the Corporation.
Section 202. General Powers.
In carrying out the purposes of this Act, the Corporation
shall have the power:
(1) To adopt, alter, and rescind bylaws and to adopt
and alter a corporate seal, which shall be judicially
noted;
(2) To make contracts with private or governmental
entities;
(3) To lease or purchase such real estate as may be
necessary for the transaction of its business;
(4) To accept and dispose of real and intangible
property (including money) ;
(5) to sue and be sued and to complain and defend in
any court of competent jurisdiction, State or Federal;
- 5 -
(6) To select, employ, and fix the compensation of
such officers, employees, attorneys, and agents as shall be
necessary for the transaction of the business of the Corpora-
tion (without regard to the provisions of other laws applicable
to the employment and compensation of officers or employees
of the United States) and to define their authority and
duties, require bonds of them and fix the penalties thereof,
and to dismiss at pleasure such officers, employees, attorneys
and agents.
(7) To make provision for and designate such committees,
and the functions thereof, as the Board of Directors may
deem necessary or desirable;
(8) To determine and prescribe the manner in which
obligations of the Corporation shall be incurred and its
expenses allowed and paid;
(9) To exercise all other lawful powers necessarily or
reasonably related to the establishment and conduct of a
corporate entity and the exercise of its powers, purposes,
functions, duties and authorized activities;
(10) To use the United States mails on the same terms
and conditions as the executive departments of the United
States Government, and
(11) With the consent of any board, commission, independent
establishment, or executive department of the executive
branch to make use of services, facilities, officers, and
employees thereof, with or without reimbursement, in carrying
out the provisions of this Act.
- 6 -
Section 203. Tax Status.
The Corporation and any Subsidiary (as hereinafter
defined), its franchise, capital, reserves, surplus, and
income shall be exempt from all taxation now or hereafter
imposed by the United States, by any territory, dependency,
or possession thereof, or by any State, county, municipality,
or local taxing authority; except that (1) any real property
owned in fee by the Corporation or any Subsidiary shall be
subject to State, territorial, county, municipal, or other
local taxation to the same extent, according to its value,
as other similarly situated and used real property, and (2)
any entity acquired or established, or activity undertaken,
by the Corporation or any Subsidiary (except financial
assistance as that term is defined in Section 301 of this
Act) which engages directly in the production, transportation,
or sale of energy, fuels or energy-related commodities,
facilities or products, shall be subject to taxes imposed by
the United States and any State or subdivision thereof in the
same manner as if such entity or activity were not
acquired, established or undertaken by the Corporation
or a Subsidiary thereof.
- 7 -
Title III. Functions of the Corporation
Section 301. Financial Assistance.
(1) The Corporation is authorized and empowered, upon
such terms and conditions as it may determine, to provide
financial assistance to any business concern which is engaged,
or proposes to engage, in any activity which increases or
would increase the development, production, conservation or
distribution of domestic supplies of energy, including but
without limitation to financial assistance which:
(a) enables such business concern to finance
the ownership, construction, conversion, or expansion
of productive facilities, or the acquisition of equip-
ment, plant, machinery, supplies, or materials or the
acquisition or development of land, mineral rights and
process services; or
(b) provides such business concern with working
capital; or
(c) aids such business concern in the payment of
current debts or obligations.
As used in this Act: (i) the term "business concern" shall
mean any individual, corporation, company, association,
firm, partnership, society, State or municipal governmenal t
entity (including a public authority), interstate or regional
body (the membership whereof is comprised of governmental
entities), or other entity which is engaged in the development,
- 8 -
manufacture, supply, importation, exportation, procurement
or production of goods or services in the United States and
which is deemed by the Board of Directors to be essential,
by itself or as part of a larger industrial grouping, to the
achievement of energy independence by the United States, or
the long-term security of energy sources and supplies for
the United States, and (ii) the term "financial assistance"
shall mean any form of advance, extension of credit, invest-
ment, participation or guarantee, including but without
limitation, loans, guarantees of obligations, guarantees
of price, purchase and leaseback of facilities, and the
purchase of convertible or equity securities.
(2) No financial assistance may be provided under
subsection (1) unless an application therefor has been
submitted to the Corporation in such manner and containing
such information as the Corporation may require.
(3) Prior to providing financial assistance under
subsection (1), the Board of Directors shall determine that:
(a) the project to which the financial sssistance
would be devoted is in furtherance of the purposes of
this Act and will be likely to contribute significantly
to the achievement of such purposes;
(b) financing for the project, or a modification
thereof that would maintain the essential character of
the project, is not available from any other source,
- 9 -
private or governmental, upon commercially reasonable
terms with which the business concern could reasonably
be expected to comply; and
(c) if such financial assistance is not provided
by the Corporation, it is unlikely that the project, or
a modification thereof that would maintain the essential
character of the project, would be undertaken within a
reasonable period of time.
(4) Financial assistance provided by the Corporation
under subsection (1) may be made upon such terms, and subject
to such restrictions, as shall seem to the Board of Directors
to be commensurate with the needs of the recipient, and may
be renewed, modified, or extended by the Board of Directors
as it may determine.
(5) Each loan made under subsection (1) shall bear
interest at such rate as the Board of Directors of the
Corporation may determine, giving consideration to the needs
and capacities of the recipient as well as to the Corpora-
tion's need to sustain continuing operations out of returns
on investment.
(6) To the maximum extent practicable, financial
assistance provided under subsection (1) shall be in the
form of loans and loan guarantees, rather than equity investment,
and except as provided in subsection (8) hereof, all loans
provided by the Corporation shall, in the opinion of the
Board of Directors, be made upon such terms or shall be
SO secured, as to reasonably assure retirement or repayment,
- 10 -
as may be made or effected either directly or in cooperation
with banks or other lending institutions. Such loans may be
made directly upon promissory notes or by way of discount or
rediscount of obligations tendered for the purpose. The
Corporation, under such conditions as it shall prescribe,
may take over or provide for the administration and liquida-
tion of any collateral accepted by it as security for such
loans. In no case shall the aggregate amount of advances
made under this section to any one business concern or
affiliated business concerns exceed at any one time 10 per
centum of (1) the authorized capital stock of the Corporation
plus (2) the aggregate principal sum of the obligations of
the Corporation authorized to be outstanding.
(7) The total amount of financial assistance by the
Corporation, outstanding at any time, computed to include
the sum of (i) the face amount of all guarantees, (ii)
reserves for all other contingent liabilities, and (iii) all
loans and other forms of financial assistance authorized
under subsection (1) hereof, shall not exceed the sum of (i)
the authorized capital of the Corporation, (ii) the amount
the Corporation is authorized to borrow under Section
402 of Title IV, (iii) all unrealized gains on the Corporation's
investment, and (iv) the earned surplus of the Corporation,
all as determined under generally accepted accounting
principles.
- 11 -
(8) The Corporation may make high-risk loans or direct
investments, or provide product price guarantees or other
direct financial assistance, which in the opinion of the
Board of Directors will further the purposes of this Act.
The Board of Directors shall create such reserves as may be
necessary to meet contingent liabilities which may be created
under this subsection (8) ; Provided, however, that notwith-
standing any other provision of this Act, the Corporation
may not provide any financial assistance or make any further
commitments for financial assistance if, after audit, the
Corporation is required under generally accepted accounting
principles to establish a reserve or reserves for bad debts,
price support commitments, contingent liabilities, or other
unrealized losses, which reserves in the aggregate exceed
the sum of the Corporation's paid-in-equity capital plus its
earned surplus, both of which shall be determined in accordance
with generally accepted accounting principles.
(9) The Corporation may charge reasonable fees for
issuing guarantees, and reasonable fees for making commitments
for other forms of financial assistance pursuant to subsection
(1).
(10) The Corporation shall be subrogated to the rights
of any third party receiving payments of interest or principal
out of funds provided by the Corporation under a loan guarantee
arrangement authorized hereunder. Guarantees issued by the
Corporation shall contain such terms and conditions as the
- 12 -
Corporation may deem appropriate to carry out the purposes
of this Act.
(11) The Corporation is authorized, on such terms and
conditions as it may prescribe, to guarantee any lender
against loss of principal and interest on securities, obliga-
tions, or loans (including refinancings thereof) issued to
provide funds to any business concern, as such term is
defined in this Act. All guarantees entered into by the
Corporation under this section shall constitute general
obligations of the United States of America backed by the
full faith and credit of the Government of the United
States of America. Any guarantee made by the Corporation
under this section shall not be terminated, canceled or
otherwise revoked, except in accordance with the terms
thereof; shall be conclusive evidence that such guarantee
complies fully with the provisions of this Act and of the
approval and legality of the principal amount, interest
rate, and all other terms of the securities, obligations, or
loans and of the guarantee; and shall be valid and incontest-
able in the hands of a holder of a guaranteed security,
obligation, or loan, except for fraud or material misrepresen-
tation on the part of such holder. Prior to issuing any such
guarantee, the Corporation shall advise the Secretary of the
Treasury of the terms and conditions thereof, in such detail
as the Secretary may reasonably require. There are authorized
- 13 -
to be appropriated to the Corporation such amounts, to
remain available until expended, as are necessary to discharge
all its responsibilities under this subsection.
(12) The Corporation may, in compliance with applicable
laws governing transactions in securities, sell in public or
private transactions all or any part of the common or
preferred stock, capital notes, bonds or any other evidences
of indebtedness or ownership acquired by the Corporation
pursuant to this section.
Section 302. Transactions with Certain Governmental Entities.
In order to further the purposes of this Act, the Corporation
is authorized and empowered, under such terms, conditions,
and restrictions as the Board of Directors may determine, to
make loans to or contracts with State or municipal govern-
mental entities (including public authorities), and interstate
or regional bodies (the membership whereof is comprised of
governmental entities), to aid in financing projects authorized
under Federal, State or municipal law. Any such arrangements
shall be deemed to be financial assistance for the purposes
of Section 301 of this Title.
Section 303. Access to Information.
Every applicant for financial assistance under this Act
shall, as a condition precedent thereto, consent to such
- 14 -
examinations as the Corporation may require for the purposes
of this Act, and shall further consent that any reports of
examinations of the applicant by constituted authorities may
be furnished by such authorities to the Corporation upon
request therefor. The Corporation shall require such
reports as it deems necessary from any business concern
receiving financial assistance under this Act regarding
activities carried out pursuant to this Act. The Corporation
is authorized to prescribe the keeping of records with
respect to funds provided by loan, grant or contract and
shall have access to such records at all reasonable times
for the purpose of insuring compliance with the terms and
conditions upon which financial assistance was provided.
Section 304. Subsidiaries.
(1) The Corporation, by itself or acting in conjunction
with other private or public entities, may create or cause
to be created wholly-owned subsidiary corporations with such
powers, authorities, privileges and immunities, consistent
with the purposes of this Act, which may be required:
(a) to produce, acquire, carry, sell or otherwise
deal in energy-related commodities and materials;
(b) to purchase and lease land, purchase, lease,
build, operate and expand plants, and purchase and
produce equipment, facilities, machinery, materials,
and supplies;
- 15 -
(c) To lease, sell, or otherwise dispose of
land, plants, facilities, and machinery in order to
induce business concerns to engage in the foregoing
activities.
(2) The powers of every subsidiary corporation created
or organized under this section shall be set out in a charter
which shall be valid only when certified copies thereof are
filed with the Secretary of the Senate and the Clerk of the
House of Representatives and published in the Federal Register,
and all amendments to such charters shall be valid only when
similarly filed and published. No subsidiary created here-
under shall have a term of existence beyond the authorized
life of the Corporation. A corporation organized pursuant
to this Section shall be referred to herein as a "Subsidiary"
Nothing herein shall be deemed to prevent the Corporation
from investing funds of the Corporation in corporations other
than Subsidiaries.
- 16 -
Title IV. Capitalization and Finance
Section 401. Capital Stock and Dividends.
The Corporation shall have capital stock of $10,000,000,000,
subscribed by the United States of America acting by -and through
The Secretary of the Treasury, payment for which shall be
subject to call in whole or in part by the Board of Directors
of the Corporation. On the date that is 180 days after the
close of each fiscal year of the Corporation, the Corporation
shall declare and thereafter pay a dividend on its outstanding
capital stock, in an amount determined in the discretion of
the Board of Directors, taking into account the current
annual yield on marketable obligations of the United States
at the time the dividend is declared; provided, however, that
the Corporation may waive or defer payment of any such
dividend if (a) the Corporation has no earned surplus on the
date on which the dividend would otherwise be declared, or
(b) the Board of Directors determines that the funds otherwise
available for payment of the dividend should, in furtherance
of the purposes of this Act, be used to provide financial
assistance pursuant to subsection (1) of Section 301 of
Title III.
Section 402. Obligations of the Corporation.
The Corporation is authorized to issue and to have
outstanding at any one time notes, debentures, bonds, or
- 17 -
other obligations in the aggregate principal amount of
$100,000,000,000.
provided, however, that the Corporation ELIMINATE ?
shall not, without the prior consent of the Secretary of the
Treasury, issue in any 12-month period obligations having an
aggregate principal amount exceeding $20,000,000,000
All
obligations of the Corporation issued under this Section
shall be fully and unconditionally guaranteed as to principal
and interest by the United States, with the same force and
effect as a guarantee issued by the Corporation under
subsection (11) of Section 301 of Title III, and such
guarantee shall be expressed on the face of all such obli-
gations. The Secretary of the Treasury may direct that any
such issuance by the Corporation be sold to the Department
of the Treasury for its own account or to the Federal
Financing Bank.
Section 403. Consultation with Secretary of the Treasury.
The Board of Directors of the Corporation shall determine,
in consultation with the Secretary of the Treasury, the
method principal amount, interest rate, maturity, timing of
issuance and other terms and conditions of the Corporation's
obligations issued under Section 402.
w/ The appoar of
FORD is LIBRARY DERALD
- 18 -
Section 404. Source of Funds for Purchases by Secretary
of the Treasury.
(1) For purposes of purchasing the capital stock and
obligations of the Corporation pursuant to Sections 401 and
402, respectively, the Secretary of the Treasury is authorized
to use as a public debt transaction the proceeds from the
sale of any securities hereafter issued under the Second
Liberty Bond Act, and the purposes for which securities may
be issued under the Second Liberty Bond Act are extended to
include such purchases. Each purchase of obligations by the
Secretary of the Treasury under this subsection shall be
upon such terms and conditions as to yield a return at a
rate not less than a rate determined by the Secretary of the
Treasury, taking into consideration the current average
yield on outstanding marketable obligations of the United
States of comparable maturity. The Secretary of the Treasury
may sell, upon such terms and conditions and at such price
or prices as he shall determine, any of the obligations
acquired by him under this subsection. All redemptions,
purchases and sales by the Secretary of the Treasury of such
obligations under this Section shall be treated as public
debt transactions of the United States.
(2) Obligations of the Corporation issued pursuant to
this Act shall be lawful investments, and may be accepted as
security for all fiduciary trust, and public funds the
- 19 -
investment or deposit of which shall be under the authority
or control of the United States or any officer or officers
thereof.
Section 405. Forms of Notes, Bonds and Other Obligations.
In order that the Corporation may be supplied with such
forms of notes, debentures, bonds, or other such obligations
as it may need for issuance under this Act, the Secretary of
the Treasury is authorized to prepare such forms as shall be
suitable and approved by the Corporation, to be held in the
Treasury subject to delivery, upon order of the Corporation.
The engraved plates, dies, bed pieces, and SO forth, executed
in connection therewith. shall remain in the custody of the
Secretary of the Treasury. The Corporation shall reimburse
the Secretary of the Treasury for any expenses incurred in
the preparation, custody, and delivery of such notes, debentures,
bonds, or other obligations.
Section 406. Moneys of the Corporation.
All moneys of the Corporation not otherwise employed
may be:
(a) deposited with the Treasury of the United
States subject to check by authority of the Corporation,
drawn on the Treasury of the United States by a Treasury
disbursing officer, or
- 20 -
(b) with the approval of the Secretary of the
Treasury, deposited in any Federal Reserve bank, or
(c) with approval of the Secretary of the Treasury,
and by authorization of the Board of Directors of the
Corporation, used in the purchase for redemption and
retirement of any notes, debentures, bonds, or other
obligations issued by the Corporation.
- 21 -
Title V. Management
Section 501. Board of Directors.
The authority of the Corporation shall be vested in
the Board of Directors, except as to those functions, powers
and duties specifically assigned to the Chairman of the
Board by other provisions of this Act and such matters as
may be delegated to officers of the Corporation pursuant to
Section 504 of this Title. The Board of Directors shall
consist of five voting members appointed by the President by
and with the advice and consent of the Senate, who shall
hold office at the pleasure of the President. The President
shall designate one of such members as Chairman of the
Board, and another member to serve as President of the
Corporation, and shall have the power at any time and from
time to time to designate a new Chairman or new President of
the Corporation from among the members of the Board. Of the
five members of the Board, not more than three shall be
members of any one political party. Each member shall
devote his full working time to the affairs of the Corporation
and shall hold no other salaried position. Before entering
upon the duties of his office, each member shall take an
oath faithfully to discharge the duties of his office.
Whenever a vacancy shall occur on the Board of Directors,
the President shall, with the advice and consent of the
Senate, appoint a person to fill such vacancy. All directors
shall be citizens of the United States. A majority of the
- 22 -
directors shall constitute a quorum, and any action by the
Corporation shall be effected by majority vote of a quorum of
the duly appointed and serving directors. The Board of Directors
shall adopt, and from time to time amend, such bylaws as are
necessary for the proper management and functioning of the
Corporation.
Section 502. Officers, Employees, Attorneys and Agents.
The Chairman of the Board shall be the chief executive
officer of the Corporation, and as such shall be responsible
for the management and direction of the Corporation (in-
cluding the making of expenditures associated with adminis-
tration of the corporation). The President of the Corporation
shall be the chief administrative officer of the Corporation,
and shall perform such duties as the Chairman may assign him
and shall serve as Chairman in the absence of the Chairman.
The Board of Directors shall fix the compensation of the
Chairman of the Board, the President of the Corporation, and
the directors of the Corporation, taking into account the
compensation paid to persons holding positions of comparable
responsibility in the private sector. The Chairman of the
Board shall appoint such other officers, employees, attorneys,
and agents as are necessary for the transaction of the
Corporation's business, fix their compensation, define their
duties, and provide a system of organization to fix responsi-
bility and promote efficiency. Any such person appointed by
- 23 -
the Chairman may be removed in the discretion of the Chairman.
No officer of the Corporation may receive any salary or
other compensation for services from any source other than
the Corporation during his period of employment, except as
specifically authorized by the Chairman.
Section 503. Conflicts of Interest.
(1) The provisions of Chapter 11 of Title 18, United
States Code, shall apply to the directors and all officers
and employees of the Corporation; except that the provisions
of section 208 of such title shall not apply to the procedure
whereby compensation of such directors, officers and employees
is fixed under this Act.
(2) No officer or director of the Corporation shall,
during the period of his service as such with the Corporation,
maintain any interest in a project for which financial
assistance is committed or provided under this Act.
Section 504. Delegation.
The Board of Directors may, by resolution, delegate to
the Chairman of the Board or other officers of the Corporation
such functions, powers and duties as it deems appropriate,
except that the Board may not delegate any function, power
or duty specifically assigned to the Board by Titles III or
IV of this Act. The Chairman of the Board may, by written
instrument, delegate such functions, powers and duties as
are assigned to the Chairman by the provisions of this Act
to such officers or employees of the Corporation as he deems
appropriate.
- 24 -
Section 505. Audits.
The Corporation and its Subsidiaries shall retain a
firm or firms of nationally recognized public accountants
who shall prepare and report an annual audit of the accounts
of the Corporation and its Subsidiaries, on a consolidated
basis, including those statements required by 31 U.S.C.
$851. No other provision of the Government Corporation
Control Act shall apply to the Corporation and its Subsidiaries.
The General Accounting Office is authorized to conduct such
audits of the accounts, and to report upon the same to
Congress, as such Office shall deem necessary or as Congress
may request. All books, accounts, financial records, reports,
files, papers and property belonging to or in use by the
Corporation or its Subsidiaries and necessary to facilitate
an audit shall be made available to the person or persons
conducting the audit and facilities for verifying transactions
with the balances or securities held by depositories, fiscal
agents, and custodians shall be afforded to such person or
persons.
Section 506. Reports.
(1) The Corporation shall make and deliver a quarterly
report to the Congress and the President. The report will
state the aggregate sums then outstanding or committed as
loans, loan guarantees or other financial assistance and a
- 25 -
listing of the business concerns so involved with the
Corporation. The quarterly report in which any expenditure
or commitment to a business concern or project is first
noted shall contain a brief description of the factors
considered by the Board of Directors in making such expenditure
or commitment. The report shall also show, on an unaudited
basis, the assets and liabilities of the Corporation as of
the end of the Corporation's fiscal quarter preceding the
date of the report and the number, functions and compen-
sation of persons employed by the Corporation at salary
rates exceeding $2,500 per month.
(2) The Corporation shall make and deliver to the
Congress and the President an annual report containing the
audited financial statements and report prepared by the
independent public accountants pursuant to Section 505.
The annual report shall also contain, in addition to the
information required in the quarterly report, a general
description of the Corporation's operations during the year,
a specific description of each project or activity in which
the Corporation is involved, a status report on each such
project or activity, and an evaluation of the contribution
which the project or activity has made and is expected to
make in fulfilling the purposes of this Act (including where
possible, a precise statement of the amount of domestic
energy produced or to be produced thereby).
- 26 -
(3) On or before June 30, 1983, the Corporation shall
make and deliver to the Congress and the President a report
evaluating the overall impact made by the Corporation and
describing the status of each then current activity or
program of financial assistance. This report shall contain
a Liquidation Plan. The Liquidiation Plan shall describe in
the greatest detail practicable how each activity, project
or obligation involving financial assistance, and every
substantial asset or liability of the Corporation will be
liquidated, terminated, satisfied, sold, transferred or
otherwise disposed of. Each annual report thereafter made
by the Corporation will describe what progress is being made
in effecting such Liquidation Plan.
(4) On or before January 31, 1986, the Corporation
shall make and deliver to the President a report setting
forth the Corporation's recommendation as to whether or not
the existence of the Corporation should be extended (for the
limited period and purpose described in Section 803).
(5) Every audit and report required by this section
shall relate to and report on Subsidiaries, if any, as well
as the Corporation.
Section 507. Advisory Committee.
There shall be an Advisory Committee of the Corporation
consisting of nine United States citizens who are especially
- 27 -
qualified to advise the Corporation with respect to its
functions under this Act. The members of the Advisory
Committee shall be appointed by the President of the United
States. The Advisory Committee shall meet one or more times
per year with the Board of Directors, pursuant to the call
of the Chairman of the Board, to advise the Board of Directors
on the program of the Corporation. Members of the Advisory
Committee shall be paid no more than $200 for each day spent
away from their residences or regular places of business for
the purpose of attending Advisory Committee meetings, and
shall be compensated for reasonable travel and lodging
expenses related to attendance at such meetings, as docu-
mented in statements filed with the Corporation. The
provisions of the Federal Advisory Committee Act (Public Law
92-463, 86 Stat. 770) shall not apply to the Advisory Committee
established by this section.
- 28 -
Title VI. Federal Agency Proceedings
Section 601. Definitions. As used in this title--,
(1) The term "Federal agency" means an "Executive
agency" as defined in 5 U.S.C. 105, including an independent
regulatory commission.
(2) The term "proceedings" means any action taken by a
Federal agency initiating or in carrying out the process
leading to approval or disapproval of any project.
(3) The term "project" means any activity for which
financial assistance has been provided or committed to a
business concern under this Act.
Section 602. Certification by the Corporation.
(1) The Corporation may, in connection with its extension
of financial assistance under this Act, certify that the
project to which such financial assistance is committed or
provided, is of critical importance to the achievement of the
purposes of this Act.
(2) Such certification shall be issued by the Corporation
only upon application therefor and then only after a satisfactory
showing by the applicant that such certification is reasonably
necessary to assure the expeditious completion of the project
to which it relates.
(3) A business concern may submit a certification made
pursuant to subsection (1) above to any Federal agency which
- 29 -
is required by law to approve, disapprove, license, or
review all or any portion of the project including the
initiation, development or completion of the project.
(4) Any Federal agency which receives a certification
authorized under subsection (1) above shall forthwith commence
all necessary proceedings which may be required for the
approval of disapproval of all or any portion of the project
and shall give such proceedings preference over all other
questions pending before it, except other proceedings
involving similar certifications, and shall complete all
such proceedings and render a decision within 12 months (or
such shorter period as the Corporation may for good cause
specify) from the date of submission of the certification to
such Federal agency.
(5) With the approval of the Corporation, any Federal
agency which receives a certification provided under subsection
(2) may for good cause shown extend for up to six additional
months the time for completion of any proceeding specified
pursuant to subsection (4).
Section 603. Judicial Review.
(1) Judicial review of a Federal agency's final action
concerning a project which has been certified under Section
602 of this Act shall be given priority over other matters
pending on the court's docket.
(2) Should any relevant Federal agency fail to expedite
its proceedings in regard to a project covered by this Act
- 30 -
within the period specified pursuant to Section 602 of this
Title, the Corporation may obtain from the appropriate
United States district court an order directing compliance
by the Federal agency with the provisions of Section 602.
Section 604. Expediting Functions of the Corporation.
(1) In order to coordinate, simplify and expedite the
processing of applications to construct, license or review
energy projects, the Corporation, in cooperation with all
interested Federal agencies, shall oversee the entirety of
the Federal approval process concerning projects assisted
under this Act. The authority to approve or disapprove
applications for energy projects shall remain in those
Federal agencies required by law to consider such projects.
(2) The Corporation shall have the following duties
and authorities in the project approval process:
(a) The Corporation shall develop, in cooperation
with all other Federal agencies with authority over any
aspect of energy projects, a single composite application
which shall be the sole application required for Federal
approval prior to the commencement of a project. Such
composite application shall be composed of removable
and insertable sections in order to accommodate the
information necessary for all Federal approvals for
each proposed project in one document of manageable
size.
- 31 -
(b) Immediately upon receipt of a composite
application the Corporation shall forward the application
to the Federal agencies required by law to consider it.
(c) In order to carry out the purposes of this
title, the Corporation is authorized to coordinate and
expedite the review of applications for project approval
undertaken by Federal agencies and, in consultation
with such agencies, may establish appropriate priorities
and timetables for the completion of those agencies'
review processes; provided, however, that all such
timetables and priorities shall be consistent with the
statutory obligations of such agencies.
(d) The Corporation shall keep apprised of the
processing of energy project applications at the State
and Regional level and, where appropriate and consistent
with applicable Federal and State law, suggest procedures
for consolidating State and Federal proceedings with a
view to reducing duplication of effort and expediting
the overall review and approval process.
(e) The Corporation may, within 20 days after
receipt of any Federal agency decision approving or
disapproving an application, petition that agency to
reconsider its decision. Petitions for reconsideration
filed by the Corporation shall be granted or denied
within 30 days of their receipt by the agency involved.
- 32 -
Title VII. Unlawful Acts and Penalties
Section 701. False Statements.
Whoever makes any statement, knowing it to be false, or
willfully overvalues any security, for the purpose of-obtaining
for himself or for any applicant any loan or extension
thereof by renewal, deferment of action, or otherwise, or
the acceptance, release, or substitution of security therefor,
or for the purpose of influencing in any way the action of
the Corporation, or for the purpose of obtaining money,
property, contract rights or anything of value, under this
Act, shall be punished by a fine of not more than $5,000 or
by imprisonment for not more than two years, or both.
Section 702. Forgery.
Whoever (1) falsely makes, forges, or counterfeits any
note, debenture, bond, or other obligation, or coupon, in
imitation of or purporting to be a note, debenture, bond, or
other obligation, coupon or thing of value issued by the
Corporation, or (2) passes, utters or publishes, or attempts
to pass, utter or publish, any false, forged or counterfeited
note, debenture, bond, or other obligation, coupon or thing
of value purporting to have been issued by the Corporation,
knowing the same to be false, forged or counterfeited, or
(3) falsely alters any note, debenture, bond, or other
obligation, or coupon, issued or purporting to have been
- 33 -
issued by the Corporation, or (4) passes, utters or publishes,
or attempts to pass, utter or publish, as true any falsely
altered or spurious note, debenture, bond, or other obligation
coupon or thing of value issued or purporting to have been
issued by the Corporation, knowing the same to be falsely
altered or spurious, shall be punished by a fine of not more
than $10,000 or by imprisonment for not more than five
years, or both.
Section 703. Misappropriation of Funds and Unauthorized
Activities.
Whoever, being connected in any capacity with the
Corporation, (1) embezzles, abstracts, purloins, or will-
fully misapplies any moneys, funds, securities, or other
things of value, whether belonging to it or pledged or
otherwise entrusted to the Corporation, or (2) with intent
to defraud the Corporation or any other body politic or
corporate, or any individual, or to deceive any officer,
auditor, or examiner of the Corporation, makes any false
entry in any book, report, or statement of or to the Corporation,
or, without being duly authorized, draws any order or issues,
puts forth or assigns any note, debenture, bond, or other
obligation, or draft, bill of exchange, mortgage, judgment,
or decree thereof, or (3) with intent to defraud, participates,
shares, or receives directly or indirectly any money, profit,
property or benefit through any transaction, loan, commission,
contract, or any other act of the Corporation, or (4) gives
- 34 -
any unauthorized information concerning any future action or
plan of the Corporation which might affect the value of
securities, or, having such knowledge, invests or speculates,
directly or indirectly, in the securities or property of any
company, bank, or corporation receiving loans or other
assistance from the Corporation, shall be punished by a fine
of not more than $10,000 or by imprisonment for not more
than five years, or both.
Section 704. Infringement on Name.
No individual, association, partnership, corporation or
business entity shall use the words "Energy Resources Finance
Corporation" or a combination of these words which a court
of competent jurisdiction shall find reasonably likely to
mislead or deceive, as the name or a part thereof under
which he or it shall do business.
Section 705. Unlawful Contracts.
The provisions of Sections 431 through 433, inclusive,
of Title 18, United States Code, shall apply to contracts or
agreements with the Corporation pursuant to this Act. Such
contracts or agreements include, but are not limited to
loans, loan guarantees, purchase agreements, advances,
discounts and rediscounts, acceptances, releases, and substi-
tutions of security, together with extensions or renewals
thereof.
- 35 -
Section /06. Additional Penalties.
In addition to any other penalties provided in this
Title, on conviction the defendant shall be liable ta the
Corporation for any profit or gain acquired as a result of
the conduct constituting the offense for which he was -
convicted.
- 36 -
Title VIII. General Provisions
Section 801. Coordination with other Entities.
The Corporation shall be entitled to receive, and shall
seek wherever appropriate, the advice and recommendations of
the Energy Resources Council, the Federal Energy Administration,
the Energy Research and Development Administration and the
Department of the Interior in determining whether the provi-
sion of financial assistance to a particular business
concern or to promote a particular activity will further the
purposes of this Act.
Section 802. Severability.
If any provision of this Act, or the application of any
such provision to any person or circumstance, shall for any
reason be adjudged by any court of competent jurisdiction to
be invalid, the remainder of this Act, or the application of
such provision to persons or circumstances other than those
to which it is held invalid, shall not be affected thereby.
Section 803. Termination and Liquidation of the Corporation.
Nothwithstanding any other provision of this Act:
(1) The Corporation shall make no commitments for
financial assistance after June 30, 1983, and shall furnish
no financial assistance after June 30, 1986.
- 37 -
(2) From and after June 30, 1983, the Board of Directors
of the Corporation shall diligently commence all practical
and reasonable steps to achieve an orderly liquidation of
the Corporation's affairs on or prior to June 30, 1986.
Such steps may include the sale or transfer to any agency of
the United States, or the sale directly to the public,
including any business concern, of all or any portion of the
Corporation's assets.
(3) The Corporation shall terminate on June 30, 1986,
or at such earlier date as the President of the United
States shall determine, and upon such termination, all
assets or liabilities of the Corporation, to the extent not
otherwise disposed of, shall become assets and liabilities
of the United States, provided, however, that if the President
shall determine that the orderly liquidation of the Corpora-
tion's affairs requires the continuation of the Corporation
beyond June 30, 1986, the President may, by Executive Order,
extend the authorized life of the Corporation for not more
than three years after such date.
Section 804. Relationship to Other Laws.
Except as may be provided elsewhere in this Act, neither
the Corporation nor any Subsidiary shall for any purpose
be considered an "Executive agency" as defined in 5 U.S.C.
105 or an "agency" as defined in 5 U.S.C. 551. The provisions
- 38 -
of the United States Code relating to public contracts and
public buildings and works, including Federal Property and
Administrative Services Act of 1949, and the Davis-Bacon Act
(40 U.S.C. 276a.), shall not apply to the functions of the
Corporation and its Subsidiaries.
Section 805. Reservation of right to amend or repeal.
The right to alter, amend, or repeal this Act is expressly
declared and reserved, but no such amendment of repeal shall
operate to impair the obligation of any contract made by the
Corporation under any power conferred by this Act.
FEDERAL
FEDERAL ENERGY ADMINISTRATION
SKIV
NISTRATION
WASHINGTON, D.C. 20461
AUG 19 1975
DEPUTY ADMINISTRATOR
EYES ONLY
MEMORANDUM FOR THE VICE PRESIDENT
ARTHUR BURNS
ALAN GREENSPAN
JAMES T. LYNN
ROGERS C.B. MORTON
WILLIAM SEIDMAN
WILLIAM E. SIMON
FRANK G. ZARB
FROM:
ERIC R. ZAUSNER
SUBJECT:
ENERGY RESOURCES FINANCE CORPORATION (ERFCO)
Attached at Tab A is a description of the Energy Resources
Finance Corporation. This description and the detailed
legislation at Tab B assume implementation of the $110
billion, autonomous organization. The description and
legislation are designed to conform as closely as possible
with these concepts. To the extent a completely autonomous
organization is rejected or the scope and magnitude of ERFCO
is reduced, there are many other issues which must be con-
sidered but have been ignored in the current description and
legislation. However, the detailed staff review surfaced
several issues which should be considered apart from the
overall desirability of the proposal and are summarized below:
- Focus of ERFCO and needed equity
The original ERFCO proposal and this legislation
have a $10 billion equity, because they assumed a
mix of investments which would allow "self-
liquidation" and breaking even or possibly making
a profit.
Including synthetic fuels and other high risk
technologies to the degree implied by the
President's one million barrels per day synthetic
fuels goal makes the risks and potential losses
substantially greater and could wipe out the $10
billion equity.
FORD is LIBRARY 076839
25
- 2 -
If the synthetic fuels goal is to be implemented
by this corporation, it would appear that $25
billion may be more in keeping with the expected
level of investment in high risk projects.
- Requirement for ERFCO to be subject to the budget and
management requirements of the Government Corporation
Control Act and the guidelines on credit program
structure set forth in OMB Circular A-70
These requirements were designed to prescribe
minimum management standards and restrict the
types of subsidies provided by Government credit
institutions.
Circumventing them runs counter to general
Administration philosophy, but is consistent with
maximum flexibility and autonomy for ERFCO.
In the current draft, none of these constraints
(except GAO audit authority) is included.
- Requirement for the Secretary of the Treasury to
approve the terms and conditions of loan guarantees
and other obligations on individual energy projects
which are fully backed by the U.S. Government
In the draft legislation, ERFCO has complete
flexibility in the timing, structure and size of
individual Government-backed obligations.
However, obligations marketed by the private sector
which are fully backed by the U.S. Government may
have the same impact on capital markets as ERFCO's
own debt.
Treasury control over these instruments would
assure orderly markets, but would run counter to
ERFCO's autonomy by requiring a case-by-case review
of energy projects.
- Degree of off-budget financing
In the current draft, the process of financing
individual projects is considered to be off-budget,
as is the Treasury provision of $100 billion in debt.
FORD & LIBRARY
-3-
The equity portion of the corporation could be
considered its exposure to loss, and authorization
and appropriation of this item through the normal
budget process may be desirable. This would be
consistent with the recent Congressional budget
reforms.
Because of the "self-liquidating" concept of
ERFCO, the current legislation provides for the
Treasury purchase of this equity as an off-budget
item also. This could be viewed as a thinly veiled
attempt to avoid the budget implications of the
proposal.
- Control over structure and timing of issuance of
ERFCO debt
In the current draft, ERFCO has complete control
over the timing and amount of debt issued, up to
$20 billion annually. Above that level, con-
currence of the Secretary of the Treasury is
required. The Secretary also determines whether
ERFCO can issue debt directly, or if it will be
purchased by the Federal Financing Bank.
While this provides almost complete autonomy
for ERFCO, it provides only limited ability for
Treasury to assure orderly capital markets.
- Requirement for payment of dividends to the Government
on its equity investment
As now drafted, ERFCO must pay dividends at the
average cost of capital for the Treasury, but may
waive or defer these payments based on the Board's
decision on availability of funds or desirability
of further energy investments. Ultimately, upon
liquidation all remaining funds would revert to
the Treasury.
This provides maximum ERFCO flexibility but is
inconsistent with traditional practices by similar
Government corporations.
- Availability of ERFCO guarantees on tax-exempt municipal
bonds
No prohibition on ERFCO guarantees is now provided
for, because eligible projects might be municipally
financed.
FORD i LIBRARY DERALD
- 4 -
Such guarantees would further stimulate the use
of a debt instrument which is opposed by the
Treasury Department on several grounds.
- Tax status of ERFCO-owned commercial operations
While ERFCO profits are not taxable in the current
draft, any majority-owned commercial operations or
ERFCO operational (as opposed to financing) sub-
sidiaries would be treated as private corporations
for tax purposes.
Such treatment assures no undue advantage or
incentive for Government competition with private
operations, but does not provide all possible
economic benefits to ERFCO-sponsored projects.
FORD is LIBRAR OFRALD
A BRIEF DESCRIPTION OF THE
ENERGY RESOURCES FINANCE CORPORATION (ERFCO)
Overview
The proposed Energy Resources Finance Corporation (ERFCO),
described in this paper, represents a major new Presidential
initiative to deal with the critical energy development
problems faced by this Nation. ERFCO would be established
as an independent Federal Corporation to finance energy and
energy-related projects for the purpose of insuring that
financing problems do not hinder this Nation's achievement
of energy independence. The Corporation would have financial
resources of up to $110 billion to provide the following
energy development incentives:
For the "relatively riskless" sector of its loan port-
folio, ERFCO would provide capital at an interest cost
lower than even the best private credit, thereby improv-
ing the economics of projects that might have been
submarginal at commercial rates.
ERFCO would be able to offer special terms such as
deferral of interest, balloon maturities, and loan
conversion features which a traditional private sector
lender could not provide.
The magnitude of ERFCO's resources, $110 billion, would
provide a "one stop" financing institution for large-
scale projects - eliminating the need for time-consuming
and difficult-to-accomplish commercial syndication.
ERFCO would be able, to a greater degree than the private
sector, to accept timing risks, proceeding with commit-
ments before regulatory approvals are complete.
ERFCO would be able to commercialize high risk new
technologies because it would be a self-liquidating
venture, not obligated to obtain commercial rates of
return on its investments.
The Long-Term Energy Problem
Last year's Arab oil-embargo concentrated national attention
on our growing dependence on imported oil. This reliance
has resulted from declining domestic crude oil production,
and from growing consumption of energy. Crude production
peaked in 1970 and has declined by one million barrels per
day over the last five years (a 13 percent reduction). Energy
GERALD FORD LIBRARY
-2-
use continued to grow at 4-5 percent per year until 1974.
When the embargo was imposed, our dependence on foreign oil
had risen to 35 percent of domestic oil consumption; imports
will soon reach 40 percent of consumption.
Despite the increased awareness of our energy problems, the
outlook for rapid implementation of a national energy policy
is not favorable. No major new actions to increase domestic
supply in the next several years have been taken; there are
indications that the Congress may legislate price rollbacks
which would have the doubly adverse effect of stimulating
consumption and discouraging production. Natural gas
shortages continue to worsen, and gas curtailments could
cause factory shutdowns in many areas. Electric utility
financial problems and regulatory delays have resulted in
the cancellation or postponement of large numbers of nuclear
and coal plants. And major demonstrations of emerging tech-
nologies, such as coal gasification, synthetic crude, and
oil shale, have not been forthcoming because of high cost,
technological uncertainties, downside risks if world prices
break, and environmental and consumer group opposition.
Meanwhile, demand growth has been slowed temporarily, but
will increase in the near future as the economic recovery
gains momentum.
In his January State of the Union Message, the President
established the goal of energy independence by 1985, and
proposed many actions to help meet this goal including:
Decontrol of oil prices, and deregulation of new natural
gas prices;
Production from the Naval Petroleum Reserves;
Amendments to the Clean Air Act and the Energy Supply
and Environmental Coordination Act to allow greater use
of coal;
An expanded Outer Continental Shelf leasing policy;
Acceleration of nuclear power through expedited licensing
and siting, and other measures;
Regulatory rate-making reforms to encourage the expansion
of electric power;
A National Synthetic Fuels Commercialization Program with
a goal of one million barrels per day oil equivalent of
synthetic fuels capacity by 1985;
GERALD FORD LIGRARY
-3-
A number of energy conservation measures including
thermal efficiency standards, insulation tax credits,
automobile efficiency goals, and appliance efficiency
goals.
None of the President's domestic supply or energy conserva-
tion proposals has been enacted by the Congress. While some
are likely to be enacted in the coming months, many proposals
remain unpopular and will not be approved. Each month or
year of delay not only increases our vulnerability, but in-
creases the cost of developing new supply.
Capital Needs and Problems
In its Project Independence Report last year, the Federal
Energy Administration estimated that investment for
domestic energy supplies could total about $600 billion'
(in 1975 dollars) over the next ten years to reach energy
independence. Some sectors of the energy industry, such
as oil, should be able to finance conventional projects;
others, such as the electric utility industry, will find
financing more difficult; new and emerging technologies
and some conservation projects may also be hard to finance
because their economics are marginal, and uncertainties
and risks are large. Furthermore, many new projects such
as uranium enrichment plants or new pipelines for Alaskan
oil and gas may be too large to be financed by the private
sector alone.
Regulatory and environmental problems make financing even
more difficult. By adding uncertainty about a project's
ultimate fate and timing and by delaying construction,
inflationary pressures increase.
In response to these financing problems which prolong or
increase vulnerability to foreign supply and price dis-
ruptions, and as a major commitment to our energy inde-
pendence goals, the President is now proposing an Energy
Resources Finance Corporation.
A Federal role in initiating, financing, supporting, or
owning projects vital to the national interest is not
unprecedented, or unique. In relatively recent times,
the Federal Government .has taken an activist role in such
areas as electric power generation through TVA and nuclear
power demonstration programs, the space program, and crash
commercialization of new technologies such as synthetic
rubber plants in World War II, and uranium enrichment.
The ERFCO proposal could deliver major benefits to the
domestic economy that would be in every way comparable
to the benefits to the public from the above programs.
FORD is LIBRAR
-4-
ERFCO Organization
ERFCO would be established as an independent Federal Corpo-
ration with authority to provide financial support of up to
$110 billion for energy or energy-related projects. The
Board of Directors, consisting of five members, would be
appointed by the President and be confirmed by the Senate,
would serve at the President's pleasure and would include
no more than three members of one political party. The
Chairman and the President of ERFCO would be two of the
Board members.
The Chairman of ERFCO would be a member of the President's
Energy Resources Council (ERC) and the Economic Policy Board
(EPB), and would consult with the ERC and the EPB on broad
direction and specific projects. The Chairman of ERFCO would
be the Corporation's Chief Executive Officer; he would report
directly to the President of the United States.
The President of ERFCO would be the Chief Operating Officer,
with support from the following officers (as indicated in
Chart 1) :
Senior Vice President for Planning - has broad analytical
functions to determine overall investment strategy and to
ensure compatibility with national energy objectives.
Senior Vice President for Investment - the senior invest-
mentiofficer of ERFCO; generates and completes all invest-
ment packages; assisted by Vice Presidents in four major
program areas: electric power; oil, gas and coal; new
technologies; conservation and environment.
Senior Vice President for Finance, Control, and Audit -
responsible for management of ERFCO's debt and investment
portfolio.
Senior Vice President and General Counsel - has responsi-
bility for all legal affairs and directs ERFCO's regulatory
functions.
Vice President for Administration - manages all budget,
administration, and personnel matters.
Vice President for Communications - liaison with media,
the Congress, industry and the public.
The staff of ERFCO would probably be about 600 employees,
with most of them in the finance and investment àreas. It
is expected that the ERFCO Chairman and other staff would
not be compensated at executive agency rates, but would be
paid at rates comparable to other Government corporations
ERFCO's total annual operating budget could be about $75
million, including personnel, overhead, and contract and
BERALD FORD VIBRARY
data processing support.
- 5 -
The projected size of the ERFCO staff is consistent with
that of the Ex-Im Bank which employs about 400 people and
authorized about $9 billion in loans, guarantees, and insur-
ance in FY-74. ERFCO would need a larger planning and analysis
staff in order to develop policies consistent with national
energy objectives. Further, where Ex-Im Bank has developed
its strategy and operational plans over a long period of time,
ERFCO would have to begin fresh. Nevertheless, the ERFCO
staff would not be much larger than Ex-Im Bank's staff, since
on the average its projects would be much larger. For example,
ERFCO could approve as many as 150 projects each year at about
$100 million per project, or as few as 50 projects at $300
million per project.
ERFCO would be self-liquidating and have a specified, limited
life of ten years, with new commitments only in the first
seven years of its existence. After the seventh year, ERFCO
would develop a liquidation plan for all of its investments.
Any remaining obligations after the ten-year life would be
transferred to the Department of the Treasury for, liquidation;
these activities would consist principally of servicing loan
and investment portfolios, and price-support commitments. The
life of ERFCO could be extended for three more years at the
diseretion of the President. Because of its relatively short
life) the need to attract extremely high caliber personnel,
and to allow for quick action, ERFCO would be staffed outside
of the Civil Service System and would not be subject to other
government regulations.
A Statutory Advisory Committee would be appointed by the
President to assist the Board and could consist of outstanding
representatives from consumer, environmental, banking, labor,
and business organizations who are especially qualified to
advise ERFCO with respect to its statutory functions.
ERFCO Financial Structure
ERFCO's sources of financial capital would be off-budget; it
would have authorized equity capital of $10 billion, and the
ability to borrow up to $100 billion. The total amount of
financial assistance by the Corporation outstanding at any
time would be computed as the sum of the face amount of all
guarantees, reserves for all other contingent liabilities,
and all loans or other forms of capital assistance. The total
financial assistance could not exceed the sum of the Corporation's
paid-in equity capital, its authorized borrowing, unrealized
gains from its investments, and its earned surplus.
FORD & LIBRARY
-6-
ERFCO would not be allowed to provide additional financial
assistance, or make any further commitments for financial
assistance if it were determined by audit that the total of
its reserves for bad debts, price support commitments, con-
tingent liabilities and other unrealized losses exceeded the
Corporation's paid-in equity capital and earned surplus.
ERFCO would have complete control over the timing and amount
of debt issued up to an annual total of $20 billion. Above
this level, concurrence of the Secretary of the Treasury
would be required. The Secretary could also determine
whether ERFCO could issue debt obligations directly, or
market them via the Federal Financing Bank. ERFCO would pay
interest and dividends at the average cost of capital for
the Treasury, but ERFCO's Board could waive or defer dividend
payments if it decided that the general availability of funds,
or the desirability of further investments, warranted such
action.
Scope of ERFCO Investments,
ERFCO would concentrate on the financing of large-scale energy
projects deemed critical to our national energy objectives.
It would have broad discretionary authority to support the
projects approved by the Board without case-by-case outside
review.
Generally, ERFCO would evaluate proposals against the following
criteria:
Credit Elsewhere Test - Is the proposed project unable to
be financed elsewhere under terms and conditions which
would allow other entities, private or public, to undertake
it economically?
Energy Impact Test - Is the proposed project consistent
with, and does it advance, national energy goals and
policies; and does its energy impact justify financial
assistance from ERFCO?
The projects that could be supported by ERFCO range across
the full spectrum of energy development and conservation
programs. Among the broad categories covered by ERFCO are:
1. Synthetic Fuel Technology Commercialization
The emphasis here would be upon the application of technology,
which has been proven at the R&D phase, to plentiful energy
resources such as coal and oil shale, and to the conversion
GERALD FORD LIBRARY
-7-
of solid waste materials into liquid fuels. The projects
to be supported would be high risk ventures, which could not
be undertaken without Government support, and are vital to
the achievement of the President's synthetic fuels goal. In
all likelihood, however, at the $10 billion equity level the
one million barrel per day synthetic fuel goal could not be
financed. Major processes would include:
Synthetic gas from coal
Synthetic crude oil from coal
Crude oil from Western shale
Synthetic gas and liquids from solid waste
2. Other Emerging Technologies
Suitable projects in this area would include other high tech-
nology processes, also proven at the R&D phase, which are ready
for full-scale commercial development. Major projects would
consist of:
Geothermal energy
Production of energy from Devonian shale and tight gas
formations
Solar, energy applications
Conservation equipment such as heat recovery processes and
energy storage units
3. Conventional Energy Technologies
Within this category the focus would be on the application of
new technology to improve the efficiency of conventional energy
development, and use of financing as a lever to accelerate
significantly the development of conventional energy supply
and conservation technologies. Specific projects could consist
of:
Conservation technology to improve efficiency of energy
processes
Floating nuclear power plants
Uranium enrichment and spent-fuel reprocessing
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Mass production of conservation equipment such as
insulation or time-of-day electric meters.
Energy parks
4. Related Projects to Reduce Energy Development Constraints
This would include support of major categories of infra-
structure and equipment that might otherwise severely
constrain energy development. For example, the production
potential of Alaskan oil and gas is of no benefit unless
costly pipelines and logistical systems are put in place
rapidly. Exploration and development of resources in the
Outer Continental Shelf may be delayed by a shortage of mobile
drilling rigs. Consequently, ERFCO could support projects
aimed at relieving major bottlenecks such as these.
ERFCO Authorities
ERFCO would be authorized to use all conceivable financial
incentives, including loan guarantees, direct loans, price-
support commitments, sale-leaseback arrangements, royalty
participation, and direct equity investments, to support
projects from private or public sponsors, including corpo-
rations, private consortia, State and local government units,
and others.
In addition to its financial authorities, ERFCO would have
a significant role in Federal regulatory proceedings that
affect its projects. Although ERFCO would have no power to
override regulatory decisions at the Federal level, or other
levels of Government, its commitment of financial support to
a project would strengthen the venture during the regulatory
review phase, and would provide evidence of economic viability,
which is frequently a key aspect of regulatory decision-making.
ERFCO would be empowered to certify projects as essential
to national energy goals; this certification would have the
effect of requiring final regulatory determinations by Federal
agencies within 12 months of submission of applications or
within an appropriate shorter time, with an extension of up
to six months for good cause granted by ERFCO at the regula-
tory agency's request. ERFCO could enforce these time limits
for expedited processing by seeking a court order.
ERFCO would also act as a clearing house for Federal permit
applications for the purpose of obtaining expedited final
regulatory determinations.
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Impact on Energy Independence
It is expected that by 1985, ERFCO-supported projects would
be capable of delivering a direct energy contribution in the
range of five to ten million barrels per day of oil equiva-
lent, potentially enough to displace current and future levels
of oil imports. In addition, ERFCO-supported projects would
provide the infrastructure and physical resources to assist
in the delivery of ten million barrels per day of oil equiva-
lent. The combined effect of direct and indirect energy
contribution from ERFCO-supported projects would yield energy
independence.
CHART 1 - ERFCO ORGANIZATION
Board of Directors
Chairman of the Board
(Chief Executive Officer)
President
(Chief Operating Officer and Board Member)
Vice President -
Vice President -
Communications
Administration
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Planning
Investments
Finance, Control
and General Counsel
and Audit
Supply/demand and
Regulatory inter-
economic forecasts
V.P. for Electric
Debt/Portfolio
vention
Power
Management
Priority definition
Consolidation of
and long-range
V.P. for Oil, Gas,
Audits
permit filing
planning
and Coal
Contracts
V.P. for New
GERALD
Technology
R.
V.P. for Conservation
FORD
and Environment
LIBRARY
TUESDAY
August 26, 1975
Meeting (Called by Zarb) for 10:30 a.m. on Energy Resources
Finance Corporation in Roosevelt Room.
Vice President will chair meeting. Also attending:
Arthur Burns, Greenspan, Mitchell (for Lynn) of OMB, Morton,
Seidman, Cannon, Simon, Zausner, Parsky.
Judy (Frank Zarb's Office)
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