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Energy - Meeting on reorganization of energy activities, November 22, 1976

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The original documents are located in Box 13, folder "Energy - Meeting on reorganization of energy activities, November 22, 1976" 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 Gerald Ford donated to the United States of America his copyrights in all of his unpublished writings in National Archives collections.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. Digitized from Box 13 of the James M. Cannon Files at the Gerald R. Ford Presidential Library ENERGY MEETING Monday, November 22, 1976 5:15 p.m. Roosevelt Room (Principals Only) 11/22 Hold for next energy mtq. SCHESTIC COUNCIL STAFF MEETING Thursday, April 8, 1976 9:30 a.m. Situation Room 11/17/76 Mr. Cannon: You are invited to a meeting on Monday, November 212 at 5:15 in the Roosevelt Room. This is being set up by Sec. Richardson and Jim Lynn. The subject is: to discuss the Administration's proposals for re-organization of energy and energy-related activities. This is for PRINCIPALS ONLY. A separate package of materials will be sent to you. it Thic I WILL ATTEND on have Tom this not I WILL NOT ATTEND 3 3 OTHER (Other invitees are: Zarb, Seamans, Kleppe, Greenspan, McAvoy, Dunham, Kasputys, Richardson and Mitchell) malkiel, Lynn k Gina 377-4951 (Kasputys' office) FORD is LIBRARY GENALD ORGANIZATION OF FEDERAL ENERGY FUNCTIONS GERALD ? FOR FEDERAL ROLE IN ENERGY: EXPANDED - BUT STILL SECONDARY ', HISTORICALLY, THE PRIVATE SECTOR HAS BEEN THE PRIME ACTOR IN MEETING THE NATION'S ENERGY NEEDS, FEDERAL ROLE IS EXPANDED AND MORE PROMINENT THAN PRIOR TO EMBARGO: THREATENED CURTAILMENT OF IMPORTS PUTS ENERGY ON WORLD STAGE -- CREATING A NEW ENERGY ROLE FOR NATIONAL GOVERNMENT. MASSIVE INVESTMENT AND HIGH VENTURE RISK IN DEVELOPING NEW ENERGY TECHNOLOGY AND FRONTIER RESOURCES CALLS FOR FEDERAL FINANCIAL INDUCEMENTS. I CRITICALITY OF ENERGY FORCES NEED FOR NATIONAL ENERGY POLICY, , NEVERTHELESS, PROPER FEDERAL ROLE IN ENERGY REMAINS SUPPLEMENTAL TO THAT OF PRIVATE SECTOR, GERALD FORD -1- FEDERAL ROLE CAN BE EXERCISED IN VARYING DEGREE BUT GENERALLY INCLUDES THE GOVERNMENT AS: PLANNER AND FORMULATOR OF NATIONAL ENERGY POLICY COLLECTOR AND PUBLISHER OF DATA ECONOMIC REGULATOR HEALTH, SAFETY AND ENVIRONMENTAL REGULATOR FINANCIER O OWNER OR MANAGER OF ENERGY RESOURCES 0 TECHNOLOGY PROMOTER AND INNOVATOR ENERGY PRODUCER - UNDER SPECIAL CIRCUMSTANCES REPRESENTATIVE OF NATIONAL INTERESTS IN WORLD ENERGY NEGOTIATIONS -2- As A MATTER OF POLICY, THE ADMINISTRATION FAVORS THE MINIMUM NECESSARY LEVEL OF FEDERAL INTERVENTION AND INVOLVEMENT IN ENERGY AFFAIRS AND A CORRESPONDING MAXIMUM RELIANCE ON PRIVATE INITIATIVE, INVESTMENT AND DECISION-MAKING IN BOTH THE SUPPLY AND DEMAND SIDES OF ENERGY, HOWEVER, THIS POLICY IS ONLY PARTIALLY DETERMINANT. THE FEDERAL ROLE ACTUALLY IN EFFECT AT ANY GIVEN TIME, IS THAT WHICH IS PRESCRIBED BY LAW. AGREE OR NOT, THE PRESIDENT IS OBLIGED TO SEE THAT THE LAWS ARE FAITHFULLY EXECUTED --- AND, THEREFORE, MUST PROVIDE EFFECTIVE ORGANIZATION FOR ALL ENERGY FUNCTIONS PRESCRIBED BY LAW. THOSE FUNCTIONS WHICH ARE SUB-MARGINAL IN THE LIGHT OF A POLICY OF MINIMUM NECESSARY FEDERAL INVOLVEMENT SHOULD NOT BE ORGANIZED IN A WAY THAT EFFECTIVELY INSULATES THEM FROM EXECUTIVE REAPPRAISAL. -3- WHAT IS THE OBJECTIVE IN CONSIDERING ENERGY REORGANIZATION? - To ASSURE THAT THE FEDERAL ENERGY FUNCTIONS ARE EFFECTIVELY ORGANIZED IN THE LIGHT OF THE EXPANDED AND ALTERED FEDERAL ROLE. THAT IS: ----- - COMPONENT FUNCTIONS ARE COORDINATED WITH EACH OTHER TO FORM A COHERENT FEDERAL ROLE IN ENERGY, - CONFUSION AND WASTE DUE TO DUPLICATION IS AVOIDED. - THE FEDERAL IMPACT ON ENERGY IS CONSISTENT WITH LEGISLATIVE INTENT AND RESPONSIVE TO PRESIDENTIAL DIRECTION. - ENERGY GOALS ARE PROPERLY BALANCED WITH NATIONAL GOALS IN OTHER FIELDS, -4- THE IMPACT OF ENERGY IN OUR SOCIETY SAYS SOMETHING ABOUT HOW WE SHOULD ORGANIZE TO PERFORM THE FEDERAL ENERGY ROLE ENERGY Is: 0 CRITICAL TO: THE ECONOMY, NATIONAL SECURITY, OUR LIFE-STYLE -- TO OUR SURVIVAL PERVASIVE : HOUSING, TRANSPORTATION, FARMING, DEFENSE, INDUSTRIAL PRODUCTION, RECREATION COMPRISED OF COMPETING SECTORS : PETROLEUM, GAS, COAL, NUCLEAR, HYDRO, SOLAR, OTHER OFTEN IN CONFLICT ENVIRONMENT, HEALTH AND SAFETY, RESOURCE CONSERVATION, WITH OTHER NATIONAL PRICE STABILITY, FOREIGN POLICY GOALS : A BLEND OF : PRIVATE ENTERPRISE AND PUBLIC RESPONSIBILITY #-#-#-#-#-#-#-#-#--#-#-#-#-#-#-#-#-#-#--#-#-#-#--# IN SHORT, ENERGY IS A COMPLEX AND INTERRELATED SUBJECT AND THE FEDERAL INVOLVEMENT REQUIRES CAREFULLY COORDINATED POLICIES AND DISCIPLINED IMPLEMENTATION IN MEETING VITAL NATIONAL GOALS, -5- OUR PRESENT FEDERAL ENERGY ORGANIZATION INHIBITS COHERENT AND EFFECTIVE ACCOMPLISHMENT OF THE FEDERAL ROLE IN ENERGY No ONE -- UNDER THE PRESIDENT -- IS CLEARLY "IN CHARGE" AND ACCOUNTABLE. - ERC LACKS STAFF OR AUTHORITY - FEA HAS POLICY ROLE, BUT IS OPERATIONAL, SUB-CABINET, AND TEMPORARY PRIMARY FEDERAL ENERGY PROGRAMS ARE FRAGMENTED AMONG FEA, ERDA AND OTHERS, - COMPLICATES TASK OF PRESIDENTIAL CONTROL - DIFFICULT TO ACHIEVE CONCERTED ACTION TOWARD SUPPLY DEVELOPMENT, DEMAND REDUCTION OR OTHER BROAD GOALS - SEPARATE ENERGY AGENCIES RESULT IN DIFFERING ENERGY PROJECTIONS -- PRODUCES CONFUSION - RESOURCE TRADE-OFFS AMONG FEDERAL PROGRAMS ARE LESS LIKELY. POLICY DEVELOPMENT IS DISCONNECTED FROM PROGRAM IMPLEMENTATION AND EVALUATION -6- AGENCIES TEND TO ENLARGE THEIR ROLES CAUSING INCREASING DUPLICATION AND CONFUSION - COMMERCIALIZATION OF NEW TECHNOLOGY - FEA, ERDA (EIA) - CONSERVATION - FEA, ERDA AND DOT, COMMERCE, HUD - MINE TECHNOLOGY RESEARCH AND DEVELOPMENT - INTERIOR AND ERDA - DATA COLLECTION AND ANALYSIS - FEA, FPC, INTERIOR, ERDA AND OTHERS - SUPPLY/DEMAND PROJECTIONS - FEA, ERDA, INTERIOR REGULATORY POWERS OF FPC AND NRC ARE SUBSTANTIAL INFLUENCES -- BUT NOT RATIONALIZED WITH NATIONAL ENERGY GOALS -7- TWO ISSUES, IN PARTICULAR, ARE COMPLEX AND CENTRAL TO ENERGY ORGANIZATION: ISSUE 1 - ENERGY REGULATION: A. - BALANCE BETWEEN INDEPENDENCE AND RESPONSIVENESS B. - POTENTIAL CONFLICT BETWEEN REGULATION AND PROMOTION A. INDEPENDENCE vs, RESPONSIVENESS - THE SIGNIFICANT IMPACT OF REGULATION SHOULD BE CONSISTENT WITH NATIONAL ENERGY NEEDS AND POLICY -- BUT ACTIONS MUST BE IMPARTIAL AND CREDIBLE. RESOLUTION - KEY IS DISCTINCTION BETWEEN RULE-MAKING AND CASE ADJUDICATIONS. ATTEMPT TO MAXIMIZE RULE-MAKING. PLACE ECONOMIC REGULATORY PROGRAMS IN ENERGY AGENCY TO ASSURE RESPONSIVENESS IN RULE- MAKING, INTERNALLY ISOLATE ADJUDICATIONS - ALJ's AND INDEPENDENT APPEALS BOARD. B. REGULATION vs, PROMOTION - ENERGY DEVELOPMENT CAN CONFLICT WITH HEALTH, SAFETY AND ENVIRONMENT. PROGRAMS LIKE NRC AND MESA NOT SUITABLE FOR INCLUSION IN ENERGY AGENCY. ENERGY VIEWPOINT CAN BE COMMUNICATED OPENLY TO REGULATORS AND SHOULD INFLUENCE DECISIONS. ECONOMIC REGULATION NOT IN CONFLICT TO SAME DEGREE -- CAN BE INCORPORATED AND SHOULD BE FOR RESPONSIVENESS. -3- ISSUE 2 - ENERGY ADVOCACY AND LAND MANAGEMENT OUR SHORT TO MID-TERM ENERGY NEEDS REQUIRE NEW AND ACCELERATED RECOVERY FROM PUBLIC LANDS -- ESPECIALLY ALASKA AND OCS. MANAGING THESE ASSETS INVOLVES JUDGMENTS BY INTERIOR BETWEEN COMPETING CLAIMS, How IS THE PUBLIC INTEREST IN ENERGY DEVELOPMENT TO BE REPRESENTED IN THIS PROCESS? WHAT ORGANIZATIONAL ARRANGEMENT IS NEEDED. RESOLUTION - BROAD POLICY RE ENERGY AND OTHER USES OF NATURAL RESOURCES INVOLVES INTERIOR AND OTHER AGENCIES AND, USUALLY, PRESIDENT AND CONGRESS. ENERGY REPRESENTED IN THESE BROAD DECISIONS BY FEA (OR PROSPECTIVE DoE) AS AN ADVOCATE. SPECIFIC SITE DECISIONS HANDLED WITHIN INTERIOR WITH ENERGY AS WELL AS ALL OTHER VIEWS CONSIDERED IN BALANCED WAY. CONCLUSION IS THAT ENERGY ADVOCACY AND LAND MANAGEMENT NEED NOT BE ORGANIZED TOGETHER, AND -- IN FACT -- CREDIBILITY IS GREATER IF KEPT SEPARATE. -9- USDA FPC FEA REA only INTERIOR ERDA DEPARTMENT OF ENERGY Bureau of Mines (Energy Functions) Bonneville, Alaska, SE, & SW Staff Budget ($M) Power Administrations Bur. of Reclamation From ERDA 8350 6097 (Power Marketing) FEA 3200 598 FPC 1460 42 INTERIOR 6000 250 USDA 820 21 TOTAL DOE 19,830 $7,018 REA DEPARTMENT OF ENERGY . A Special Purpose Department Comprised of Primary Federal Energy Functions. PROS CONS Consolidates fragmented energy functions and fosters a more coherent Federal energy role. Energy advocacy role of DOE requires extensive balance at the Presidential level. Highlights energy as a long-term national issue by assigning it department status and a 011/gas leasing activities remain separate; continue to require Interagency coordination. cabinet level accountable spokesperson. Departmental status could be marginal based on small size and narrow focus. Resolves FEA/ERDA jurisdiction issue. Special internal arrangements required to assure autonomy and Integrity of regulatory. date Appropriately raises major energy policy tradeoffs to Presidential level. R&D, and weapons functions. DOD COMMERCE OSDA NPR only NOAA only REA only DEPARTMENT OF ENERGY & NATURAL RESOURCES FEA Staff Budget ($M) FPC From ERDA 8350 6097 FEA 3200 598 FPC 1460 42 INTERIOR 61,380 4200 COMMERCE-NOAA 13,190 573 USDA REA 820 21 ERDA INTERIOR DOD - NPR 130 406 TOTALS DENR 88,530 $11,262 (M) DEPARTMENT OF ENERGY & NATIONAL RESOURCES A Multi-Purpose Department Comprised of Primary Federal Energy Functions GERALD Together with Functions of the Department of Interior. TORD servers PROS CONS Consolidates fragmented energy functions and fosters a more coherent Federal energy role. Dilutes top level representation and accountability for energy. Cabinet level representation for energy (with some natural and other functions). Energy objectives could dominate other natural resource and land use requirements (or vise-versa). Resolves FEA/ERDA jurisdiction disputes. Difficulty of managing large conglomate type Department. Permits resolution of many competing claims for resources within a single Department. Buries major and critical programs (e.g. Energy R&D, Nuclear Weapons, NOAA, NPS, etc.) Permits integration of related NOAA/USGS functions. A large conglomerate - but still fails to consolidate major natural resource functions (e.g. Corps, SCS, Forest Service). DEPARTMENT OF ENERGY DOE REGULATORY SECRETARY TENTATIVE INTERNAL STRUCTURE APPEALS UNDER SECRETARY BOARD A/S ENVIRONMENTAL A/S NATIONAL GENERAL A/S ENERGY A/S & CONSUMER ENERGY POLICY COUNSEL CONSERVATION ADMINISTRATION AFFAIRS ENERGY RESEARCH AND ENERGY REGULATORY ENERGY DATA AND ENERGY RESOURCES DEVELOPMENT ADMIN. ADMINISTRATION ANALYSIS ADMIN. DEVELOPMENT ADMIN. ADMINISTRATOR DEPUTY FOR MILITARY ADMINISTRATOR ADMINISTRATOR ADMINISTRATOR APPLICATIONS LABS Approx. Size Budget - $7,018 (M) Staff - 19,830 REGIONAL OFFICES DEPARTMENT OF ENERGY & NATURAL RESOURCES DENR SECRETARY TENTATIVE INTERNAL STRUCTURE UNDER SECRETARY A/S CONG &. OFFICE OF A/S ADMIN. GENERAL COUNSEL LEGISLATION TERRITORIAL AFFAIRS UNDER SECRETARY REGULATORY UNDER SECRETARY FOR COMMISSIONER APPEALS FOR ENERGY NATURAL RESOURCES OF INDIAN AFFAIRS BOARD A/S LAND AND WATER A/S NATIONAL ENERGY POLICY BIA MANAGEMENT BLM ADMIN. ENERGY DATA BU REC A/S CONSERVATION & ADMIN. ENERGY R&D RECREATION NPS ADMIN. ENERGY REGULATION FWS BOR ADMIN. ENERGY RESOURCE DEVELOP A/S OCEANIC, ATMOSPHERIC AND EARTH SCIENCES ADMIN. ENERGY CONSERVATION NOAA USGS Approximate Size Budget - $11,927 (M) Staff - - 88,530 REGIONAL OFFICES WHAT ARE THE EXISTING ENERGY FUNCTIONS IN THE FEDERAL GOVERNMENT? STAFFING BUDGET ($1000's) ERC DRAFT 0 0 FEA DEVELOP ENERGY POLICY (POLICY) 46 1,300 COLLECT AND ANALYZE ENERGY DATA (DATA) 356 27,300 REGULATE PETROLEUM PRICES (Econ. REG.) 1,395 34,000 PROMOTE ENERGY CONSERVATION PRACTICES (MIXED ROLES) 287 51,800 EXPAND DOMESTIC ENERGY PRODUCTION (MIXED ROLES) 294 12,700 PARTICIPATE IN INTERNATIONAL ENERGY AFFAIRS (INTERNATIONAL) 46 1,700 MANAGE STRATEGIC PETROLEUM RESERVES (PRODUCTION) 42 313,600 OTHER FEA 734 155,700 FEA SUBTOTAL 3,200 598,100 FPC LICENSE NON-FEDERAL ||YDROELECTRIC PROJECTS (Econ.& ENVIRON.REG.) 220 6,470 REGULATE INTERSTATE ELECTRICITY RATES (Econ. REG.) 320 9,220 CERTIFY NATURAL GAS FACILITIES (Econ. & ENVIRON. REG.) 360 11,570 REGULATE INTERSTATE NATURAL GAS RATES (Econ. REG.) 290 7,720 OTHER FPC 268 6,620 FPC SUBTOTAL 1,458 41,600 2 ERDA DRAFT DEVELOP ENERGY R&D POLICY (POLICY) 167 11,000 CONDUCT FOSSIL, SOLAR, NUCLEAR, & GEOTHERMAL ENERGY R&D (TECHNOLOGY) 1,487 2,687.190 CONDUCT ENVIRONMENTAL, HEALTH & SAFETY R&D (TECHNOLOGY) 271 21,500 DISSEMINATE ENERGY R&D INFORMATION (DATA) 80 500 CONDUCT ENERGY CONSERVATION R&D (TECHNOLOGY) 182 91,000 ENCOURAGE INTERNATIONAL ENERGY R&D (TECHNOLOGY) 80 7,770 SPONSOR ENERGY R&D TRAINING (TECHNOLOGY) 9 16,540 PERFORM URANIUM ENRICHMENT FUEL REPROCESSING (PRODUCTION) 100 574,000 ENCOURAGE PRIVATE DEVELOPMENT OF GEOTHERMAL RESOURCES (FINANCIER) 36 4,400 CONDUCT RESEARCH, DEVELOPMENT, TEST, AND PRODUCTION OF NUCLEAR WEAPONS AND MATERIALS (PRODUCTION) 319 1,599,300 DEVELOP NAVAL NUCLEAR PROPULSION PLANTS (PRODUCTION) 82 220,500 DEVELOP NUCLEAR POWER SOURCES FOR SPACE PROGRAM (PRODUCTION) 17 32,300 OTHER ERDA INCLUDING FIELD CONTRACT ADMINISTRATION AND PROCUREMENT ACTIVITIES 5,520 831,300 ERDA SUBTOTAL 8,350 6,097,300 GERALD 3 NRC DRAFT REGULATE CONSTRUCTION AND OPERATION OF NUCLEAR REACTORS (SAFETY REGULATOR) 1,012 50,025 REGULATE HANDLING OF NUCLEAR MATERIALS (SAFETY REGULATOR) 405 22,880 CONDUCT RESEARCH TO SUPPORT LICENSE AND REGULATORY FUNCTIONS (MIXED ROLES) 135 121,550 DEVELOP EMERGENCY PREPAREDNESS PLANS (PLANNER) 128 5,015 COLLECT NUCLEAR REACTOR SAFETY DATA (DATA) 2 20 REGULATE IMPORT AND EXPORT OF NUCLEAR MATERIALS/ FACILITIES (MIXED ROLE) 3 205 OTHER NRC 844 49,735 NRC SUBTOTAL 2,529 249,430 DEPARTMENT OF INTERIOR LEASING AND MANAGEMENT OF FEDERAL ENERGY RESOURCES (OWNER/MANAGER) 2,490 170,000 MANAGEMENT OF ALASKAN PETROLEUM RESERVE (PRODUCTION) 105 106,700 COLLECT AND ANALYZE ENERGY RESOURCES DATA (DATA) 1,240 56,500 RESEARCH AND DEVELOP ENERGY MINING TECHNOLOGY (TECHNOLOGY PROMOTER) 950 98,000 REGULATE HEALTH & SAFETY ASPECTS OF COAL MINING (HEALTH & SAFETY REGULATIONS) 3,440 90,148 GENERATION & MARKETING OF ELECTRICITY (ENERGY PRODUCER) 6,160 269,600 DEPARTMENT OF AGRICULTURE DRAFT 4 FINANCE RURAL ENERGY DEVELOPMENT AND MARKETING (FINANCIER) 820 21,600 DEPARTMENT OF DEFENSE MANAGE OIL AND OIL SHALE RESERVES IN NPR (OWNER/MANAGER) 130 406,000 EPA RESEARCH TO IMPROVE COAL COMBUSTION (MIXED ROLES) 32 21,800 DEPARTMENT OF TRANSPORTATION REGULATE AUTO FUEL ECONOMY STANDARDS (ECONOMIC & ENVIRON.REG.) 40 4,500 REGULATE OIL AND NATURAL GAS PIPELINE SAFETY (HEALTH AND SAFETY REGULATOR) 40 4,000 DEPARTMENT OF TREASURY CONDUCT FINANCIAL AND POLICY ANALYSIS OF DOMESTIC AND INTERNATIONAL ISSUES (POLICY) 14 300 DEPARTMENT OF STATE FORMULATE INTERNATIONAL ENERGY POLICY (POLICY) 34 800 DEPARTMENT OF COMMERCE FOSTER IMPROVED ENERGY UTILIZATION (ECONOMIC REGULATOR) 60 2,244 ADMINISTER COASTAL ZONE ENERGY IMPACT AID (FINANCIER) 20 146,500 5 CEA DRAFT PARTICIPATE IN FORMULATING NATIONAL ENERGY POLICY (POLICY) 2 40 TOTAL DIRECT INVESTMENT IN FEDERAL ENERGY ROLE 1/ 2/ 31,114 $8,385,162 ($1000) 1/ TVA's POWER PROGRAM IS ESTIMATED AT $1.6 BILLION IN FY 77 AND WILL REQUIRE A STAFF OF SEVERAL THOUSAND. THIS PROGRAM WILL BE FINANCED FROM PROCEEDS FROM CURRENT POWER OPERATIONS AND BORROWINGS, RATHER THAN APPROPRIATION AND ARE THEREFORE EXCLUDED FROM THESE TOTALS, 2/ THERE ARE A NUMBER OF SMALL ENERGY ACTIVITIES (DATA, REGULATORY, RESEARCH, ETC.) THAT ARE INCORPORATED IN PROGRAMS WITH NON-ENERGY PURPOSES WHICH ARE NOT READILY IDENTIFIABLE AND HAVE BEEN EXCLUDED FROM THESE TOTALS. DRAFT SUMMARY - DOE STAFFING FUNDING (M) TOTAL DIRECT FEDERAL INVESTMENT 31,114 $ 8,385 PROPOSED FOR CONSOLIDATION IN DoE OPTION 19,830 7,018 NOT PROPOSED FOR CONSOLIDATION - NRC 2,529 249 - INTERIOR ENERGY 8,385 541 - OTHER 370 577 PERCENT OF TOTAL FEDERAL ENERGY FUNCTIONS CONSOLIDATED IN A DoE 64% 84% DRAFT SUMMARY - DENR STAFFING FUNDING (M) TOTAL DIRECT FEDERAL INVESTMENT 31,114 $ 8,385 ENERGY FUNCTIONS NOT IN A DENR OPTION NRC 2,529 249 OTHER 222 34 ENERGY FUNCTIONS IN A DENR OPTION 28,363 8,102 PERCENT OF TOTAL FEDERAL ENERGY FUNCTIONS CONSOLIDATED IN A DENR 91% 97% PROPOSED FOR CONSOLIDATION IN DENR OPTION 88,530 11,262 PERCENT NON-ENERGY FUNCTIONS IN DENR 68% 28% GERALD R. FORD PRESIDENT EXECUTIVE OFFICE OF THE PRESIDENT OFFICE UNITED OFFICE OF MANAGEMENT AND BUDGET STATES WASHINGTON. D.C. 20503 EYES ONLY NOV 17 1976 MEMORANDUM FOR: SEE DISTRIBUTION LIST Kasputys FROM: James T. Mitchell Joseph E. Kasputys Co-Directors of Energy and Energy-Related Organization Study SUBJECT: Energy Organization This memo forwards for your personal review selected key papers in draft form relating to a decision on energy organization. The enclosed papers and basic content of each are: TAB A - Draft Presidential Decision Memorandum - States major assumptions underlying this study, summarizes present energy organization, identifies and describes primary energy organization alter- natives, evaluates each alternative in terms of its pros and cons, indicates the recommended alternative, and provides for showing the President the position taken by each affected agency head and other rele- vant Administration policy officials. - Attached to the Presidential Decision Memorandum (TAB A) is an identification of some major sub- issues regarding the exact composition of each organizational alternative. TAB B - Analysis of Organization for Energy Policy Formulation Coordination and Monitoring A staff analysis covering (1) the factors inherent in the energy policy task which bear on the proper design of organization to perform energy policy re- sponsibilities; (2) relationship of energy policy formulation to other energy functions; (3) evaluation of the existing policy process; (4) comparison of the major alternatives for energy organization in terms of their ability to effectively perform the energy policy task, and (5) the relative need for special Executive Office machinery for energy policy versus reliance on general purpose units such as OMB, Domestic Council, CEA or other. 11/503 2 TAB C - Staff Paper on Organization of Energy Regulatory Functions An analysis of organizational issues in the field of energy regulation generally and with particular attention to the functions of FPC including the relative merits of continuing the FPC functions in the independent commission mode versus incorpora- ting them in an executive energy agency. Several other staff papers which have been developed as parts of the overall analysis of energy organization were sent on November 10, 1976 to your respective representatives for energy organization for their review and any comment. These papers are descriptive and analytical pieces rather than issue papers designed for decision-making. While they all relate to the energy organizational question, they are less sensitive than the papers forwarded by this memo for your attention. Obviously, they are available to you if you wish to see them. These analyses, sent to your representatives are summarized below for your information: Energy Data Collection and Analysis. Numerous agencies play a direct or collateral role in energy data collection and analysis especially FEA, Interior (Mines), FPC and ERDA. This has caused some problems, but duplication is becoming progressively better controlled via interagency coordination. Elimination of dupli- cation should therefore not be viewed as a compelling reason for consolidation; however, consolidation could enhance the develop- ment of a more integrated data system. Consolidation will also help unify the voice of the Administration in energy supply and demand projections. Credibility of energy data is enhanced by separation of the data function from the policy function, as prescribed within FEA by the recent extension act. This principle of separating data and policy analysis should continue in any reorganization planning. Energy Resource Development. Assuming the policy objective of increasing the domestic energy supply, this paper identifies the numerous activities which play a part in implementing that policy. Included are direct governmental operations such as strategic petroleum reserve, uranium enrichment, and power generation and marketing as well as indirect methods such as financial incentives and assistance, resource leasing, facility siting and technology transfer. These activities are widely distributed among agencies and are susceptible to influence by other factors such as tax policy, and regulatory EYES ONLY GERALG, FORD LIBRARY 3 actions both economic and safety or environmental. It is difficult to achieve concerted action by the many programs affecting the supply of energy in view of their degree of fragmentation among agencies. Energy Research, Development & Demonstration. The Federal role in developing new and improved energy technology is supplementary to that of the private sector and involves establishment of a favorable climate, providing incentives and sponsoring selected R&D work. Governmental regulatory policy and action can also directly affect the rate of tech- nology introduction. Because of these public/private inter- actions in the energy technology field, the Federal energy R&D work should be integrated with other aspects of our total energy efforts, there are some special considerations for assuring its optimum productivity - e.g., long-term perspective, continuity in funding, support and direction and, at times, a controlled amount of duplication among competing ideas. Interior Energy Functions. This paper related only to a pros- pective Department of Energy as one organization alternative. Specifically, it addresses the question: "Assuming a DOE, what energy functions from Department of Interior should it include?" The analysis identifies and describes the energy functions of Interior and determines which are separable without serious disruption to the DOI mission or damage to the function itself and, conversely, which are not separable. Findings: Readily separable energy functions are power marketing and energy related emergency responsibilities. In contrast, energy leasing by BLM and assessment of physical availability of energy resources by USGS are deeply integral to DOI land-management and geological missions and not feasibly separable. Separable with only moderate and acceptable disruption are the fossil fuel mining research and data programs of Bureau of Mines. Energy Conservation. Activities in this field are fragmented among a number of agencies although FEA and ERDA together have 80% of conservation funding. There is no clear lead agency for conservation and it is difficult to pull together a coherent and coordinated policy for conservation and relate it effectively to energy supply policy and programs. Some of the fragmenta- tion takes advantage of clientele relationships and is therefore logical, i.e., DOT, HUD, Commerce. There is a potential for growing overlap and conflicting jurisdiction between ERDA and FEA stemming from legislative assignments to each. This is difficult to prevent or reconcile in the absence of common direction over both programs. FORD EYES ONLY GERALD 4 Energy Advocacy and Decision-Making in Federal Land-Management. This paper reviews the organizational roles and the decision- making process involved in developing energy resources located on Federal lands. It was found that the need for energy development is adequately represented or advocated in both broad policy decisions at Presidential level (especially by FEA as an energy advocate) and in site specific decisions (by internal processes within Interior). Interior's total mission incor- porates pressures for energy development, for other uses, and for conservation, all of which are balanced in specific cases in a reasonably open and impartial way. While there is adequate responsiveness within BLM and Interior to national energy goals, other competing interests are assured of being represented as well by influences such as environmental impact statements, openness, and the prospect of court review. Following your review of the enclosed papers, we anticipate a final decision memorandum going to the President toward the end of this month. Based on the President's decision, we will proceed to complete the report to the Congress and any related legislative proposal by December 31, 1976 as required by the FEA extension act. The final report as we visualize it will cover: A brief introductory discussion of the general energy situation, our major policy positions and, in particular, the Federal role in energy. a summary description and evaluation of the present structure and assignment of energy functions among Federal agencies; an identification of alternatives considered and an evaluation of each; summary analysis of pertinent issues, and conclusions and a statement of the President's proposed energy organization. We will be in touch with each of you personally to confirm arrangements for next steps leading to a Presidential decision. EYES ONLY FORD GERALD 5 DISTRIBUTION LIST CEA Chairman - Mr. Alan Greenspan Assistant to the President for Domestic Affairs - Mr. James Cannon FEA Administrator - Mr. Frank Zarb ERDA Administrator - Dr. Robert E. Seamans Secretary of Interior - Mr. Thomas Kleppe FPC Chairman - Mr. Richard L. Dunham Enclosures: TAB A - Draft Presidential Decision Memorandum TAB B - Analysis of Energy Policy Organization TAB C - Staff paper on Organization of Energy Regulatory Functions CC: Elliot L. Richardson James T. Lynn FORD EYES ONLY GERALD THE SECRETARY OF COMMERCE DRAFT WASHINGTON, D.C. 20230 MEMORANDUM FOR THE PRESIDENT FROM: Elliot L. Richardson, Chairman, ERC James T. Lynn, Director, OMB. SUBJECT: Organization For Federal Energy And Energy-Related Functions I. Purpose The purpose of this memorandum is to obtain your decision on the results of the ERC/OMB study on reorganizing the Federal Government to perform energy and energy-related functions. A joint ERC/OMB study was initiated in May to determine the most effective organizational arrangement for performing Federal energy and energy-related functions. The study was first proposed by the Chairman, ERC, to the Senate Government Operations Committee to counter the Committee's intention not to recommend an extension of the Federal Energy Administration beyond June 30, 1976. The Committee not only accepted the study proposal, but, in an amendment to the FEA extension which has been enacted into law (P.L. 94-385), required that the President transmit a reorganization plan covering energy and natural resources to the Congress by December 31, 1976. The ERC/OMB study was performed to fulfill this requirement. More details on the circum- stances giving rise to this study are outlined in Tab A. While the study report has not been put in final form, the supporting analyses, which have been prepared with the assistance of the affected agencies, are complete and have been reviewed by the principals involved. The final report should be available for distribution at the same time as the reorganization plan is transmitted to the Congress. The balance of this memorandum contains FORD GERALD 2 the following sections: II - Assumptions III - Methodology IV - Present Organization for Energy and Energy-Related Functions V - Organizational Problems VI - Alternatives VII - Conclusions and Recommendations II. Assumptions Major assumptions regarding broad energy policy and particularly the Federal role in energy include: Continued maximum possible reliance on private sector decisions and actions; reliance on a system of Federally created incentives and disincentives to influence and stimulate private decisions regarding both energy supply and demand toward the achievement of national energy goals of lowered demand as well as assured and adequate energy supply at a reasonable price; minimum necessary direct Federal involvement in areas such as regulation, new technology development, data collection and energy resource development; and assurance that energy development actions are properly balanced with other goals such as environment, health and safety, national security and economic stability. For the purposes of organizational planning, it was assumed that the recommended structure should facilitate the implementation of proposed legislative initiatives of the Administration, while still accommodating the execution of existing programs. FORD III. Methodology RALD The study began by collecting descriptive data on all energy, energy-related and natural resource 3 functions, including mission, programs, resources and critical interactions. This permitted the identification of related programs, together with any duplication and overlaps. Extensive interviews were conducted at several levels in affected organizations to identify operating problems. Outside advice was obtained through a three-day seminar on energy organization conducted by the Congressional Research Service at the request of Senator Percy and through a survey of the literature. As a result, seven broad organizational alternatives were developed. These were reviewed by the ERC and narrowed to the three options presented later in this paper. Once the three final options were identified, a series of individual studies were performed to examine how selected critical functions would be performed under each option. These studies were in the areas of: Policy Formulation and Coordination Data Collection and Analysis Energy Resource Development Research Development and Demonstration Energy Conservation Energy Regulation Nuclear Weapons Production In addition, several special studies were performed on the functions of the Department of the Interior, an in-depth review was made of the FPC and analyses were completed on the appropriateness of including selected agencies, e.g., NOAA, in certain options. The results of the efforts have been synthesized into this options paper and will be included in the final study report. IV. Present Energy Organization Practically all Federal agencies play some part in energy matters, due to the pervasive nature of energy issues. However, there are several agencies which are solely related to energy and which may be regarded as central to Federal energy involvement--the ERC, FEA, ERDA and, taking in regulatory commissions, the NRC and FPC. 4 Certain functions of the Interior Department are equally critical even though the Department is not solely concerned with energy. Specifically, the increase of domestic energy supply over the near and mid-term depends heavily on accelerated recovery of oil, gas, coal and uranium from the public lands-- especially frontier areas such as Alaska and Outer Continental Shelf. Beyond the principal energy agencies, many other organizational entities have a collateral energy role, at times quite significant, especially in formulation of energy policy--examples--Treasury, CEA, State, Justice and EPA. Tab B is an organization chart showing the considerable number of agencies involved with energy, energy-related and natural resource functions. Much of this fragmentation is rational and desirable as in the case of Justice representing the U.S. in energy-related litigation or State participating in energy policy formulation from the point of view of foreign relations. In addition to energy responsibilities being divided among many agencies, most of the component energy functions are dispersed, i.e., data collection, regulation, energy supply development and energy conservation. The major exception is energy research and development, which is consolidated in ERDA except for mine technology R&D in Interior. IV. Organizational Problems There is evidence that organizational problems are interfering with the execution of energy programs and the accomplishment of energy objectives, or at least are not facilitating positive results to the FORD degree possible. The following are among the more significant problems identified during the course of the study: GERALD A. Lack of a fully effective mechanism to develop and oversee the implementation of energy policy. The ERC has been reasonably successful in developing a balanced Administration position on the major energy 5 7 issues. However, it has no staff and therefore no independent analytical capability. What staff support does exist is chiefly provided by the FEA, which itself is one of the participants in the policy development process. There is no mechanism to direct action, to assure implementation of policy decisions or to evaluate results. With the development of an independent ERDA, the research and development planning process has not received the attention it should from the operational agencies and has tended to form its own goals. Finally, because of the composition of the ERC, more issues tend to be forced to the President for resolution. B. Lack of an effective structure to facilitate resource trade-offs among competing energy programs. ? While resource allocation to energy programs is done by OMB within the ERC-developed policy framework, energy programs are highly fragmented throughout the Federal Government. Therefore, within the various Federal agencies, these programs must frequently compete for scarce resources with nonenergy programs and not with each other. A more rational structure would permit resource allocation to be made among similar programs at a lower organizational level, facilitating the assignment of resources to the more effective programs. C. Need for the regulatory function to be responsive to needed policy direction while maintaining independence. Energy regulation is carried out across a spectrum of mechanisms, from the independent regulatory commissions of FPC and NRC to the executive actions of FEA and Interior. The independent regulatory commissions emphasize the mandates of their enabling legislation and are often inhibited by these statutes from revising FORD their interpretation of the national interest, regardles of the views of the Executive Branch on current needs evolving from a changing international or domestic situation. Energy regulation should be responsive to overall policy direction. At the same time, individual regulatory decisions made under this policy direction should be fair, objective and free from outside influence. This has often caused regulatory activities to be separated from promotional activities, which is not the case with FEA. Improvements need to be made in the 6 regulatory structure to strengthen objectivity and independence while at the same time strengthening the responsiveness to policy input. Finally, energy regulation itself is fragmented among agencies, e.g., FPC, NRC, FEA, which makes the use of regulatory power to optimize the use of various energy sources very difficult. D. There are duplicating and overlapping agency responsibilities because of the fragmentation of energy functions. Some duplication is legislatively sanctioned, e.g., FEA and EPA in converting utilities from oil to coal; FPC and Office of Pipeline Safety (DOT) in LNG safety standards. Beyond specific legislative problems, FEA has responsibility for energy planning and development, while specific energy sources are the responsibility of other agencies. The overlap has become significant in conservation programs between FEA and ERDA. While fragmentation does contribute to the examples of duplication that have been cited, it also can lead to difficulty in developing well-coordinated broad programs, such as an emergency preparedness program that can effectively respond to supply interruption. E. There is the potential for greater duplication between FEA and ERDA. Both FEA and ERDA originally were founded with distinct missions, but both are collecting functions, by legislation and otherwise, and expanding into general purpose energy agencies. In this evolution, both interact with the private sector and have a growing number of incentives that can be applied to business and industry to achieve energy goals. These incentives should be directed through a single channel to maximize their effectiveness and to avoid undesirable effects on the private sector. The present structure for energy functions is not without some assets. For example, the ERC has provided a useful forum for top-policy level dialogue across agency lines concerning major policy issues; the separate status of ERDA helps assure a stable environment and the long-term continuity needed to manage a program which is intended to emphasize long-range technology development; the independent commission status of FPC and NRC permits a separation 7 of promotional and regulatory functions and thereby helps allay any public concern that regulatory decisions could be politicized. However, these benefits can be preserved under alternative structures SO long as they are properly designed. IV. Alternatives While a wide range of feasible alternative structures was considered, they were narrowed to the three most promising options. Basically, these options represent varying degrees to which the fragmented energy and energy-related functions might advantageously be consolidated. Each alternative has been presented in the configuration judged to be best by the study team. However, determining the exact composition of each of the alternatives poses some controversial decisions. The most significant and sensitive of these decisions to include or exclude functions in the alternative structures are listed below for your information. More detail is contained in Tab C on each item together with provision for you to make the decision on each if you wish to do SO. Nuclear Regulatory Commission (NRC) - exclude Federal Power Commission (FPC) - include Rural Electrification Administration (REA) - include Naval Petroleum Reserve (NPR) - include (DENR only) National Oceanic & Atmospheric Administration (NOAA) - include (DENR only) Under all options the ERC has been retained. Even if a Department of Energy were formed with a strong policy operation, the ERC would be a valuable vehicle to coordinate with EPA, State, Treasury and other agencies. A. Department of Energy and Natural Resources (DENR) Description A grouping together into a new multi-purpose department all primary energy functions together with selected natural resource programs. Composition of the DENR would 8 include: Interior FEA ERDA FPC REA (Agriculture) NOAA (Commerce) Naval Petroleum Reserves (DOD) Advantages Maximum feasible consolidation of presently fragmented energy functions. Permits resolution of unclear jurisdiction between FEA and ERDA in areas such as energy forecasting, conservation and technology commercialization. Cabinet-level representation for energy-- together with some, but not all, natural resource functions. Provide resolution within one Cabinet Department of many competing claims in the management of public lands between energy development and resource preservation or other land uses. Provides a stronger base for subsequent, more complete, consolidation of natural resource programs - e.g., Forest Service, Army Corps of Engineers Civil Works, etc. Permit closer integration of earth sciences of geological survey with atmospheric and oceanic sciences of NOAA. Disadvantages Grouping energy with natural resources in a large multi-purpose department fails to put highest possible focus on energy and does not provide a top level dedicated energy advocate. 9 Results in a very large conglomerate- type Department with a wide span of concerns from energy and natural resources to Indian and Territorial Affairs. Experience indicates these conglomerate arrangements are hard to manage and hold accountable. O Energy objectives could dominate land management decisions at the expense of other land use requirements. O Grouping of so many diverse programs could result in an internal DENR structure that "layers in" some functions excessively, e.g., the nuclear weapons work performed by ERDA could be relegated to third echelon status prompting strong pressure to transfer it to DoD despite recognized benefits of associating nuclear power with nuclear weapons work. O Despite broad span represented by this alternative, it would still not encompass all relevant concerns in energy policy formulation (foreign affairs, environment and others) necessitating Executive Office balancing; nor would it incorporate all major natural resource programs, (Corps of Engineers, Forest Service, and others) with the resulting prospect of still great future consolidation. B. Department of Energy (DoE) Description A consolidation of primary Federal energy GERAZO R. FORD functions which are not integral and inseparable aspects of the mission of other agencies to form an advocate or special purpose type of department. This consolidation would include: FEA ERDA FPC REA (Agriculture) 10 Power Marketing (DOI) Energy Functions of the Bureau of Mines (DOI) Other important energy functions of Interior, e.g., oil and gas leasing by BLM and energy resource assessment by USGS were found to be deeply integral to the land management and geological missions of Interior and not susceptible to excision. Advantages Provides feasible consolidation of energy functions thereby facilitating a unified and coherent Federal role in the national energy system with component parts subject to common policy direction. Permits resolution of unclear jurisdictions between FEA and ERDA as in the case of DENR. Highlights energy as a difficult, major and long-term national issue area and gives it a Cabinet-level spokesman and point of contact who is "in charge" of energy in dealings with other agencies, Congress, Governors, industry and the public in keeping with this status. Provides that national energy policy will be formulated by a single spokesman who has his own policy analytical staff, direct authority over major energy programs and Cabinet status. The ERC will continue to be used for interagency energy policy coordination. Narrower focus than DENR alternative would make this alternative disturbing to fewer interest groups and Congressional committees, thus enhancing prospect for enactment. Disadvantages Would not take in some major Federal energy functions, notably oil and gas leasing on 11 public lands, and as a result, continued cross-agency coordination would be necessary in important areas. Concentrated focus on energy and consequent advocacy orientation would mean that some check and balance mechanism would be needed especially in energy policy formulation to assure that the President gets objective advice and that conflicting interests are represented. Several of the projected components of the DoE are very controversial and vulnerable to being trimmed out in the legislative process-most particularly FPC and REA. Were this to occur, the proposed DoE would be little more than a merged FEA and ERDA giving rise to serious question of whether Department status is warranted. Several of the energy functions to be incorporated in DOE would require a measure of autonomy in order to avoid being overpowered, submerged or lose credibility - these include: energy regulation, data, R&D, weapons-- special internal arrangements would be necessary to assure the integrity or visibility of these functions within the DoE/energy advocacy climate. An alternative within this option would consolidate the same functions as DOE, but they would be organized at sub-cabinet level in an expanded energy agency. Advantages This alternative would retain many of the program cross-coordination advantages of the DoE concept and provides a fall-back means of achieving these advantages if the DOE consolidation becomes marginal because too many of the potential program consolidations, i.e., FPC, REA, energy functions of the 12 Bureau of Mines, fail to materialize. Disadvantages O Would continue the present problem of no Cabinet rank energy policy spokesman. Consequently, the energy policy formulation machinery would continue to have some of the institutional weakness of the present ERC/FEA system, although to a lesser degree. C. Retain the present structure - with improvements Some of the problems inherent in the present fragmented placement of energy functions can be mitigated by relatively modest actions such as improved coordination of policy formulation by strengthening the ERC, recognizing FEA as a permanent agency which has been expanded beyond its original emergency role, and clarifying some jurisdictional issues. The disruption which comes from any organizational change would be generally avoided. However, most of the serious weaknesses inherent in the fragmented and uncoordinated system described earlier would not be addressed by this alternative. Energy as a major problem area would continue to lack a top level spokesman and there would continue to be no one with direct authority over most energy functions. Moreover, any action to strengthen ERC in terms of staff or authority can engender problems of its own, i.e., an advocate in the Executive Office without operational responsibility as in the case of the CEQ. V. Conclusions and Recommendations Based upon the findings of the study, reorganization of Federal energy functions is well-warranted and, on balance, the Department of Energy alternative will provide the most effective long-term arrangement for coordinating and performing Federal functions in this area. The significance and difficulty of the energy situation will persist well into the future and the coherency and continuity needed to accomplish the Federal role can best be provided by a Department dedicated to that purpose. GERALD R. FORD 13 The critical need for balanced and credible conflict resolution in the management of the public lands can best be met by an arrangement which separates energy advocacy from the responsibility for managing the nation's natural resource assets - i.e., a DoE separate from the Department of Interior (or ultimately a Department of Natural Resources). This arrangement will permit continued accelerated development of coal, oil, gas and uranium resources while other values such as environmental safeguarding, preservation and alternate land uses are fully and fairly represented as well. Retention of the CEQ/EPA system will also force critical trade-offs between energy and environment to the Presidential level, which is appropriate for issues of this magnitude. Careful consideration of all alternatives indicates that: The present fragmented structure is seriously inadequate for the task and that any administrative improvements of it will not basically alter its ineffectiveness for the long-haul. The disadvantages cited for the DoE plan can be offset by proper design of its structure and other management actions. For example, existing regulatory functions can be divided into two categories--general rulemaking and adjudicatory responsibilities associated with individual case decisions. The rulemaking can become part of the policy office of a new Department of Energy, where this function can be effectively coordinated with other policy decisions. The adjudicatory decisions, e.g., granting of licenses, etc., can be made in a quasi-independent component of DOE, headed by a Presidential appointee subject to Senate confirmation. While this process would operate within the overall policy framework established by the Secretary, individual decisions could be insulated by having them made by Administrative Law Judges, with final review FORD by an Appeals Board. Subsequent challenge would be in the courts, with no appeal to the Secretary. Conversely, the disadvantages of the DENR plan, 14 i.e., size and diversity and internal conflict, appear to be more intractable with no effective way to offset them. Presidential Decision Approve the Department of Energy (DOE) . Approve the DoE concept, but create as an agency in lieu of a cabinet department. Approve the Department of Energy and Natural Resources (DENR). . Continue with the present structure-- develop specific ways to improve performance. Other (Note: The recommendations of administration officials will be shown under the applicable alternative in the final paper that is delivered to the President.) GERALD FORD TAB A Circumstances Leading to Current Study of Energy Organization and Its Relationship to Recent (1974) Changes in Energy Organization When the Arab oil embargo struck in November of 1973 precipitating the energy crisis, the Administration had energy organization legislation pending before Congress. I.e., Split the former AEC into R&D work (ERDA) and regu- latory work (NRC) and establish a Department of Energy and Natural Resources (DENR) In view of the crisis the Administration agreed to forego the controversial DENR in order to expedite Congressional consideration of ERDA and NRC. They were enacted in October 1974 together with the Energy Resources Council (ERC). Meanwhile, also in response to the energy crisis, the Federal Energy Administration had been created first by Executive order and then by law in June 1974. These changes in energy organization soon after imposition of the embargo were generally regarded both by the Adminis- tration and Congress as only partial (ERDA and NRC) and short-term (FEA and ERC) treatment of overall energy organization. However, the early time period following the embargo was also a time of major reappraisal of national energy policy including a reassessment of the Federal role in relation to the private sector role. During this period of fundamental reappraisal, it was untimely to determine the most effective long-term organization for Federal energy activities which clearly should rest on a well-developed concept of the Federal policy and role. We now have these concepts in hand, if not necessarily universally agreed upon. It is, therefore, now timely to make this fundamental organizational review and we have been so engaged for several months working with the heads of affected agencies and their staffs. After this study was initiated and well underway, a require- ment was inserted, with our concurrence, in the FEA extension legislation, which you recently signed, that the President shall direct a comprehensive study of energy and natural resources and forward a report with his recommendations and proposed legislation by December 31, 1976. TAB B LOCATION OF ENERGY, ENERGY-RELATED, AND NATURAL RESOURCE FUNCTIONS IN THE EXECUTIVE BRANCH KEY: ENERGY THE PRESIDENT ENERGY-RELATED NATURAL RESOURCES ERC: NOTE: OTHER EXECUTIVE Other agencies may participate AGENCIES SOLELY CONCERNED WITH OFFICE UNITS CEQ in energy goals collateral to their FUNCTIONS UNDER STUDY basic missions. DEPARTMENTS AGRIC COMM. DEFENSE HEW HUD INT. JUST. LABOR STATE TRANS. TREAS. X AGENCIES ACTION CSA EPA EEOC ERDA FCA FEA FRS GSA NASA NLRB NSF SBA TVA USCSC USIA USITC VA WRC REGULATORY COMMISSIONS CAB CFTC CPSC FCC FMC FPC FTC ICC NRC SEC TAB C Major Inclusion or Exclusion Issues in Possible Consolidated Energy Reorganizations In determining the functional composition of either the Department of Energy (DoE) alternative or the Department of Energy and Natural Resources (DENR) a number of sub-issues occur as to whether various existing programs should be included or excluded from one or both concepts. Some of these are fairly small issues or non- controversial -- others are more significant questions deserving your attention. The major inclusion or exclusion issues are described and evalu- ated below with provision for an indication of your guidance. I. The Nuclear Regulatory Commission A. Background The NRC was established by the Energy Reorganization Act of 1974. It is responsible for all the regulatory and licensing functions of the former Atomic Energy Commission which was abolished by the 1974 legislation, and is the Federal agency responsible for the regulation of nuclear power generation. B. Major NRC Program Functions are as Follows Nuclear Reactor Regulation - Assures adequate safety, environmental protection, and safeguards in the issuance of reactor licenses. Standards Development - Produces engineering standards for siting, fuel cycle facilities, safeguards, trans- portation and product safety standard development. Inspection and Enforcement - Conducts nuclear powerplant safety inspections including the issuance of construction permits and operating licenses. Also conducts safety inspections of fuel cycle facilities and nuclear materials. Nuclear Material Safety & Safeguards - Performs a safe- guard licensing program devoted to waste management and the development of generic environmental impact statements for consumer products which contain nuclear material. 3 May be difficult to demonstrate in advance that abolishing NRC would improve the executive branch capacity to achieve coordinated manage- ment of national energy programs. Thus, in view of the opposition which such a proposal would con- front, the inclusion would be hard to win and could jeopardize the whole energy reorganization package. Agency Position Chairman Rowden has not been consulted on this issue. Conclusion - Retain Functions in NRC The disadvantage relating to further accelerating public concern for nuclear safety and the consequent difficulty in winning public acceptance of nuclear power overwhelms the potential advantages. The real advantage relating to bringing nuclear export licensing under Presidential control can just as well, or better, be achieved through a change in law authorizing the President to make the final decision in these cases, in keeping with his responsibility for the conduct of foreign affairs (as with CAB ruling on overseas route awards) Presidential Decision Agree to functions remaining in NRC Disagree. Revise planning to include NRC functions in energy agency. FORD RALD 4 II. The Federal Power Commission (FPC) A. Background The FPC's regulatory authority extends over portions of the natural gas and electric power industries. The FPC exercises its regulatory powers in four program areas: (1) licensing of hydroelectric projects; (2) setting rates for interstate wholesale sales of electric energy; (3) certification of pipeline facilities for the trans- portation of natural gas; and (4) setting rates for interstate wholesale sales of natural gas. The purposes of these programs are broader than economic or rate setting. They aim also at conservation of energy resources, promotion of hydroelectric development, safety, environ- mental protection, assuring an abundant supply of electric energy and emergency preparedness. Pursuit of these objectives necessitates extensive coordination between FPC and other agencies including particularly Interior and EPA. B. Advantages and Disadvantages of Inclusion Advantages Advantages apply generally to either the DOE or the DENR alternative energy organization. Inclusion of the FPC programs would help assure their sensitivity to overall national energy policy as formulated and coordinated by the Energy Agency. Regulatory actions regarding natural gas and electric power could be developed over time in relation to regulation of petroleum resulting in a more rational and even-handed treatment among these competing energy sectors. Inclusion would facilitate improvements and simplification in Federal energy data gathering and use, as well as better emergency preparedness coordination across energy sectors. The DENR alter- native affords an added advantage over the DoE alter- native since the FPC functions would be housed with related natural resource programs now in Interior. Natural resource coordination would be significantly improved and expedited. 5 Disadvantages The independent commission form, while not very responsive to national policy or changing conditions, does have the merit of stability and avoidance of undue political pressure, at least as a common perception. Abolishing FPC as an independent commission and inclusion of its functions in an energy agency could alarm the regulated industries as well as conserva- tion and environmental groups. Congress would probably react very negatively to dis- establishing this, or any, independent commission apart from the merits of the case because of an implied threat to this "arm of Congress" mode of governance. If In DOE The case would be weaker because inclusion in DOE would fail to significantly mitigate present natural resource coordination problems which would still require cross-agency contacts. C. Conclusion A convincing case can be presented for abolishing FPC and intorporating its functions in an energy agency. This is particularly true if the DENR alternative is selected. The concern for the credibility and objectivity of regulatory decisions, if placed in an executive agency, can be mitigated by having adjudicatory proceedings heard by an Administrative Law Judge, subject or review by an Appeals Board, the members of which serve fixed terms, and by having regulation functions insulated from develop- ment functions. Therefore, on balance, we feel the FPC functions should be incorporated in the DoE or DENR planning since the objections can be partially offset and in spite of anticipated strong Congressional opposition. D. FPC Chairman Position Variation in Disposition of FPC's Hydroelectric Licensing Program if DOE is Selected as Alternative for Energy Organization. The siting of proposed hydroelectric facilities deeply involves land and water planning and use. The hydro- electric licensing work of FPC, of all its programs, is therefore the most intimately associated with Interior's 6 mission and capabilities. Conversely, this FPC program has less to gain by grouping it with DoE programs. Consequently, if FPC is abolished, hydro- electric licensing could be excluded from DOE even though such an action would split Federal electric energy regulation between two programs. Hydroelectric licensing may be split off from the other FPC programs and stay in the independent regulatory commission structure. Hydroelectric licensing can be transferred to an executive agency (Interior) with natural resource programs if the hydroelectric program is sufficiently insulated to assure necessary independence of regulatory actions. Including hydroelectric licensing together with other FPC programs in a DENR would be the most satisfactory disposition for this function. In the event of a DOE selection, hydro- electric licensing should be transferred to Interior, or next best, left as an independent Commission. E. Agency Position " on the subject of including the Federal Power Commission our minds are open to any proposal which would place all of the Federal government's energy policy-management in one agency." (Excerpt from a letter to James L. Mitchell from Richard L. Dunham, dated September 16, 1976.) F. Presidential Decision Agree that functions of FPC be transferred to either DOE or DENR, whichever is selected. and that FPC be abolished. Disagree. Leave FPC as is. Agree to abolishing FPC but if DOE is selected, hydroelectric regulation is to go to Interior Department with other functions going to DoE. Agree to abolishing FPC but if DoE is selected, hydroelectric regulation disposition should be studied further. 7 III. Rural Electrification Administration (REA) A. Background The Rural Electrification Administration (REA) in the Department of Agriculture was created in 1935 to make low cost loans to finance electric and telephone service in rural areas and thereby expedite rural electrification and phone service. REA makes loans to qualified borrowers, with preference to non-profit and cooperative associations and to public bodies, normally at 5 percent interest. REA borrowers can also finance their capital needs from non-REA sources with the aid of REA loan guarantees. In 1975, approximately 25 million Americans were being provided service from electrical systems financed by REA. Also in 1975, borrowers from the telephone loan program provided service to 9 million people in 42 States. REA does not own or operate facilities in either the electric or telephone program. While originally established to provide electricity for America's farms, this job has been essentially completed. Nearly 99% of all farms are electrified and virtually all of the new customers are non-farm. Since 1961, more than 8,000 .commercial, industrial, and community facility projects have been assisted by REA borrowers. B. Advantages and Disadvantages of Inclusion Advantages REA electric programs are no longer agricultural in nature, but are directly related energy development and marketing. Consolidation of these programs with other similar programs relating to power marketing and development would greatly improve overall coordination and administration of these efforts. Additionally, it would reduce significantly the amount of energy organizational fragmentation which now exists. 8 Disadvantages The associations of REA borrowers constitute a broad base and highly organized interest group which can be expected to strongly oppose any change in status because the loan programs have fared very well under the Agriculture Committees of both Houses. The major concern of the REA constituency would be that inclusion in an Energy Agency would highlight the REA loan policies as out of date, no longer needed, and perhaps even counter-productive from an energy policy point of view. It could signal to them, the beginning of the end of very favored treatment. C. Conclusions The REA electric programs clearly have their primary impact in the energy area with secondary rural development impacts. As such, these programs properly belong in a consolidated energy organization where they can be rationalized with other programs realting to power marketing and general energy policy. The telephone loan programs are not directly energy related and could, from a programmatic viewpoint, just as well be left in USDA. However, the total adminis- trative costs of both programs would probably increase if they were separated. Organizationally, REA divides cleanly and evenly between the electric and telephone programs. Consolidation could therefore be accomplished with little administrative difficulty. This would result in about 400 REA employees associated with the electric programs being transferred to the proposed Energy Department and an equal number of REA employees remaining with the telephone programs in USDA. In summary, there is no sound reason to leave REA out of the energy consolidation planning other than the strong prospect of losing the case on political grounds. It is recommended that it be included therefore. If it sub- sequently is ruled out and retained in USDA, it would not be a crucial loss to the viability of an energy consolidation. D. Department of Agriculture Position The Department of Agriculture prefers not to take an official position concerning the potential consolidation of REA into an Energy Agency. FORD 9 E. Presidential Decision Agree to inclusion of REA in either a DOE or DENR proposal Agree to inclusion of REA electrification programs in either a DOE or DENR proposal, but rural telephone programs to remain in USDA. Disagree. Leave in USDA. 10 IV. Naval Petroleum Reserves Program A. Program Description The Naval Petroleum Reserves (NPS) were originally established, in the early 1900's, to insure an adequate supply of petroleum for national security purposes in the event of wartime interruption of the supply of petroleum. However, P.L. 94-258, enacted at the insti- gation and support of the Administration in response to the energy crisis altered the concept and status of the original NPS by providing for the transfer of NRP No. 4 (Alaska) to the Department of Interior in 1977 and by authorizing production of NPR's Nos. 1, 2, and 3 (in continental U.S.) through 1982 by the Navy to facilitate the development of the Strategic Petroleum Reserve authorized by the Energy Policy and Conservation Act of 1975, P.L. 94-163. In effect, P.L. 94-258 assumes that all national needs for petroleum, military and civilian, can be critical in time of emergency and all sources of petroleum are to be pooled without prior earmarking. Similarly the strategic storage of petroleum would be set aside for emergency circumstances, but without prior earmarking as to end use. In addition to the four petroleum reserve sites, the Navy presently has administrative responsibility for three oil shale reserves which are currently undeveloped. B. Issue Relates to DENR only The transfer of NPR responsibility from DoD as part of a general energy reorganization relates to the DENR alternative because of its comparable functions of fossil fuel leasing on public lands. The DOE alternative would not assume these functions from Interior where they are now performed, and, consequently, NPR would not be a candidate for transfer to a DoE. However, if Interior remains in being because the DOE alternative is chosen rather than DENR, serious consider- ation should be given to transferring all of NPR to Interior. Finally, if it is decided to retain the present structure rather than other DOE or DENR, serious con- sideration still should be given to transferring all of NPR to Interior. These actions would be consistent with the change in concept of the NPR from a military-only emergency supply. C. Advantages and Disadvantages of Inclusion in DENR Advantages To find an economically viable, yet environmentally acceptable process to extract petroleum from oil shale in the near future is going to require a coordinated energy resource development effort by both private and government concerns. To date, this has largely been a fragmented effort which requires extensive, time consuming interagency coordination. It makes sense, both programmatically and administratively to consolidate these oil shale resource development programs within a single department or agency whose primary mission involves energy resource management and leasing. Navy oil shale reserves are only a small portion of the total national reserves and, therefore, transferring the administration of these reserves to a DENR could be accomplished with relative ease. DOD and Navy recently initiated an oil shale RD&D program jointly with ERDA and a private company. Consolidation of this oil shale program with other similar civilian energy agency programs would provide a more distinct separation of civilian and military functions. With respect to the petroleum portion of the NPR, there are several benefits that would be derived from con- solidation into the agency responsible for energy leasing and Federal land management. It. provides a single clear cut picture of the total national petroleum reserves, both in the ground and in strategic storage. It facilitates tradeoff analysis to determine how much reserves should be maintained in each account (i.e., military VS. civilian), as well as provide a mechanism for shifting resource reserves from one account to another as needed. It simplifies total program administration. In summary, our Nation's security includes not only a strong national defense, but also a sound and stable economic base. Obviously, the administration of our national petroleum and oil shale reserve programs affects both the country's defense and economic well-being. Inasmuch as these programs are clearly energy oriented, they could be best administered by a department or agency with responsibility for energy resources develop- ment on public lands. NPR programs also could more 12 readily obtain support in DENR than in DcD because of closer affiliation with expertise of Geological Survey, Bureau of Land Management, Bureau of Mines, and others. Disadvantages Strong political resistance is likely from the Armed Services Committees of both Houses. D. Conclusion Conceptually and for practical administrative efficiency, all of NPR - not just the Alaskan portion - should be in DENR if that alternative is selected. Management of the NPR, both petroleum and shale, is now, by law, viewed in a different light from its historic concept of a military-only set aside. It is now part of a more integrated energy approach for both military and civil uses. Also, the management of these resources is administratively closely related and analogous to the Interior energy leasing and lease management functions which would be in the DENR if that alternative is chosen. These points seem compelling in judging the best placement for NPR. E. DoD Position DoD opposes transfer of both oil shale and petroleum reserves to a civilian Energy Agency, primarily on the basis that further commercialization of NPR for non-DoD purposes is unwarranted. F. Presidential Decision Agree that all of NPR 9both shale and petroleum) should be included in the DENR concept, if that alternative is chosen. If basic energy organization decision is for either DoE or the present structure, pursue the transfer of all NPR (shale and petroleum) to Interior. Disagree. Leave NPR in Navy. FORD 13 V. National Oceanic & Atmospheric Administration (NOAA) A. Background NOAA, located in the Department of Commerce, has responsibility for a wide range of scientific programs in oceanic and atmospheric services and research, in coastal zone management and in fisheries resource management. The interaction of NOAA programs with natural resource and, to a lesser degree, energy matters, is considerable. B. NOAA Relationship to DENR and DoE NOAA, in total, would be a candidate for inclusion in DENR but not in DoE. IF the DOE alternative is chosen, NOAA functions should be studied further to determine their best disposition including some possibly to the DOE (e.g., impact aid), others possibly to Interior or to remain in Commerce. The following advantages and disadvantages relate only to the inclusion of NOAA in DENR. C. Advantages and Disadvantages of Inclusion in DENR Advantages 1. It would facilitate the coordination of those services which NOAA currently provides in support of energy and energy-related programs in FEA, ERDA, and Interior, particularly those related to Coastal Zone Management (CZM) programs and CZM energy impact funding. 2. It would consolidate almost all of the Federal Government's knowledge, expertise and facilities for the conduct of surveys, assessments and investigations of the physical, chemical and bio- logical characteristics of the oceans and the lakes as well as the geological and geophysical processes of the solid earth and its resources. 3. It would consolidate all Federal programs relating to the conservation, restoration and management of marine mammals and marine, fresh water and anadromous fishery resources. 4. It would consolidate the Federal Government's expertise and capability for monitoring streamflow 14 and water quality, determining the distribution and character of sub-surface water, and assessing the Nation's water supply. This centralized capability would be particularly valuable in developing plans for western coal development and for identifying suitable sites for locating nuclear power plants. 5. It would consolidate, and make more effective and responsive, those Federal programs which were designed to reduce loss of life and property from a broad spectrum of natural disasters, including floods, tornadoes, severe storms, earthquakes, tsunamis, volcanic eruptions and landslides. 6. It would provide a central source of almost all of the environmental data essential for making comprehensive assessments of the environmental impact of various energy and natural resource development activities. 7. It would consolidate much of the civilian production of maps and charts for the earth, the oceans and the national air space. Disadvantages From a program operational standpoint, there are a few disadvantages to including NOAA in a Department of Energy and Natural Resources. The disadvantages to such inclusion basically focus on the reaction of outside organizations. 1. NOAA is perceived as an environmental organization not biased by resource utilization and development interests. Placing NOAA in the department that is charged with resource development could jeopardize this relationship and the reaction of the environ- mental community to consolidating NOAA into DENR will probably be negative. 2. NOAA joining DENR runs contrary to other study recommendations on how the Federal effort in ocean and atmospheric affairs should be organized, i.e., that, NOAA should be the central element in a separate ocean organization at Cabinet level FORD D. Conclusions In the event the decision is to form a Department of Energy and Natural Resources, NOAA should be included as a major and integral part of this Department, primarily for natural resource management reasons. On the other hand, if the DoE option is selected, further study should be given to whether or not NOAA 15 functions should be dispersed to Interior, DOE, Commerce, and other Federal agencies. E. Department of Commerce Position NOAA programs in the fiscal 1977 budget comprise approximately 30% of the Department's funds and approximately 40% of its full time permanent employees. Under these circumstances, it would be difficult to say that the transfer of NOAA from Commerce to DENR would be without impact. From an operational stand- point, however, such a transfer would result in few actual disadvantages. Although the Department would have to make a greater effort to assure continued coordination with the Economic Development Adminis- tration and Maritime Administration programs. The Department of Commerce may actually benefit from transferring NOAA to DENR because such a transfer may allow overall Departmental program managers and policy- makers to focus more of their time and attention on those programs which bear a more direct relationship to the economic growth and development orientation of the Department. F. Presidential Decision Agree to inclusion of NOAA in the DENR, if that alternative is chosen. If DoE is selected, perform further analysis to determine feasibility of transferring parts of NOAA to DOE, Interior, and other Federal agencies. Disagree, leave in Department of Commerce regardless of energy organization decision. Organization For Energy Policy Formulation, Coordination and Monitoring Executive Summary The question addressed in the attached paper is: Assuming each of the major alternative organizations being considered for Federal energy and energy-related functions --- what kind of organization or system would be needed to formulate and coordinate national energy policy and see that it is implemented? The scope of the question takes in a composite energy policy system comprised of: The role of the lead energy agency or agencies; input from other line agencies including such "non-energy" agencies as State and Treasury, and the coordinative function of Executive Office units including those which are either general purpose or special purpose. This subject is not easily susceptible to analysis and clearcut answers. The issue involves an interplay of numerous factors all of which are judgmental in character and some of which require a future projection of the energy situation and Federal organization for energy matters. The balance of this summary itemizes and describes briefly the governing factors in determining the mechanism needed for national energy policy. 1. Understanding the nature of the energy policy task is basic in determining how to organize for it. Focus is on national policy from the perspective of the President. The whole policy cycle is involved: formulation, coordination, decisionmaking, implementation monitoring, evaluation and reformulation. In many important areas of energy policy the course has been charted and substantial progress made in achieving agreement on basic directions. Some implementation decisions have been reached as well. But others remain unresolved. In succeeding years, some new fundamental decisions will be required and some already made will require reexamination. Even when the energy agencies have themselves shifted into a monitoring and implementation phase, the - 2 - broad variety of interfaces (i.e., international, environmental, etc.) characteristic of energy issues will require interagency policymaking. Energy policy is a compound of domestic and international considerations. The energy policy group should have an international expertise. Energy policy decisions must be balanced with other goals whichare often the province of non- energy agencies; e.g., general economy, environment, resource management, foreign affairs, national security and others. Energy decisions and actions may have short or long-term consequences, but since these interact, they must be analyzed as one. 2. The function of energy policy formulation and coordination has recognizable organizational relationships with other energy functions. Data collection and analysis. Credibility of data is seen by many including Congress, to be threatened if the data process is organized as a subordinate unit of the policy group or directly reporting to the same individual. Yet, the data system must respond to needs of the policy formulation process. Research and development. R&D planning should be sensitive to technology needs identified outside itself including those surfaced as a product of the policy process. At the same time, R&D is a long- term investment requiring stability to reach maximum productivity, and it should not be directly governed by the dynamics of the policy process. Energy regulation. Regulatory actions, especially rulemaking should be compatible with carefully con- structed and widely debated energy policy, so as not to be counter-productive in terms of meeting national objectives. On the other hand, regulatory decisions, especially case actions, must be sufficiently free of policy pressure to be seen and accepted as credible and as satisfying due process requirements. Energy development and conservation operations. Should clearly be governed by program policies which are specifically reconciled with overall energy policy. - 3 - 3. It is instructive, with cautions, to evaluate the existing policy process in determining how to best organize for policy functions in the future. The ERC/FEA system for energy policy formulation and coordination has several structural flaws which might be avoided with a DENR or DOE arrangement. These include: - In the absence of a Cabinet-level energy agency, ERC is chaired by a Secretary who does not otherwise have a basic energy mission. This arrangement fragments the already difuse energy policy process. There is no single energy spokesman. Consolidation of energy organization would clarify the energy perspective. - ERC must rely on FEA for backup. Some other agencies tend to view the ERC/FEA system as an FEA vehicle regardless of the quality of the ERC's analysis. Consequently, they take up energy policy issues through other channels. - Energy policy formulation is not comprehensive: ERC/FEA concentrates on short range and legislative; other agencies have other primary interests, i.e.: ERDA - long-range; State/NSC - foreign aspects; Treasury/CEA/EPB - economic aspects. - In some cases ERC/FEA duplicates the general purpose coordinative bodies of the Executive Office, especially OMB's legislative review process. On the positive side, the ERC/FEA system has provided a forum for high level interagency dis- cussion of urgent energy issues over a tumultous period. This forum might not have been available through strictly convential mechanisms. - More senior level attention has been given to confronting problems than might otherwise have been the case. -4- 4. The major energy organization alternatives - i.e., DENR, DOE, and the present structure - have differing capabilities and limitations in performing the energy policy making task. DENR and DoE would provide a Cabinet-level capability to formulate policy. DENR would have a relatively wider span of relevant concerns than DoE. Both would have a Secretary to serve as a top level interagency spokesman who is directly concerned and who has the policy capa- bility directly at this command. The DoE alternative, unlike DENR, would result in an energy spokesman at Cabinet-level who is basically a single-minded energy advocate. As the chief formulator of energy policy, it would be necessary for the system to provide some check and balance so that the necessary reconciliation of energy with other concerns takes place. An energy agency EA would be less able to clarify the energy policy perspective in an interagency context. A limitation is that neither DENR nor DoE would cover all pertinent concerns such as economic, foreign affairs, general environment, and others. Either DENR or DoE would offer a more established policy formulation and coordination capability than the present ERC/FEA systems which has the limitations described earlier. Providing the ERC with its own policy analysis staff would retain some of the existing coordination problems and either duplicate or replace existing policy coordination capability. 5. Assuming DENR or DoE, the "normal" or conventional arrangements for policy formulation and coordination could be utilized, but also might be supplemented with more exceptional policy coordination arrangements as needed to perform the energy policy job. The "normal" procedure would include staff analysis and initial formulation of policy in the energy department. Interagency consultation as appropriate would be performed. Coordination of draft positions of the Department, such as legislative material or Presidential decision papers would go through usual Executive Office units including OMB's legislative review process which formally involves all affected agencies. To supplement these usual processes, it may be useful to have a top-level interagency forum to resolve the many implications of energy policy. If so, as a first - 5 - increment of "exceptional" arrangements, an interagency committee such as the ERC could be continued. It could be chaired by the Secretary of the energy agency who would utilize his regular policy staff. Several of the struct- ural flaws in the present ERC/FEA system might be rem- edied by such an institutional arrangement. Any agency head not satisfied with the product of coordination through this interagency committee process would be free to carry his views forward to the President if necessary. This would check any tendency for the Energy Secretary from pushing unbalanced positions to the President. Some further escalations could be considered - but do not appear to be useful at this time. For example, a more elaborate staffing mechanism could be established in the Executive Office even if there were a consolidation of energy functions. A general purpose Executive Office agency such as the Domestic Council or OMB could be given special responsibility for energy policy leadership. Alternatively, a new organization such as the CEQ could be created for the purpose of establishing an institutional coordinating point. These forms of exceptional escalation might be considered, if needed, at a later point. 6. Assuming no Cabinet consolidation of energy functions and establishment of an Energy Agency or a continuation of present organizations, more formal coordination of policy should be considered. Structural flaws in the present ERC arrangement suggest that more comprehensive coordination of energy policy issues should be established if there is no reorganiza- tion of energy functions. A more "neutral" coordinating arrangement might also be useful in reducing the concern of some agencies that FEA dominates the policy process. - In the case of an establishment of an Energy Agency where there would not be the same level of energy advocate as in a Cabinet-level energy department, it may be useful to have a formal and full-time Energy Advisor in the Executive Office chair the interagency committee. - In the case where the present organizational arrange- ments are continued, it may be useful to establish an even stronger policy coordination mechanism in the Executive Office than the present ERC/FEA system. A long-term need for an energy policy forum capable of integrating points of view across agency lines is evident. The ERC can do this. However, the addition FORD is GERALD - 6 - of a small staff could help make the continuing ERC more "neutral" with respect to FEA activities and an improved forum for the full range of energy policy matters as it affects all agencies. Once the energy policy issues have been thrased out in a broad way at the top policy and interagency basis, the bulk of any legislative coordination should be processed through the normal OMB legislative review process. Analysis of Organization to Perform Energy Policy Formulation and Coordination I. Scope and Purpose of Paper This analysis is a component part of the overall organi- zation study of Federal energy and energy-related functions. Its purpose is to address the question of effective organizational arrangements for formulation and coord- inating national energy policy, subsequent monitoring to assure implementation and, as necessary, reformulating policy. The scope covers all national energy policy and the part played by all affected agencies, existing or potential, and any Executive Office role. The focus of this paper is on the institutional arrange- ments needed to perform the energy policy task. It does not reexamine policy content as such, nor the process by which policy issues are publicly debated or negotiated with Congress. Since this paper is part of a larger study, it is not intended to recommend final answers but instead, to analyze what is needed and derive guidelines regarding policy-making arrangements which should be considered in overall energy organization planning. In terms of overall energy organization planning, this paper assumes three alternative organizations as leading contenders following Phase I of the general study: consolidation of prime energy programs together with some natural resource programs to form a-Department of Energy and Natural Resources. Consolidation of prime energy programs to form a - Department of Energy or an Energy Agency. Continuation of essentially the present agency structure for energy and related functions. FORD & LIBRARY GERALD 2 This first two cases above involve a question of whether or not an ERC or similar Executive Office mechanism would still be required, and if so, what form it should take. The third case involves the question of whether or not the ERC should be strength- ened, and, if so, how. The remainder of this paper is sub-divided as follows: II. Analysis as to the nature of the energy policy task -- especially in the foreseeable future. III. Relationship of the policy function, to other energy functions -- especially data, regula- tion, and research and development. IV. Description and evaluation of the existing energy policy system. V. The capability and limitation of each major alternative energy organization in performing energy policy formulation and coordination. VI. Options for energy policy formulation and coordination. II. Nature of the Energy Policy Task The task of formulating and coordinating national policy and assuring its implementation differs among the various fields of public affairs. This section of the report identifies the major characteristics of the policy task in the energy field in order to help assure that the energy policy machinery is tailored to the task. Some of the characteristics of the energy policy task cited in this section are peculiar to the energy subject, others are not. A. National Policy Requiring Presidential Perspective. Primary concern is with the major and overriding policy issues which transcend specific programs or agencies and can be thought of as national in character. Decisions at this level clearly require Presidential involvement and the integration of many points of view. Broad energy policy at this level -- e.g., continued major reliance on private sector and 3 minimum feasible intervention in free market decisionmaking -- sets directions for subordinate and more program specific policy decisions -- e.g., transfer of uranium enrichment to private sector and natural gas deregulation. The policy machinery must serve the President's need for balanced and objective advice which inte- grates many points of view on the broad policy issues and major subordinate level issues which, while they may be program or energy-sector specific, are instrumental in achieving national energy objectives. In short, the energy policy mechanism should be geared to serve the top-down perspective of the President comprehending the broadest pos- sible issues and reaching down to such levels of greater specificity as is needed to assure that major goals are being achieved. B. Must Cover the Full Policy Cycle. The energy policy task involves the full policy cycle -- formulation, coordination, decision- making and, subsequently, monitoring implementation, evaluation and reformulation as necessary. Again the emphasis is on the Presidential or national perspective. Both the steps leading up to decision (formulation and coordination), and the post-decision steps (monitoring and evaluation) contemplate a central staff capability which has an established and recog- nized relationship with major energy program officials wherever they may be organizationally placed. C. Future Mix of Policy Issues as to Formulation and Implementation The type of policy formulation and coordination machinery needed in the years ahead should be governed in large part by future trends that can be anticipated in the energy policy task. There is some reasons to believe that the unstructured nature of energy policy- making over the last three years will not continue to the same degree in the future and has FORD GERALD 4 already changed somewhat from that which prevailed in the early post-embargo period. The key question might be stated, - will future policy issues continue to cover novel and un- charted ground, or, will they increasingly fit within the guidance offered by established, broad policy? Another view of this same question is whether or not energy policy issues in the years to come will continue, in many cases, to demand Presidential attention or can be resolved at lower levels. The picture is mixed. In many areas, decisions have now been made. Policies have been set in motion. In these situations, the energy policy task is to monitor implementation of these agree- ments rather than to formulate new policy. But the picture also includes other areas in which disagreement on the course that the government should follow continues to persist. In these instances, formulation of basic policy will still be required. 1. Increasing focus on policy implementation Many close observers of energy matters feel that much of the policy ferment of recent years has been resolved. Broad outlines of consensus are beginning to emerge in important policy areas. For the first time, key Congressional and executive policy makers are in essential agreement on many oil issues. There has emerged some semblance of agreement on the role of regulations governing most fuel products and the broad goal of national energy policy -- self sufficiency and reducing dependence. Some of the broad general principles by which energy is to be developed and conserved have been established. The central role of private enterprise has been confirmed. The limited use to which coersive regulations will be used to enforce conservation has also emerged as an element of consensus. Even the role of price in inducing supply and limiting demand is becoming more widely accepted. 5 Major policy decisions have been made as well at the level of more specific programs or energy sectors. For example, an oil pricing policy has largely been established. The decision has been made to construct a strategic storage system. Decisions have been made to produce the naval petroleum reserves; to build an Alaskan oil pipe- line; to develop off-shore oil reserves; to provide major new sources of energy efficiency information to consumers in order to encourage conservation; and to employ a variety of means to encourage conservation in residential structures. The energy policy task in these areas is to monitor the implementation of the policy decisions, and assess any need for modification to the policy. 2. Major policy formulation issues still remain In important areas of energy policy, there is no full consensus. -- Natural gas is still regulated at artifici- ally low levels. Supplies are decreasing. Each winter the prospect of shortages becomes a more pressing concern. -- Nuclear issues are becoming more intensely debated. Following the Nuclear Regulatory Commission's recent ruling on waste disposal, nuclear plant construction has, in effect, been suspended. Major investments will be required in the nuclear industry in order to sustain growth. In the meantime, estimates are cut back each year on the role that nuclear power can play in generating electri- city. Since Project Independence was heavily dependent on nuclear power playing a major role, these cutbacks could require major policy reevaluations. -- Coal production has increased since the embargo. But Clean Air Act restrictions continue to limit coal use. Proposed amend- ments tightening restrictions may even increase future difficulties in burning coal. GERALD 6 Developmentof synthetic fuels and other important substitutes for conventional fuel will require government commitment to pro- tecting early investors. But, without Congressional agreement on the merits of such guarantees, major legislative development work will have to take place. In addition to these clear policy issues left unre- solved by years of debate, there are two other kinds of problems. The first is that big issues exist even in seemingly settled policy areas. Although the essential policy framework may have been established, the implementation of the major decisions may require significant policy coordination on an interagency basis. In other words, some issues of implementation such as controversies over the Alaskan pipeline, or the production of the naval petroleum reserves have major interagency significance necessitating Executive Office and very likely Presidential level attention in the coming years. The second kind of energy policy problem is the fund- amental problem of issues which were not considered or resolved in the past. For example, United States policy toward OPEC has never been clearly articulated. OPEC investment in the United States (particularly in energy facilities) is another issue area in which there has been little attention to date. Finally, the government will some day have to cope with the funda- mental short term issues of environmental and energy significance concerning the continuing national reliance on the automobile. D. Careful blend of domestic and international considerations It is, by now, well recognized that national energy policy must take into consideration both domestic and world-wide factors. The stage for projecting energy supply and demand is global. Because of its signifi- cance on world stability, energy - especially oil - is a matter of high concern in conducting our foreign affairs. Actions to strengthen our domestic position must be weighed in the light of their effects on other nations whose viability is important to us. 7 This intertwining of foreign and domestic energy issues and policies says something further about the kind of energy policy machinery we need. For one thing, the State Department and the National Security Council are, and will continue to be, vitally concerned and will, therefore, want to continue to have staff capability or expertise in energy matters. The State Department and NSC, however, are not, and will not be, centrally charged with the develop- ment or implementation of national energy policy. They are participants and should have a clear voice, selectively, in energy policy debates. There is no way, however, of segregating energy policy issues which are "domestic" from those which are "international." As a consequence, the agency and the group which has central responsibility for energy matters must have a sufficient staff capability which is well-informed and participating in inter- national energy matters. The close coordination needed for domestic and foreign aspects of energy cannot be left to a "pass-over" system, but requires mutual involvement of both kinds of agencies even at the cost of some apparent overlap. E. Energy policy decisions will continue to involve heavy trade-offs with competing objectives and values Both at the level of broad course charting policy and, even more so, at subordinate or implementing decisions, energy objectives tend to collide with other values and objectives. The most apparent are environmental, health, safety, conservation, national security, consumer and national or regional economic stability. Less evident but of potential great con- cern are the impacts that energy decisions can have on citizen life styles, freedom from excessive regula- tion, privacy, and others. If energy policy decisions involve a balancing of so wide a range of considerations, the question occurs as to how these points of view are to be represented in the decisionmaking process or in the advice coming 8 to the President where the decision is at that level. A part of the answer related to the span of responsibilities of the principal energy agency. The wider the span, the less the need to externally counterbalance the energy agency. However, no matter how comprehensively the energy mission is structured to include moderating responsibilities -- natural resources for example -- it will not include all pertinent points of view such as overall functioning of the economy or protection of air and water quality. The consequence of this is that the total energy policy making apparatus will need to provide for hearing from and reconciling points of view which are not primarily focussed on energy. The relative ability or shortfall of the several alter- natives for energy organization to take in the whole range of pertinent factors is discussed further in Section V. F. Short-term and Long-term considerations must be viewed together Some policy issues in the energy field have a very immediate time factor. Others involve gradually evolving problems and solutions which are long-term in paying off. The analysis of short-term actions and long-term investments must be carefully inte- grated for maximum results. III. Organizational Relationship of the Policy Function to other Energy Functions The organizational placement, authority and structure of the energy policy function can be defined in part by looking at other energy functions and seeing their relationship with policy-making. Data collection and analysis. Obviously, data is needed to formulate and analyze policy options. The data system, therefore, has an obligation to respond with data that is valid and pertinent to real policy issues. However, if the relationship is too close in a hierarchial sense, there is a problem of credibility in the data gathered or analyses made. The concern is that the data system will be more motivated to produce answers that are hoped for 9 rather than those which are objectively straightforward. Data which is lacking in credibility is of limited value to anyone. To counteract this concern, the data system should not be subordinate to the policy analysis function. It should support the data needs of the policy group, but not its policy positions. This relationship is analyzed further in the critical issue paper on Data Collection and Analysis including treatment of the newly legislated "separate" office in FEA. Research, Development and Demonstration. To what degree should th RD&D program address technology needs identified by the policy-makers versus independently assess what is needed? This relationship of policy-maker and scientist is very critical in the long-range productivity from the R&D investment. A simple answer categorically supporting an extreme position either way is not indicated. In any case, the team which prepared the critical-issue paper on RD&D concluded, among other things, that the R&D capability should be governed in part by technology needs identified external to themselves with certain cautions to assure the continuity, integrity, and flexibility of the R&D function and its constituent projects. Regulation. A fundamental question to be worked out in the planning of energy organization is the proper relationship between policy formulation and implementation on the one hand, and regulation on the other. Many feel that they are inherently conflicting and that they should, therefore, not be located together lest one - presumably regulation - be compromised in the conflict with the other. Conversely, others point out that it can be counter- productive for the regulatory power to be applied in complete isolation from balanced and rational policy objectives. This matter is extensively addressed in the critical issue paper on Energy Regulation. There is some validity in both points of view, but it is felt that the integrity of regulatory decisionmaking does not compel complete separateness, and the achievement of regulatory responsiveness does not depend upon its specific sub- ordination to policy-making. GERALD R. FORD 10 Resource development and conservation operations. A number of Federal activities are underway in pursuit of the policy goals of increasing domestic energy supply and limiting energy demand. The operating programs for these purposes are not now consolidated and, as indicated in critical issue papers on each of these subjects, are not likely to be entirely consolidated in any possible alter- native. Regardless of where they may be located, the energy policy function should have a continuing relation- ship with them to obtain policy decisions, when applicable, and to monitor their continued operation to assure that basic policy is being adhered to. IV. Description and Evaluation of the Present Energy Policy System. A. Description The central unit in the development and coordination of energy policy under present arrangements is the ERC. To describe the ERC further, it is a statutory, inter- agency body comprised of the heads of Departments, agencies and Executive Office units which are con- cerned with energy matters. The ERC is chaired by the Secretary of Commerce, although the Department of Commerce, as such, does not have major energy functions. The Federal Energy Administration plays the leading role in ERC affairs other than serving as Chairman. For example, the FEA Administrator serves as Executive Director of ERC, and the FEA policy staff is, in effect, the principal analytical staff for the ERC. FEA also provides the ERC Secretariat role of keeping records, preparing agenda items, etc. Frequently the ERC functions through its Executive Committee rather than the entire body. This Executive Committee includes, in addition to the ERC Chairman and Executive Director, the heads of Treasury, Interior, OMB, ERDA, CEA, EPA, the Assistant to the President for Economic Affairs and the Undersecretary of State. Over the past eight months, 23 of 26 meetings of the ERC have actually been of the Executive Committee, not the full ERC. The full ERC generally meets bi-monthly for informational presentations, but not generally to debate policy issues. 11 Energy issues and economic issues inevitably con- verge. Consequently, the Executive Committee of ERC and the Economic Policy Board frequently meet jointly. In fact, the membership of these two groups tends to be the same persons in any case. The ERC initially provided the vehicle for the comprhensive Cabinet-level review of detailed energy policy options which led to the President's 1974 Energy Message. More recently, the ERC has reviewed and analyzed discrete policy proposals such as those involving LNG imports and Alaskan natural gas trans- port. The ERC also has assessed major issues which relate more to implementation of existing policies (at least in the sense that new legislation is not required). Examples include review of EPCA implementa- tion, and natural gas curtailments. In these cases, the ERC typically has reviewed papers prepared by the lead agency on a given issue, has formed a task force or study group to analyze the issue, has used a permanent ERC subcommittee, or has formed a new one. Temporary task forces have been formed on the Federal energy organization, west coast oil transport, synthetic fuels commercialization, and other issues. Ongoing subcommittees include (a) the Intergovernmental Coordinating Committee (ICC), which in turn has established subcommittees on conservation, synthetic fuels, impact assistance, and coal programs; (b) the Task Force on Thermal Standards; (c) the Task Force on Motor Vehicle Goals Beyond 1980; (d) the Nuclear Subcommittee and (e) the International Sub- group, among others. The ERC also serves as a forum to update positions on pending legislation resulting from Administration policy proposals and at times to discuss tactics relating to such legislation. Again, the ERC relies primarily on lead agencies (e.g., Clear Air Act Amendments Task Force) for its analysis. The ERC employs the same process to develop Administration positions on and tack other energy-related legislation, such as that on oil company divestiture or the Kennedy conservation bill. With the exception of the initial efforts leading to the President's Energy Message, the ERC, which 12 has no permanent staff, has acted more as a policy coordination body than as an organization which initiates the formulation of policy. On the other hand, there are obvious exceptions (e.g., Alaskan gas transport and LNG import policy). Since the FEA has initiated many recommendations which the ERC then has taken up, the ERC Executive Director, who is also the Administrator of FEA, in fact, has been able to initiate policy development. As a coordinating body, the ERC, besides producing discrete outputs such as decision memoranda, also provides a forum for top-level decision-makers to meet periodically to discuss energy policy. B. Evaluation Since its creation in 1974, the ERC mechanism has been confronted with a situation of major policy innovations going to such basics as a reexamination of the relative role of the public and private sectors. Policy issues have been large in number as well as often fundamental in character. The fact of having an exceptional mechanism such as ERC has served us well in the light of these events, especially in the absence of a Cabinet-level Department and Secretary with a clear lead role. In situations where there were fundamental disagreements, even within the Administration, the ERC provided a point of focus for senior policy makers with a broad interest in energy topics. These individuals might otherwise have been too disassociated with the day-to-day energy issues to be well informed and see the need for dramatic steps. Without being informed, such senior officials might have been more likely to oppose controversial energy actions which impacted on their areas. The ERC became a vehicle for permitting positive action. But there have been criticisms of the ERC as well which should not be overlooked. An analysis was made of ERC actions taken on agenda items over a year's time indicating the subject matter, the lead responsibility, and the action taken. (See Attachment A). Summary is then given of issues handled by lead agency with FEA predominating by a substantial margin. Over the year, policy/legislative items occurred 35 times, while implementation issues came up for discussion 13 times. 13 While much good work has been performed under intense pressure, the structural arrangements for energy policy formulation and coordination as described above is not well suited to all aspects of the continuing energy policy task. A critical evaluation of ERC/FEA policy mechanism includes the following points: 1. Comprehensive overview is missing. FEA has a short-term view, ERDA concentrates on policy decisions that would pay off in the long-term. State Depart- ment takes a foreign-policy oriented look at energy while the FPC and the NRC quite independently regulate their respective sectors. The ERC has not performed the role of integrating these fragmented views. 2. May be duplicative of normal coordinative machinery. The ERC at times represents an alternative track for policy development which duplicates the more conven- tional staffing process of OMB budget and legislative review and the Domestic Council's coordination role. 3. ERC as an FEA device. Some feel that the analysis developed by the ERC has been limited in value. In some cases, the critics charge, the ERC has played an advocacy role. In others, it has represented FEA's point of view to such an extent that some agencies try not to bring issues to the ERC. Agencies tend to use ERC if it is likely to be to their advantage, but can easily go an alternate route if the chance for controlling the action appears better - i.e., OMB, NSC, EPB, etc. 4. Implementation monitoring is weak. The ERC can engage in secondary policy issues to the degree that time permits, but this is not the same as system- atically following major decisions to see that they are being implemented. ERC, as noted, has no analytical capability of its own. The FEA staff is a non-Cabinet agency and has direct jurisdiction itself over only a fraction of the implementation actions of the government. Its ability to track broad decisions to the implementation and feed-back stage is limited. GLRALD FORD 14 V. Energy Policy Capability and Limitations of Major Energy Organization Alternatives The major alternatives to the present energy and related structure are (1) a Department of Energy and Natural Resources, (2) a Department of Energy or (3) an Energy Agency as described in the interim report on Energy Organization. The possible consolidations are not equal to each other in terms of their respective ability to handle the energy policy task or their limitations in doing SO. The machinery for formulating, coordinating, and monitor- ing implementation of energy (or any other kind) policy includes, in fact begins with, one or more line agencies and includes whatever Executive Office role may be neces- sary to assure balanced and objective support to the President. At present there is no one agency that has clear lead responsibility for energy. FEA perhaps comes closest, but it has clearly less than a full range and it is non-Cabinet in rank. Consequently, a heavy share of the load falls on the Executive Office including ERC. In contrast, the possible alternatives of DENR and DOE would be in a much more comprehensive position, especially DENR, than is FEA. In addition, they would be at Cabinet- level. The dependence on Executive Office machinery would be less. DENR would constitute a Department and a Secretary charged with energy and also with conservation and management of natural resources and, therby, would take into its sights one of the major continuing energy trade-offs. Energy policy initially formulated in such a Department would be expected to incorporate some balance in this regard. DOE, especially if it did not have Interior's energy- related land management functions, would have a lesser span of concerns than DENR, and energy policy formulated in such a Department might need more extensive coordination above departmental level before it was ready for Presidential attention. Either DENR or DoE, however, would require external coord- ination to assure other considerations were adequately given -- national economy, national security and foreign affairs and environmental protection. 15 The prospect of an Energy Agency in lieu of a Department of Energy would result in the same span as the DOE, but the agency would have a serious handicap in effecting interagency coordination by virtue of being sub-Cabinet. VI. Alternative Arrangements for Energy Policy Formulation, Coordination and Monitoring - Normal or Exceptional Under the conditions of the last several years, i.e., turmoil in the energy policy field together with the lack of a Cabinet-level spokesman with wide-ranging energy responsibilities - exceptional arrangements for formulation and coordination of energy policy has been warranted, i.e., the ERC/FEA arrangement. A. Assuming a DENR or a DOE The prospect of a consolidation of most prime energy functions in a Cabinet Department together with a more stabilized energy policy framework raises the question of whether exceptional arrangements would continue to be warranted or whether more normal arrangements would be sufficient. Normal in this context would include: - formulation of national energy policy in the energy department based on analysis by a properly staffed policy group. Consultation across agency lines at staff level would take place as necessary. - Interagency formal coordination under the auspices of the lead agency itself - or - - Interagency coordination through regular Executive Office processes such as legislative review by OMB or staffing of Presidential decision papers with general purpose Executive Office and White House units such as CEA, OMB and Domestic Council. Exceptional If it appears that exceptional arrangements are still warranted to cope with the energy policy task and to assure adequate coordination and balancing of views, 16 the first level of escalation might be a formally established interagency committee or council similar to the ERC - but chaired by the energy department secretary and utilizing policy analysis support from his own department. Energy policy making involves many points of view and consequently there is an important need for checks and balances so that the energy secretary will not be in a position to completely stifle dissenting views. Any other member on such an interagency committee who felt that his view was not adequately reflected in a policy position could make his dissent known to the President through normal channels. A second possible exceptional arrangement for energy might be to follow the normal channels of involving regular Executive Office units such as OMB, CEA and Domestic Council but to augment the staffing of one or more of these to deepen their expertise and workload handling capacity in energy matters. A final and more extreme exceptional arrangement would be a separate Executive Office body for energy chaired by a separate Assistant to the President and with a policy analysis staff separate from that of the Secretary. This would be along the lines of the CEQ or the NSC. Again, assuming a consolidation of energy functions under a Cabinet Department and Secretary, it seems logical to unify the energy task there to the greatest extent possible and to go up the scale of supplementary and exceptional policy coordinating machinery only as needed. B. Assuming consolidation of energy functions in a non-Cabinet Energy Agency The chief difference here is the lesser ability of the top energy official to coordinate his agency's policy initiatives with the concerns of Cabinet officials representing foreign affairs, natural resources, tax policy, etc., or Executive Office officials representing budgetary concerns, economic policy or, national security. Correspondingly, if this alternative for general energy organization were adopted, it would require a higher degree of exceptional arrangement outside of the agency to coordinate energy policy 17 probably along the lines of the present ERC without staff or even possibly with some small staff. Such a body might be chaired by a Cabinet Secretary, as at present, or by an Executive Office Energy official. C. Assuming the present structure for energy functions Actually, the weakness and illogic in the energy policy system is one of the primary faults with the present energy organization. Nevertheless, if we assume no change in organization for energy functions, the present system of an unstaffed ERC would probably be required as a minimum to elevate the ERC to a level that it provide formal leadership at the Executive Office level for energy matters. The alternatives would be to (a) augment OMB's staff in the energy field and thus unify the development of energy legislation with its interagnecy coordination - or - (b) to provide the ERC with a portion of the policy staff now vested in FEA and thereby continue to provide an interagency and top policy level forum for shaping energy policy. As a variation of the present arrangement, it might be desirable to have a full-time Executive Office official to chair the continuing ERC. In any case, once policy decisions have been reached, any legislative coordination that results should be processed through the established OMB legislative review procedure. ATTACHMENT A Analysis of ERC Action on Agenda Items ABBREVIATIONS/CODES IN SUMMARY OF ERC AGENDA ITEMS Group Meeting EC ERC Executive Committee ERC Full ERC EPB/EC Economic Policy Board/Energy Resources Council Executive Committee GOVS Governors on Energy Subcommittee of the National Governors Conference Type of Actions DM Decision Memo for the President IM Information Memo for the President RP/RC Statutory Report to the President/Congress R Report for a future ERC meeting TF Task Force formed (long term) L Legislative liaison action C Interagency coordination (ad hoc, short term task force, interagency issue paper, or comments to specific lead agency) B Briefing/status report O Other -- No action R.FORD GERALD SUMMARY OF ERC AGENDA ITEMS Group Date Meeting Issue Lead Agency Action 7/20/76 EC, ERC Alaska pipeline welds study DOT, DOI IM 7/14/76 EC, EPB/EC Clean Air Act amendments OMB, FEA, EPA DM Energy Organization Study-- OMB, DOC R status EPCA Implementation--6-month FEA RP review Draft Presidential Energy Brief FEA B FEA Extension- status FEA B Position on Mineral Leasing Act DOI -- 7/14/76 EC, ERC Clean Air Act amendments OMB, FEA, EPA C Natural gas curtailments--FPC FPC C draft paper Bailey powerplant decision DOI, NRC : 7/8/76 EC, ERC Alaska pipeline welds--status DOC, DOI R Post- 1980 auto efficency DOI R standards- - ERC task force status report 7/7/76 EC, EPB, EC LNG import policy--options paper FEA DM Alaskan gas (S. 3521), FEA C 6/25/76 EC, ERC Coastal Zone Management Bill OMB C FEA Act Extension FEA B Mineral Leasing Act amendment OMB, DOI C 6/9/76 EC, ERC Scrubber technology options EPA R Synthetic fuels commercialization ERDA B legislative status Group Date Meeting Issue Lead Agency Action 5/28/76 EC,ERC Proposed ERC statement on uranium ERC C reserves Kennedy Conservation Bill (S.3422) ERC TF/L Randolph Coal Bill (S.1777) FEA L Senate Natural Gas Bill FEA L 5/19/76 EC,EPB/EC Federal Energy Organization DOC, OMB TF Study Outline and Work Plan Legislation to protect retail FEA C gasoline dealers Natural Gas Bill (S.3422) FEA C 5/18/76 ERC National Energy Outlook discussion FEA B 5/12/76 EC,ERC Private sector technology role ERDA B/R Federal Energy Organization DOC, OMB R Legislation to protect retail gasoline FEA C dealers 5/4/76 EC,EPB/EC Nuclear Waste Management Statement ERC C Federal Energy Organization request DOC, OMB TF to start OCS Leasing (H.R. 6218) DOI DM 4/26/76 EC,EPB/EC Clean Air Act amendments EPB C 4/19/76 EC,EPB/EC Clean Air Act amendments ERC C 4/13/76 EC,EPB/EC Conservation Contingency Plans FEA C International Energy Negotiations-- Status Report State B/C OCS Lands Act amendments (H.R. 6218) DOI, DOC C GER Strategic Storage briefing FEA B Group Date Meeting Issue Lead Agency Action 4/7/76 EC,EPB/EC Clean Air Act amendments EPB TF Vertical divestiture bill ERC O Natural gas legislative alterna- FEA C tives 3/16/76 EC,EPB/EC Surface Mining Legislation (H.R. 9725) DOI L Divestiture Legislation FEA TF West-East oil transport FEA TF FEMP whether to raise again to FEA, OMB, GSA DM President Misc. legislative update ERC B 3/2/76 EC,EPB/EC Surface Mining Legislation DOI C Impact Aid Legislation DOC C/L 2/23/76 EC,ERC/GOVS Impact Air Legislative Proposal DOI O State Energy Conservation Programs FEA B Synthetic Fuels (and other issues) ERDA O 2/10/76 EC,EPB/EC Alaskan OCS DOI L Clean Air Act amendments FEA L Project Independence Update FEA B 1/21/76 ERC Status of Energy Program FEA B/C Agency responsibilities under EPCA FEA C 1/13/76 EC,EPB/EC Agency EPCA responsibilities FEA C Alaskan Gas FEA DM LNGS Import POlicy FEA DM Review of Administration Energy FEA B Policy Positions 1/5/76 EC,EPB/EC Alaskan Gas Transport FEA C LNG Import Policy FEA C Group Date Meeting Issue Lead Agency Action 12/12/75 EC, ERC EPCA status FEA B IEA Long-term Cooperative Program State B 12/4/75 EC, ERC Alaskan Gas DOI B/O Synthetic Fuels/Governors ERDA, FEA O 11/14/75 EC, ERC Current Status of Congressional FEA B Omnibus Energy Bill 11/14/75 ERC EIA ERC B 11/3/75 EC, ERC Coal Mining and Leasing DOI B Uranium Enrichment (Administration ERDA B legislative proposal) 10/23/75 ER,ERC/GOVS Synthetic Fuels Commericialization ERC C/O Program 10/9/75 EC, ERC Outer Continental Shelf Leasing FEA, OMB, DOI DM LNG Import Policy C 9/29/75 EC, ERC OCS Legislation FEA, OMB, DOI C Legislative Update FEA B 9/10/75 EC, ERC FEMP Multi-year Action Plan FEA C 8/26/75 EC, ERC OCS Development (no summary of meeting Decontrol Strategy was prepared) 7/22/75 EC, ERC Indexation Treasury O Synthetic Fuels Commercialization ERC C Sharing U.S. energy resources with State B other countries Group Date Meeting Issue Lead Agency Action 7/16/75 EC, ERC President's Decontrol Action FEA B Canadian Natural Gas Situation FEA, State 7/9/75 EC,ERC IEA Negotiations State B Legislative Update FEA B 6/26/75 EC, ERC Chapter V, IEA Negotiations FEA, State - Strip Mining Follow-up FEA, DOI IM Natural Gas Deregulation FEA House Commerce Committee Energy Bill FEA O Uranium Enrichment Domestic O Council ERDA Report to Congress, Vol. I ERDA C Gasoline Shortages FEA B Consumer Advisory Committees ERC C 6/20/75 EC,ERC IEA Negotiations Objectives FEA, State DM ERDA R&D Plan ERDA, OMB C Legislative Status ERC B 5/21/75 ERC Natural Gas Policy and Contingency FEA O Task Force Participation 5/8/75 EC,ERC Auto emissions/fuel economy OMB C Electric Utility financing FEA DM Energy Legislation Status FEA B 4/17/75 EC,ERC Deepwater Port Licensing Policy DOT O Electric Utilities Policy FEA O International Agreements State C GERALD Auto Emission Standards FEA, DOT, EPA C/O A Auto Fuel Efficiency Tax Treasury, FEA C/DM cuos Rebates to Fishing Industry FEA C Rebates to Nonprofit Institutions OMB 0 Utilities Policy Development FEA C Airlines Situation Domestic Council C Congressional Tax Package FEA C/IM ERC ISSUES, BY LEAD AGENCY 1975 1976 Total FEA 29 (54%) 30 (37%) 59 ERC 6 (11%) 12 (15%) 18 DOI 4 (7%) 13 (16%) 17 OMB 3 6 9 ERDA 4 4 8 DOC 0 5 5 STATE 3 1 4 TREASURY 3 1 4 DOT 1 2 3 EPA 0 3 3 DOC 0 2 2 NRC 1 1 2 FPC 0 1 1 54 81 135 Totals differ from other computations and text because some issues involve more than one Agency and some issues, where lead Agency was not clear, have been omitted. TOAL & GERALD ERC ISSUES, 1976 (January to mid-July) PROGRAM IMPLEMENTATION ISSUES 1. Alaska pipeline welds 2. EPCA implementation issues 3. Natural gas curtailments 4. Nuclear waste management POLICY/LEGISLATIVE ISSUES 1. Clear Air Act amendments 2. FEA Act Extension 3. Post-1980 auto efficiency standards 4. LNG import policy 5. Alaskan gas transport 6. OCS/coastal zone management bills 7. Mineral Leasing Act amendments 8. Synthetic fuels commercialization 9. Administration position on minimum wage legislation 10. Kennedy Conservation Bill 11. Randolph Coal Bill 12. Senate Natural Gas Bill 13. Legislation to protect retail gasoline dealers 14. Private sector role in energy technology development 15. Vertical divestiture bill 16. Surface minining legislation 17. International energy policy issues 18. West-East oil transport ERC ISSUES, 1975 PROGRAM IMPLEMENTATION ISSUES 1. FEMP Multi-Year Action Plan 2. Petroleum and natural gas shortage issues 3. Strip mining regulations 4. Coal mining and leasing 5. Gasoline shortages 6. Consumer Advisory Committees 7. Conservation public education 8. DOT fuel economy improvement program 9. NRC order to inspect 23 nuclear powerplants POLICY/LEGISLATIVE ISSUES 1. EPCA/Omnibus energy bills 2. International energy policy issues 3. Alaskan gas 4. Synthetic fuels legislation 5. EIA legislation 6. Uranium enrichment legislation 7. OCS legislation 8. Oil decontrol strategy 9. Indeflation 10. Natural gas deregulation 11. Auto emission/fuel economy policies 12. Electric utility financing 13. Energy rebates policy 14. Congressional tax package 15. Socioeconomic impacts 16. LNG policy 17. Oil import floor price FORD LIBRAL & EENALD ORGANIZATION OF ENERGY REGULATORY FUNCTIONS Prepared as part of the larger study of organization for Federal energy functions October 1976 GETALD d. FORD LIB NERRA. TABLE OF CONTENTS I. Scope and Purpose 1 II. Issues in the Organization of Energy Regulation 2 III. Regulation in Relation to Other Energy Functions 6 IV. Federal Power Commission 11 V. Regulation by the Federal Energy Administration 17 VI. Other Energy Regulatory Programs 21 VII. Organizational Guidelines and Conclusions 23 A. Co-location of Regulation and Promotion 23 B. Consolidation of Energy Regulation 25 C. Placement of Energy Regulation 26 D. Relation to Other Energy Activities 27 E. Federal Power Commission 27 -i- EXECUTIVE SUMMARY Analysis of the Organization of Energy Regulatory Functions Introduction This report, within the context of the larger study of energy organization, deals with the energy regulatory functions of the Federal government and how they can be most effectively organized. It was prepared in recognition that energy regulatory organization is a complex matter in its own right as well as being a critical factor in total energy organization decisions. As a subsidiary part of the overall energy organization study, this report does not develop final recommendations on organization of regulatory functions. It does, however, analyze and reach numerous conclusions about regulatory organization to be fitted into total energy organiztion recommendations General Findings and Conclusions An overriding issue was identified that permeates energy regulatory functions regardless of what agency currently performs it or the private sector activity to which it relates. That is, how to resolve the dilemma of achieving adequate coordination or responsiveness of regulatory decisions with national energy goals, without improperly compromising the impartiality of regulatory decisions. A corollary question is to examine the validity and applicability of the prevalent injunction that "regulatory responsibility shall not be combined with promotional responsibilities" because they inherently conflict. In organizational terms this overriding issue can be expressed as one of finding the proper balance between independence and accountability of energy regulation in relation to political leadership. The study concludes that it is both possible and proper to distinguish those aspects of energy regulatory programs which inherently need to be sensitive to and reconciled with broad national policy and goals, from those aspects which require apolitical impartiality. Specifically, the rulemaking aspect is closely related to policy and, within the tolerance of legislative mandates, should be subject to coordination by political leadership (as well as developed with full observance of openness requirements of due notice, public hearings, etc.) In contrast, the regulatory aspect of adjudicative decisions concerns the determination of property rights or privileges in specific cases, and should be decided in an impartial due process context free of political influence or even the possible appearance thereof. The functioning of this distinction of what to coordinate and what to isolate works -ii- best when in actual practice reasonably comprehensive and detailed rulemaking is relied upon and case adjudications, therefore, need not become de facto policymaking in the absence of sufficient established policy in the form of publically debated and openly arrived at rules. While rulemaking and adjudication can and should be distinguished, they are dynamically related within a single regulatory program and not readily susceptible to splitting apart into totally separate agencies. (viz.-one independent and the other accountable). The report concludes that any regulatory program which directly impacts major national energy goals, such as those of FPC and FEA, should be politically accountable but should also provide internal arrangements to assure independence of adjudicative actions. The converse does not work. That is, to assign such a regulatory program to an independent commission, and expect that its rulemaking can be held accountable. The report finds that there is valid reason, at this time, to treat NRC as an exception. That is, while it is an energy regulatory program significantly impacting national energy goals, it should not be incorporated into an executive accountable framework, at this time, because such an action could exacerbate, justly or not, the public concern for nuclear safety, and its willingness to accept nuclear power as a major energy alternative. While speaking of NRC, it may be timely here to return to the collateral injunction about joining regulation and promotion under the same administrative hierarchy. The leading example of such a conflict was the old AEC. The conflict in that situation was the chief rationale for separating NRC from ERDA. However, this study finds that AEC was a peculiarly, perhaps uniquely, severe instance of conflict in which a single agency had both roles with respect to a single industry and without balancing responsibility for other matters. Where a wider range of responsibilities is present in terms of competing industries and functions other than regulation, this injunction is far less compelling. In fact, when regulation (rulemaking FORD aspect) is viewed as a tool for implementing broad policy goals, the value of its cross-coordination is evident. On another plane, this review surveyed all Federal regulatory programs which strongly affect the production and marketing of energy, to determine which of them should be considered for organizational consolidation. It was found, partly by reference to an earlier study of energy regulation in 1973, that there are a large number of regulatory programs which affect the energy industry. They range in organizational format from independent commissions (FPC, NRC), to discrete units within -iii- executive agencies (MESA, Pipeline Safety) to incidental concerns of programs whose mission is not directly energy- related per se, (EPA, OSHA, BLM/Interior, ICC). In general, it was concluded that regulatory programs which are alligned directly with a sector of the energy industry as their purpose-for-being should be considered for consolidation in order to permit a less parochial treatment; among other reasons (FPC-gas and electric, FEA-petroleum and NRC-nuclear). Conversely, regulatory programs which are aimed at such non- energy purposes as environment, health and safety and are concerned with energy together with other industries should not be seriously considered for consolidation. Federal Power Commission (FPC) Finally, major attention was given in this study to the question of whether or not the functions of FPC should be incorporated in any prospective consolidated energy agency. Treatment of this issue obviously drew heavily on the analyses reported above. In addition, it is recognized that the issue of continuing or abolishing FPC transcends the field of energy regulation as such, and enters into the historical debate in the American governmental system concerning the role and status of independent regulatory commissions. Any proposal to abolish FPC would inevitably be viewed in this historical and institutional perspective over and above the narrower particulars of the Federal role in energy. It is implicit that the prospect of reassigning FPC's functions (or their residue following deregulation) assumes as a pre- requisite the establishment of some form of consolidated energy agency or Department to which they would be assigned. The report discusses the FPC organizational issue in terms of four propositions as follows: Can FPC be abolished without serious harm? No compelling reason was found, legally or operationally, to preclude its disestablishment. The commission form lends some stability and predictability to the regulated areas, but to the extent these are virtues, they can be achieved without reliance on the commission form, while at the same time, getting away from the well documented difficulties associated with it. Are there positive gains to be achieved by reassigning FPC's functions to an energy agency? It would be difficult to draw up an indictment showing tangible harm to the public interest resulting from FPC's independent status. Too many variables would enter into such a calculation as well as ambiguity in defining the public interest. However, a case can be made as to how actions -iv- and decisions of FPC interact with other Federal energy activities and impact on national goals. Under the present isolated and non-accountable arrangement it is difficult to effect coordination or trade-off assessments where they are legitimately needed. There are also some administrative advantages to incorporating FPC such as the facilitation of a more integrated, non-duplicative Federal energy data system. Are there real alternatives to organizational change in achieving needed improvements? There are possibilities for process improvements within the present arrangement of an independent FPC. Some improvement can be done by administrative action, and others would require legislation. An example is the expediting of actions in process by setting time limits for comments by Executive agencies, or, through legislation, from State and private bodies. However, all these system improvements have only limited potential if, indeed, they can be achieved at all under the present structure. They should be viewed as supplements to organizational change and not as an alternative. If FPC's functions are to be incorporated, how would it be arranged to avoid loss of impartiality where this is important? A separate Administration under a Presidentially appointed, Senate confirmed, Administrator to administer energy regulation and coordinate with related functions and goals. This Administrator would promulgate rules which would be developed to a reasonably comprehensive and detailed state. Case adjudications, however, would be decided initially by Administrative Law Judges who are independent by law. Appeals for administrative relief could be heard by an Appeals panel which similarly is insulated. The foregoing summarizes the main findings and conclusions of this study. Considerably more detailed information and rationale is contained in the full report which follows. Analysis of the Organization of Energy-Regulatory Functions I. SCOPE & PURPOSE OF STUDY This study and staff paper is a sub-part of the general study of the organization of Federal energy and energy- related functions. More specifically, it examines the placement and organizational relationships of energy regulatory functions within the framework of current and major alternative organization for energy and related functions. It was recognized, based in part on earlier analyses, that many Federal programs exercise a regulatory impact on energy actions and decisions by the private sector. For purposes of this study an inventory of all energy regulatory programs was compiled and is shown at TAB A. For convenience, this inventory has been divided into the following three categories: energy regulation performed by independent regulatory commissions; energy regulation performed as a major mission of an executive agency; energy regulation performed as an incident to a mission other than energy. Section II of this paper identifies and briefly describes the principal issues identified and examined in this study of organization for energy regulation. Section III relates energy regulation to the other chief energy functions and describes their mutual interactions in order to identify any pertinent organizational guide- lines for energy regulatory functions vis a vis the other functions. The other functions discussed in relation to regulation are policy formulation, data collection and analysis, energy resource development, and research and development. Sections IV and V take up the regulatory functions of FPC and FEA respectively. The issue of whether or not FPC should be incorporated in any proposed energy agency is a particularly complex and controversial subject. For this -2- reason, an in-depth separate study of FPC was done and its findings and conclusions are incorporated in summary form in this general paper on energy regulatory organization. Section VI surveys the numerous Federal programs which impact private sector energy actions as an incident to a mission which is not primarily energy-oriented. The pur- pose of doing so is to determine whether these programs might be affected by change in energy organization. Finally, Section VII draws from the preceeding sections and recaps any organizational guidelines which may be applicable to the energy regulatory functions. This section is, in general, a response to the issues raised in Section II. II. ISSUES IN THE ORGANIZATION OF ENERGY REGULATION The overriding issue in the analysis of energy regulatory organization is the problem of rationalizing the impact of energy regulatory decisions with national energy goals, while, at the same time, avoiding compromise to the real and apparent impartiality and objectivity of regulatory decisions where this is a valid requirement. In other terms, this issue can be expressed as a search for the proper degree of regulatory independence on the one hand versus regula- tory responsiveness to external coordination on the other hand. Total independence and consequent lack of accountability of regulators who are making significant decisions regard- ing our energy future is not good government. Conversely, complete subservience of regulatory decisionmaking to elective or appointed officials -- legislative or executive -- is also unsound at least in terms of public credibility. The art form is to find that balance or combination in the structural arrangements for energy regulation which will provide accountability and rationalization with general energy goals where that is important and also assure apolitical impartiality where that is important. Numerous subsidiary issues and findings go into the analysis of the overriding issue described above. Some of these component issues which are addressed in the remainder of this paper are: FORD CERALOR -3- 1. Fragmented placement of energy regulation in very different types of organizational settings including: sole purpose of an independent commis- sion, (FPC and NRC) limited part of an independent commission (ICC, SEC), major purpose of an executive agency (EPA, FEA), separate unit within an executive agency (Pipeline Safety in DOT, MESA in Interior) and incident to a major mission other than energy (BLM in Interior). Is there a rational basis for this variety of organizational placements? Is there validity in bringing some or even all energy regulatory programs together. 2. Is regulation inherently and invariably incompati- ble with promotion, prompting a need for organizational separation? If so, what degree of separation is called for? Conversely, is this injunction to "separate" regu- lation and promotion a situational thing that has validity or not depending on circumstances? This issue immediately invokes the old AEC situation in which a single Federal agency was charged with fostering and, at the same time, regulating a single industry. Both the President and Congress recognized that this was unsound, and it has been changed with the creation of ERDA and NRC. In the process the regulate/promote conflict of interest within one agency received very prominent attention and has achieved status as a virtual principle of governmental organization. The findings, however, tend to reveal this "principle" as an over-simplification which has validity only when applied selectively. 3. It is striking to note the unevenness with which sectors of the energy industry are subject to regulation. Gas, hydro-electric generation, interstate electric trans- mission are all subject to rate regulation and to licensing and permitting of facilities (and, therefore, to health, environment and land-use prior approvals). Nuclear power is subject to Federal permitting of sites and other restraints with major concern given to health, safety and environmental factors, but is not subject to rate regula- tion. Petroleum is subject to price control and some control of the internal structure of the industry but is not subject to Federal prior approval of facility siting, except as it may affect public lands. Coal is subject to neither price control nor facility siting approvals, again except as it involves public lands. -4- These varying levels or degrees of regulation among competing energy industries is governed in the first instance, of course, by statutes. However, it does not appear to be rational. Whether or not this dis- parity is a problem, in fact, and the relationship to deregulation is touched on later although this tends to go beyond the scope of this study. Of more direct interest is whether or not this "unevenness" of regulation among the energy sectors which is charged to a range of separated agencies has a clear organizational implication.. 4. Regulatory programs, like any other Federal program, should meet the highest possible standard of efficiency and effectiveness. While the system has factors built in which complicate this objective, e.g., openness, due process, impact statements, etc., these factors are part of the process for good reasons and must be accommodated. Efficient and timely regulatory actions are important beyond the internal bureaucracy because they affect the willingness and ability of the private sector to play its role in the national energy system. For example, excess- ively long processing time for completing action on an application adds to the cost of industry performance and increases the risk of capital investment. This paper cannot thoroughly address the problem of regulatory efficiency, but that subject is viewed gener- ally to ascertain what, if any, organizational implica- tions it may contain. There is some question, for example, whether management process improvements as an alternative to organizational change can rectify problems in energy regulation. Conversely, it may be that present organiza- tional arrangements make real process improvements very un- likely to occur. 5. Both the efficiency aspect and the lack of jurisdiction of any one regulator in the present arrangement to look across competing energy sectors give rise to the concept of a single energy regulatory body. Such a body has been thought of by various observers as either, in theexecutive mode or, organized as an independent regulatory commission. This super energy regulator concept was analyzed quite thoroughly in 1973 and found to be neither feasible, desirable nor politically saleable. However, in the light of the current analysis of overall energy organization, this concept is again explored. 6. Should the FPC be continued as an independent commission or should its functions be reassigned to an executive agency responsible for Federal energy programs in order to assure greater consistency of gas and electric regulation with other Federal energy objectives. The same question -5- applies also to the NRC. This issue unavoidably invokes historical and theoretical questions of general government organization and legislative/executive relationships that go beyond the specifics of FPC, NRC and their functions. However, while general historical and theoretical issues become involved, the answer with respect to FPC and NRC must ultimately be resolved in terms of those respective programs and the energy situation to which they relate. Lessons learned in reviewing the alternatives of continuing or discontinuing FPC and NRC cannot be directly transposed to other regulatory program areas such as communications or transportation. In resolving the FPC and NRC issue, there are a number of sub-issues to examine: Are there any tangible needs in the regula- tion of natural gas, electricity, or nuclear power which intrinsically require the commis- sion form with its multi-member, fixed-term, bi-partisan form? Do FPC or NRC actions impact on the attainment of the nation's energy goals and, if so, is this impact adequately weighed? What actions or decisions do FPC and NRC take which, by their nature, require independent judgment which is uninfluenced by political factors and is seen as such by the public? Are there any clear instances in which serious damage to the public interest has occurred because decisions of the FPC or NRC were either contrary to openly and responsibly arrived at nation policy or goals - or were inappropriately influenced by partisan politics, or special interests. Are there any activities performed by FPC or NRC which are essentially executive functions and which relate closely to or duplicate comp- arable activities in executive agencies? Possible examples: the FPC data collection work and the NRC radiation standards work. -6- If the FPC functions were reassigned to an executive agency it would tend to increase coordination between regulatory actions and national energy policy. What steps could be taken to offset the possible disadvantage of such a transfer and particularly the prospect of politicizing regulatory decisions improperly? These steps would relate, among other things, to organizational placement, authority delegation patterns, appointmen t and removal of regulatory decision-makers, and the separation of rulemaking and adjudication. III. REGULATION IN RELATION TO OTHER ENERGY FUNCTIONS Regulation of the energy industry affects, and is affected by, other governmental approaches to energy matters such as energy policy formulation, data collect- ion and analysis, energy resource development, research and technology development, and energy conservation. In some cases, these mutual effects of regulation and other functional approaches to the Federal energy role are supplementary and may go toward the same objectives. In other cases, the effect of regulation may be in conflict with other governmental efforts. Either way, whether regu- latory actions are compatible or incompatible with other Federal energy policies and actions, these mutual effects tend to be somewhat obscure or not self-evident. For this reason and because they are often not subject to common direction or guidance, these important interactions are not fully recognized and addressed. This is particularly true when the regulatory power is vested in an independent commission. Many observers would state that this isolation of regula- tion from interacting programs is normal and proper - i.e., that the regulatory power should be exercised independent of any coordinative hierarchy and that only in this way can regulators be free to evaluate equities and impartially decide issues in a due process atmosphere. Without commenting for the moment on this issue of the need and desirability of regulatory independence, the pur- poses of this section of the report are to reveal in summary form the ways in which energy regulation can and does mutually interact with other energy functions, and to identify any organizational consequences which follow from these interactions. -7- Regulation in relation to policy formulation and coordination The power to regulate is, de facto, the power to make, or at least strongly influence policy. This applies both to regulatory rulemaking and to the aggregate effect of regulatory adjudications which are made in an area ungoverned or little governed by general rules. Examples in the energy field include the power of the NRC to influence the rate of introduction of nuclear power gener- ation based on the standards they set or their handling of specific plant siting applications. Again, the FPC influences the rate of exploration and development of natural gas by the energy industry through the rulings they make on gas prices under their jurisdiction. Thus the power to make policy through regulation coupled with the idea of regulatory independence constitutes an organizational dilemma. From the point of view of Presidential leadership and accountability, there is a strong motivation to reduce the independence barrier so that regulatory impacts on overall trends in the production and distribution of energy are compatible with national policy goals and non-regulatory program actions of the incumbent Administration. At the same time, there is a well-recognized need to assure and to visibly demonstrate that regulatory actions, especially case adjudications, are not unduly influenced by the political process even in the general sense and certainly in the partisan sense. It is largely for this reason that regulatory powers, as in the case of NRC and FPC, have often been assigned to independent bi-partisan commissions. There may well be some organizational arrangement that can better serve the need to integrate regulatory effects which are de facto policy with politically responsible policy- making (Congressional and executive) without impairing the impartiality needed in specific regulatory actions which center on determination of equities and assurance of due process. This dilemma - i.e., reconciling the need for regulatory independence with the need for consistent governmental policy is examined further elsewhere in this paper as a major issue. -8- Regulation in relation to data collection and analysis Regulators need data on two levels. First, they need broad data and analyses to understand as well as possible the industry segment they relate to, and its place in the total economy both currently and as projected. FPC regu- lators in the natural gas field and FEA regulators in the petroleum field, for example, must understand the dynamics of their respective industries, how each can contribute now and in the future to our total energy needs, and how alternative actions on their part are likely to effect the picture. This involves a need for both basic data and analyses. Secondly, on a different level, regulators often need more company-specific data as one of their principal tools of enforcement. Regulatory programs, such as the FEA petroleum programs, which are enforcement-oriented and are deeply involved in the internal functioning of the petroleum industry have a major need for data at the level of trans- actions occurring within specific companies. Organizationally, the broad analytical data needed by regulators including information on the nation's energy system and the general economy clearly should be shared, with major parts of it provided through an integrated, if not consolidated, data system outside of the regulatory structure. This avoids duplication, excessive reporting burden and promotes consistency and comparability of data. The more specific enforcement related data, where needed, is an area in which regulatory managers, as in FEA, express a need to have close contact with the data collection process and to participate in its planning so that their needs will be understood and served. However, it would appear logical that the data collection planning and operation should not be directly under control of the regulators since their assessment of need could easily become excessive. It would appear that placement of data collection and regulation in the same agency, but under separate direction would serve both needs, i.e., close access to assure responsiveness of the data system but separation to avoid having the regulators (or other users) dominate data collection decisions. -9- Regulation in relation to research, development and demonstration The Federal role in energy RD&D is essentially catalytic. That is, the Federal effort is aimed at perceiving the need for new or improved energy technology and assuring that it is developed and introduced into the market-place by private initiative. The role is to do what must be done and will not occur through natural forces, but to leave off as early as possible in favor of the private sector with technical assistance and financial incentives as needed to help effect the hand-off. The regulatory process can be quite influential in this RD&D stimulation by affecting the point at which private sector initiative "takes over.' This is true most partic- ularly in regard to price setting which can have a depress- ing affect on the introduction of new technology. Excess- ively tight limits on price, for example, can reduce the incentive for private risk taking in the form of investing in unproven technology. Another way of looking at regula- tory powers in relation to technology development and commercialization is to see the price mechanism as an alter- native to either tax policy or direct financial assistance. These theoretical alternatives cannot be realistically evaluated against each other unless there is some coordina- tive authority which spans all of them. Another relationship between regulation and R&D became clear in the course of this analysis. That is, R&D managers in the government energy programs attribute great importance to the fostering of cooperative relations with their private sector counterparts. This is consistent with the idea of pooling information and diffusion of emerging technology subject to the usual rules of competition. The R&D managers fear that any organizational merging of regulatory responsi- bilities with technology development responsibilities will cause their private counterparts to withdraw from the mutual cooperation mode. They do not want to participate in the development of something which will be used against them. This injunction probably has most meaning in relation to regulatory programs which are aimed at protecting health, safety and the environment rather than at economic regulation. The historical association of nuclear development and nuclear regulation in the old AEC is an example and the one that occurs most frequently and strongly to the R&D managers. -10- Regulation in relation to energy resource development This is an important relationship in which opposing interests are likely to occur, and the effects of these programs can be mutually contrary. The goal of energy resource development is clear -- increasing the domestic supply of energy. Regulatory power applied to the energy industry is usually aimed at other purposes such as restraining prices, controlling entry, protecting health, safety or the environment. These other purposes quite consistently have the effect of holding down increases in energy supply. (Coal conversion by regulatory order is an exception - it shifts demand from petroleum to coal and thus has the effect of increasing domestic supply.) It is not the purpose of this paper to choose between the conflicting goals of energy supply development and those of FPC, NRC, EPA, MESA or others. Each of these regulatory programs have statutory mandates to be observed. The point is to show how pursuit of narrow mandates, especially if done in the relative isolation of independent status, can make it difficult to balance regulatory decisions aimed in that particular direction with all of its collateral effect on other goals, including energy supply development. The fact of basic conflict between energy supply develop- ment and the several purposes of energy regulatory programs lead some observers to conclude that these responsibilities should not be assigned to the same agency for fear the regulatory purposes will be given short shrift (or perhaps the drive to increased energy supply will be muted) Certainly both cannot be merged into a single program. There is, however, a credible possibility of assigning both to the same agency but separated therein for individual attention to each. This would require that the balancing be performed at some higher level, most likely the agency head. Each would be modified by the other and regulatory actions would be more sensitive to energy supply consider- ations without being dominated by them. Whether or not the regulatory functions are in the same agency as supply development, several actions can be taken to narrow the gap. The ERD staff can appear as intervenors in selected proceedings of the FPC, NRC, ICC and State regulators to introduce views on how the pending action affects energy supply for the -11- nation, region, or a particular market area -- and how the decision relates to other specific Federal actions. Submit comment on proposed regulatory rule- makings from the point of view of supply development. IV. FEDERAL POWER COMMISSION This section of the report describes briefly the functions and programs assigned to FPC and discusses the merits of their alternative possible organizational placement in an executive agency. Since this issue is of unusual importance and complexity, a separate in-depth report on FPC has been developed. This section draws upon that report substantially and adds other considerations particularly bearing on the organizational status of FPC and its functions. 1. Description of FPC programs FPC's responsibilities under the Natural Gas Act give it important influence over natural gas production, distri- bution and pricing. Its responsibilities under the Federal Power Act give it important influence over the generation of hydro-electric power (non-Federal) and the interstate distribution and pricing of wholesale electric power. FPC's responsibilities in both natural gas and electric power has distinct limits as described below, but its position at the national level tends to give its action influence beyond its formal charter. For information purposes, the FPC programs are divided into three areas and described below: (1) hydro-electric licensing, (2) interstate wholesale electric rate setting, and (3) natural gas regulation. A. Hydro-electric Licensing 1. Program The Federal Power Act requires the FPC to issue preliminary permits to study and grant licenses to construct, operate and maintain non-Federal hydro-electric projects on waters or lands of the United States or otherwise subject to the Com- mission's jurisdiction. (Federal hydro-electric projects are not licensed by FPC: - e.g., TVA, Corps of Engineers, Bureau of Reclamation.) FOR GERALD -12- The Federal Power Act prescribes a maximum license term of 50 years, at which time a new license must be issued, possibly to a competing applicant, or the project may be taken over by a Federal agency other than the FPC, such as Bureau of Reclamation or Corps of Engineers. During the entire physical life of the project, the FPC is required to continue to exercise jurisdiction over proposed changes in project facilities, project operations, project land holdings, project land and water uses, public access, transfers of licenses, surrenders of licenses, collection of headwater benefits pay- ments, and inspection of projects for safety and adequacy. The ultimate decision includes making a final decision in areas where the Commission has requested comments from other Federal, State and local agencies, generally relative to siting, emissions, and effluents, and safety. Interior, EPA, and Agriculture are major Federal coordinants. The FPC decides if a proposed project is the best adapted (use) for the portion of the waterway proposed to be affected. The FPC decides if the development should be made by the Federal government, i.e., Bureau of Reclamation or Corps of Engineers. The FPC must find that the applicant is able to finance the project, that there is an exist- ing market for the power, that the applicant's (utility) system needs the type of generation being proposed, and that the project is econ- omically feasible (will recover its costs). These findings require consideration of con- tinued economic viability of the applicant; limitation of costs to those necessary, there- by giving the consumer the best available service at the lowest possible price; the need for the use of the resource; and the use of the resource in the most efficient and effective manner. -13- The FPC must decide whether the mechanical and structural proposals are engineeringly sound and safe. The FPC must find provision for sufficient public recreational use of project lands and waters. The FPC must find sufficient mitigation for environmental damage done by construction, maintenance and operation of the project, thereby balancing environmental concerns and the need for power. The findings or determinations of the Com- mission are a prerequisite to the location, entry or selection of lands of the United States which have been withdrawn for water power purposes. 2. Status The hydro-electric licensing program (Part I of the Federal Power Act) is staffed by 200 people. This number includes all support staff Commission- wide such as technical experts, attorneys, clerks, administrative programs staff, etc. The total direct cost of the program in 1975 was $5,360,134. The FY 1975 on hand applications covering all areas of jurisdiction under this program were 520; 118 applications were received during the year and 143 completed, leaving 495 pending at year end including a mix of problems including incomplete applications, applications awaiting comments from other agencies, applications assigned a low processing priority due to staff limitations, and cases in which it became necessary to order a hearing. Reviews and comments by other agencies along with applicant reluctance, legislative requirements imposed by statutes other than the Commission's enabling legislation (e.g., Endangered Species Act, the various Rivers and Harbors Acts, Environmental Policy Act), and, in some instances, substantial resistance to the proposal by inter- venors representing special interest groups, combine to create extensive delays on may applica- tions. This is partly because there is an absence of legislation or regulations which place a time limit on reviews by agencies other than the licensing agency. -14- 3. Federal and State Relationship The Commission has extensive coordination mechanisms with Federal, State and local agencies. This coordination has come about due to requirements of the statute FPC Regu- lations under the Federal Power Act, or informal coordination agreement at the staff level. It has been the FPC experience that processing of applications is often slowed due to delays by commenting agencies. It should be noted that even if not required to obtain agency comments, the FPC is desirous of receiving comments from the agencies as to how the particular proposal may affect their overall program. This information, representing part of the public interest, is then balanced against information from other agencies managing other programs. FPC technical staff gives the Commission its independent technical assessment of the application and the views of the comment- ing agencies and then the Commission makes its decision based on full and complete information as to how all the aspects of the proposal interact. B. Interstate Wholesale Electric Rates and Corporation Regulation 1. Program Description The Federal Power Act requires the FPC to regulate rates and services of public utilities selling electri- city in interstate commerce at wholesale. The FPC prescribes accounting systems and reporting procedures for interstate power companies. The FPC impacts 15-20 percent of the interstate electric sales. (The other 80-85 percent includes retail and statutorily exempt sales, which may be in whole or in part regulated by a State agency, depending upon the State agency's legislative mandate.) The FPC impacts State ratemaking bodies through its having been recognized as a leader in the area by the National Association of Regulatory Utility Commissioners, an association of national (FPC, FCC, ICC, etc.) and State ratemaking bodies. -15- The FPC coordinates with the Department of Justice and as applicable the Nuclear Regula- tory Commission in matters of anti-trust. The FPC regulates certain issuances and sales of securities by electric public utilities and the merger or consolidation of such utilities. In this connection, it coordinates with the Securities and Exchange Commission. The FPC regulates the holding of interlocking directorates between electric public utilities and electric supply companies or companies authorized to underwrite securities. The FPC, in coordination with the Department of State and Department of Defense, authorizes exportation of electricity into a foreign country and issues permits for maintaining facilities at international borders for transmission of electric energy between the United States and a foreign country. 2. Status The regulation of interstate wholesale electric sales and corporate regulation program required 289 people in FY 1975. This number includes all support staff Commission-wide such as field auditors, technical experts, attorneys, and supporting personnel. The total direct cost of the program in 1975 was $8,194,444. FY 1975 on-hand applications covering all areas of jurisdiction under this program were 1,027; 3,580 applications were received during the year, and 3,848 completed, leaving 759 pending at year end. The cases pending at year end include a mix of problems including incomplete applications, applications assigned a low processing priority due to staff limitations, cases in which it became necessary to order a hearing, etc. 3. Federal and State Relationships Under this program, the FPC coordinates with the Department of Justice and NRC on questions of anti- trust. Further, the FPC's expertise is heavily relied on by the State ratemaking bodies both in the individual cases and through its leadership in the National Association of Regulatory Utility Commissioners. -16- C. Natural Gas Regulation 1. Program Description Contrary to the common perception, FPC is responsible, under the Natural Gas Act, for more than rate setting for natural gas. The FPC is required to issue certificates of public convenience and necessity for the construction and operation of interstate pipelines and storage facilities including Liquified Natural Gas and Synthetic Natural Gas. The FPC passes on pro- posals for allocation of limited supplies of natural gas, for both curtailment of service and special relief to a particular user or group of users. The FPC's permission must be obtained before service through a certificated pipeline can be discontinued and the facilities can be discontinued and the facilities abandoned. The Natural Gas Act also requires the FPC to regulate the price of gas bought and sold in interstate commerce. The FPC, through certifi- cate and price regulation, regulates sales of natural gas from the producers to the interstate pipeline companies to local distributors. The FPC may direct interstate pipeline companies to sell gas to local distributors. The FPC authorizes the import and export of natural gas and issues permits for maintaining facilities at international borders for import and export. 2. Status (1). The certification activities of the Commission under the Natural Gas Act required 330 people in FY 1975. This number includes all staff such as field auditors, gas supply analysts, attorneys, and supporting personnel. The total cost of the program in 1975 was $8,851,924. FY 1975 on-hand applications were 3,484. 2,453 were received during the year, and 1,217 completed, leaving 4,720 pending at year end. The cases pending at year end include a mix of problems including incomplete applications, applications assigned a low processing priority due to staff limitations, and cases in which it became necessary to order a hearing. -17- (2). The regulation of interstate wholesale gas rates program required 265 people in FY 1975. This number includes Commission-wise support staff such as field auditors, attorneys, clerical, etc. The total direct cost of the program in 1975 was $6,378,709. FY 1975 on-hand applications in this area were 5,017, 14,722 applications were received during the year, and 15,292 completed leaving 4,447 pending at year end. The cases pending at year end include a mix of problems including incomplete applications, applications assigned a low proces- sing priority due to staff limitations, and cases in which it became necessary to order a hearing. 3. Federal and State Relationships The gas facility certification responsibilities of the FPC, like the hydro-electric cases, require coordination with other Federal agencies. Primary agencies are Interior, Forest Service, and DOT. Those contacts are generally related to siting, emissions and effluents, and public safety. As the agency with certification responsibility, the FPC may accept or make more stringent the recom- mendations of DOT/Pipeline Safety with regard to a particular natural gas pipeline. The rate regulation portion of the FPC's juris- diction under the Natural Gas Act does not require coordination with Federal or State agencies, although State ratemaking bodies are notified of a proposed rate increase affecting their State, and the FPC is a leader in the National Association of Regulatory Utility Commissioners. V. REGULATION BY FEDERAL ENERGY ADMINISTRATION FEA was born out of the oil embargo -- energy crisis of 1973, and largely involved the exercise of regulatory power on an emergency basis, to cope with the sudden curtailment in the supply of crude oil and petroleum products. In effect, FEA started as a regulatory agency. While regulatory programs are still important functions, they have been supplemented by numerous other energy functions assigned by law and aimed at longer-term objectives. -18- The FEA regulatory programs in the area of petroleum were hastily implemented at the time of the shortage in order to (a) assure equitable and priority distribution of the limited available supply; (b) control inflation and prevent excessive profit, and (c) assure the continued competitiveness and economic viability of small and independent refiners and suppliers. FEA regulatory programs for petroleum price control and allocation is sub-divided into the following programs: 1. Mandatory Petroleum Price Controls Producers: The first-sale price of all domestic- ally produced crude oil (except crude oil from stripper wells) is computed in accordance with FEA regulations. This sale price cannot exceed the maximum allowable price per barrel of crude, that was established in the authorizing legislation. Refiners: FEA regulates the unit prices refiners charge their customers for certain petroleum products to assure it does not exceed the lawful May 15, 1973 unit price levels (except for certain allowable pass- through cost increases, such as rent, insurance, etc.). Resellers/Retailers: This program is essentially the same as described above for refiners, except of course at a different level in the petroleum distri- bution chain. Natural Gas Liquids (Propane, Butane, and Natural Gasoline) : This program is designed to reduce the disparity between the controlled prices of natural gas liquids derived from petroleum. FEA authorized a price increase for propane, butane, and natural gasoline produced from natural gas thereby encouraging greater production of these products from non-petroleum sources. 2. Mandatory Petroleum Allocation Buy-Sell: Small and independent refiners, which historically depended on the large oil companies for crude oil feedstocks, are assured access to a supply of crude oil through the requirement that each month specified quantities of crude oil must be made avail- able by the major oil companies for sale to non-majors. -19- Domestic Crude Oil Entitlements: As a direct result of the embargo and subsequent price increases for imported oil, certain refiners (usually majors) gained a competitive advantage by having access to large quantities of lower cost (price controlled) domestic crude. Rather than the physical redistribution of crude among refiners, the program requires payment of money from those refiners with the domestic feedstock advantage to the small, independent firms who are heavily dependent on imported supplies. Refined Products: This program is designed to assure equitable distribution of decreasing supplies of refined products between wholesale purchaser resellers. wholesale purchaser consumer, and users. The pro rata distribution share is based on the quantity of such products historically purchased from suppliers. Canadian Crude Oil: Domestic refiners heavily or totally dependent on the decreasing quantities of crude oil being exported to the United States by Canada are allocated an amount of such crude oil determined by evaluating the refiner's capability to replace the oil and the extent of his dependence on this oil as a source of supply. (Full phase-out of crude oil exports by Canada is expected around 1981.) None of FEA's enabling petroleum regulatory legislation requires on-the-record formal rulemaking or adjudicatory proceedings, as such proceedings would be at variance with the emergency nature of FEA's regulatory programs. Its regulations are promulgated after informal rulemakings are administered. A variety of orders can be issued under the petroleum regulations, but most of the orders are in response to applications for exception to the regulations. The exceptions process is FEA's primary instrument for administering the mandatory, self-enforcing petroleum price and allocation regulations. However, none of FEA's orders are issued through formal adjudicatory proceedings. The petroleum programs, as noted, were instituted to help the nation and the petroleum industry cope with the oil shortage suddenly imposed in 1973. However we no longer have this situation and the Administration has attempted to end these controls ahead of the statutory FORD schedule by which they become non-mandatory in 1979. ANLO -20- In spite of the transition from a condition of product shortage to one of surplus, Congress has blocked most amendments proposed by FEA to decontrol petroleum and petroleum products. In addition to the above emergency-oriented regulatory programs dealing with petroleum pricing and allocation, FEA now has some other regulatory programs which are broader in purpose and longer-term. These are: Mandatory Oil Imports: This program was implemented in 1959 by the Department of Interior to promote domestic exploration and refinement of petroleum. It requires that any person importing petroleum or petroleum products purchase a license and pay fees of 21 cents per barrel for crude oil and 63 cents per barrel for finished or unfinished petroleum products to the U.S. Treasury. Strategic Petroleum Reserve: The purpsoe of this program, which is not truly a regulatory program at this stage, is to minimize the economic impact of curtailed oil imports, and also to deter the use of such curtailments as political weapons in the future. An initial reserve of 150 million barrels by December 1978 is scheduled, with longer range plans for stock- piling up to 1 billion barrels. Although the program presently is not regulatory, it would become regula- tory under an embargo or other shortage situation which would require emergency distribution of the reserve. Coal Utilization (Coal Conversion): This program has long term implications, associated with both energy resource development and energy resource conservation matters. The program will conserve natural gas and petroleum products by prohibiting certain existing and proposed powerplants/major fuel burning installa- tions from using such products as their primary energy source. Instead, these powerplants and facilities will be modified (existing) or designed (proposed) to utilize coal. The resulting increase in the demand for domestic coal supplies will help accelerate development of domestic coal reserves. Finally, FEA employs regulatory power to a degree in some of its energy conservation. These programs are discussed in the issue paper dealing with Federal conservation of energy programs. -21- Organizational Placement of FEA Regulatory Programs FEA's regulatory programs can be seen as means to achieve energy goals much more so than activities aimed at assuring equity, due process, and non-partisan objectivity in the awarding of rights and privileges or imposing of conditions on the exercise of those rights. They are tools for the achievement of policy objectives, and attempts to move the industry in certain directions (or prevent movement in undesired directions) more so than efforts to restrain the industry from producing side effects such as unacceptable pollution or health and safety hazards. These perceptions of the FEA regulatory programs argue for their placement in a way that enhances their responsiveness to overall energy goals. The informal, non-adjudicatory approach of FEA regulatory programs, as well as their placement in an executive agency concerned with overall energy policy, allows for them to be more readily adjusted (within the omits allowed by law) to meet ever changing energy supply and demand shifts. Whether these fluctuations are the result of changes in technology, the general economy, international affairs, new statutes or other causes, the regulatory aspect of Federal energy programs must have the flexibility to adjust accord- ingly, and to do so in harmony with overall policy assess- ments. VI. OTHER ENERGY REGULATORY PROGRAMS Many other Federal programs and agencies exercise a regula- tory impact on the energy industry besides FPC and FEA which was dealt with in the preceding chapters. Some of these have an explicit and obvious energy relationship such as the NRC. Others are less evident, but may have a considerable influence on energy matters. Examples of less evident regulatory impacts on energy are those exercised by EPA in pursuing its responsibilities for clean air, or Bureau of Land Management/ Interior as an incident to administering the public lands. Nuclear Regulatory Commission The NRC was established by the Energy Reorganization Act of 1974. It is responsible for all the regulatory and licensing functions of the former Atomic Energy Commission which was abolished by the 1974 legislation, and is the Federal agency responsible for the regulation of nuclear power generation. -22- Major NRC Program Functions are as Follows: Nuclear Reactor Regulation. Assures adequate safety, environmental protection, and safeguards in the issuance of reactor licenses. Standards Development. Produces engineering standards for siting, fuel cycle facilities, safeguards, trans- portation and product safety standard development. Inspection and Enforcement. Conducts nuclear powerplant safety inspections including the issuance of construct- ion permits and operating licenses. Also conducts safety inspections of fuel cycle facilities and nuclear materials. Nuclear Material Safety & Safeguards. Performs a safe- guard licensing program devoted to waste management and the development of generic environmental impact statements for consumer products which contain nuclear material. Nuclear Regulatory Research.. Conducts research on reactor technology and in nuclear related health, environment, fuel cycle and safeguard areas. There are some significant reasons to consider incorporating the NRC functions in an executive branch energy agency if such an entity is formed. Doing so would broaden the basis for nuclear regulatory decisions by permitting them to be weighed competitively with fossil fuel, hydro-electric or other energy forms. In addition, nuclear export decisions with their strong international implications would be appropriately subject to Presidential control. On the other hand, there are very compelling reasons for leaving NRC in its present status as an independent commission at this time, regardless of any consolidation of energy functions that may take place. Public concern over nuclear safety is so great that tampering with the independence of nuclear regulatory decisions would seriously undermine public acceptance of nuclear power at this time. Transfer to an executive agency advocating energy development would be perceived by many as a deliberate attempt to weaken govern- mental concern for nuclear health and safety in favor of energy development, thus potentially eroding public confidence in nuclear power and further exacerbating anti-nuclear sentiment. -23- The critical need to have Presidential control of export decisions for nuclear material and hardware as part of his constitutional responsibility need not depend on organizational merger of NRC. Instead, it can be achieved by change in the existing law in any of several ways such as giving the President ultimate authority to approve or disapprove of nuclear export decisions similar to his authority over CAB decision on overseas air routes. A number of other regulatory programs which have an influence on energy are inherent parts of other missions. Examples are: (1) pipeline safety which is related to the transporta- tion safety mission of DOT, (2) worker safety at OCS drilling sites which are part of the OSHA mission within Labor Depart- ment, (3) miner safety as part of MESA, (4) pipeline rates set by ICC as part of its rate regulation of interstate commerce and (5) right-of-way permits for electric trans- mission lines across public lands as an incident to BLM's trust management responsibility, and (6) environmental review of energy facilities by EPA. It is difficult to see how these regulatory tasks which are aspects of non-energy missions, but which affect energy in part, can be excised from their present placement to any advantage. This conclusion is reinforced when the program in question has an objective which may operate contrary to energy development, as in the case of programs aimed at safeguarding health, safety and the environment. VII. ORGANIZATIONAL GUIDELINES AND CONCLUSIONS This section attempts to respond to the issues in energy regulatory organization which were identified in Section II. To do so, it draws on information developed and summarized in Sections III, IV, V, and VI. A. Can Regulation and Promotion be Placedin the Same Agency? Yes. If the right circumstances exist, it is not only acceptable, but positively desirable to do so. Undoubtedly, serious internal conflict existed in the assignment of nuclear safety regulation as well as nuclear development and promotion in the old AEC. If that arrange- ment had not been broken up in 1974, it would be even -24- more urgent business today in the light of heightened public concern for nuclear safety. However, the same combination of ingredients which existed with AEC is by no means present in each current or potential combination of regulation and development within a single agency. The AEC combination or circum- stances involved the following features: A single agency relating to a single industry which was and is trying to become competitive with other energy industries. The single agency for nuclear affairs had no off- setting concern for other subjects or industries thus creating an unmitigated advocacy relationship between the regulator and the regulated industry. The agency in this narrowly focussed advocacy relationship was subject to minimal accountability in view of its multi-member, bi-partisan, fixed term format. (Although it is true that AEC was less independent than other regulatory commissions then and now.) The aim of the regulatory program, i.e., assurance of nuclear safety, tended to conflict with the aim of the development program, i.e., make nuclear power competitive as rapidly as possible. While the two major purposes of AEC were internally organized quite discretely from each other, both were governed by the same decision-makers. In the case of the regulatory program, this applied to both rule-making and major adjudications. In contrast to the AEC situation in which naturally conflicting interests were unlikely to receive balanced consideration, other potential combinations of regulatory power with develop- mental responsibilities can be fully acceptable and, in fact, highly desirable. This would apply when: They are placed in an agency which has responsibilities ranging over several or all energy sectors thus removing the potential bias over any one, i.e., not a one-for-one relationship. -25- The agency has a range of responsibilities in the energy and perhaps natural resources fields going beyond regulation and development. Data, policy, R&D, conservation, etc. In this way, top manage- ment of the agency has a multiple perspective on the energy subject, can see the interations among these approaches and can provide balance in their usage toward achievement of national goals. The regulatory responsibilities themselves are not directly in conflict with development goals. Generally, as noted earlier, regulatory power aimed at health safety and environmental safeguarding con- flicts with development and can appear to outside observers to be biased. Other regulatory programs, however, can involve a use of regulatory power in ways that are compatible with energy goals. To do this effectively requires coordination not separation. The regulatory program is internally placed within the agency in such a way that the adjudicative decisions are protected from undue influences while the regulators are brought into the overall policy formulation and implementation process. How this can best be done is discussed further in the sub- section dealing with FPC. B. To What Extent Should the Many Programs that Regulate Energy be Consolidated? The fagmentation of energy regulation and the uneveness with which the various energy sectors are subject to regulation suggests the desirability of organizationally merging some or all such programs. Doing SO would permit a better opportunity to deal equitably across all sectors and remove any tendency for regulators over a single sector to favor that sector. Of course, this leveling effect would require changes in the present laws in order to be fully effective, but the need for legislation could be analyzed better and presented more convincingly if the various sectors were subject to the same regulatory program. This unification of regulation, according to Administration policy, would be in the direction of deregulation so that regulation of oil, gas, hydro, coal, etc. would be subject to an equitable but lower common denominator of regulation. -26- The potential advantage in bringing together regulatory programs applicable to the various energy sectors does not involve what were described earlier as mission-related regulatory programs. These latter are not set up to relate to a given energy sector, but pursue other objectives such as minor safety, environmental protection, or interstate transportation. Taking those regulatory programs which are directly related to energy industries as such, there is strong reason to consider consolidation of oil regulation - FEA, gas - FPC, and hydro - FPC. Coal is subject to very little direct regulation. While there is significant reasons to include nuclear regulation, the counter- vailing reasons to leave NRC undisturbed at the present time is very compelling as discussed in Section VI. C. To the Extent Energy Regulation is Consolidated, How Should it Placed Organizationally The prime energy regulatory programs, if they were to be consolidated, could theoretically be organized any of several ways. (1) as an independent energy regulatory commission essentially outside the Executive Branch, (2) as an Executive Branch, single administrator energy regulatory agency, or (3) as an energy regulatory unit within an overall energy department or agency. Overall it appears that the last of these has the greatest merit if done properly. The independent commission approach would have all the difficulties inherent in the multiple-headed commission format which are well documented. In addition, the independence feature is a weakness to the extent that regulation of energy needs to be effectively coordinated with other federal approaches to the same subject. This factor is discussed in various ways elsewhere in this report. The separate energy regulatory agency within the Executive Branch and with a single administrator would avoid the major weakenesses of the independent commission format. However, it would appear logical that coordination can be most effectively realized if energy regulation is performed within the same agency and subject to common policy review by the same agency head. Appropriate steps should be taken in such an event to protect the objectivity of adjudicative actions as discussed in the forthcoming sub-section relating to FPC. -27- D. Relating Energy Regulation to Other Federal Activities in the Energy Field Section III of this report pointed out some of the many interactions between Federal programs which regulate the energy industry and those which effect energy in other ways. Their impacts can be supplementary, or, at times, contrary and perhaps counterproductive. e.g. prices held to a regulated level which inhibits the commerical introduction of new technology because of lack of margin for risk taking. These interrelationships of the regulatory function can be surfaced and consciously dealt with if both functions are located in the same agency as in the case of petroleum regulation by FEA. However, when regulation is separated in a separate agency, especially where there is little accountability as in the case of FPC or NRC, there is little prospect that these interactions will be recognized or dealt with. This analysis, therefore, supports the conclusion that it is disadvantageous for energy regulatory functions to be completely disconnected from other functions in the energy field. E. Should FPC be Disestablished and its Functions Reassigned to a Consolidated Energy Agency such as the Department of Energy or Department of Energy and Natural Resources Concept? This very important question can be rephrased for analyt- ical purposes into four questions: Can FPC be abolished without giving up too much? Is there real gain in doing so? Are there any reasonable alternatives that would be better than reorganization? How could functions best be organized if FPC were abolished? Note: The discussion of transferring FPC functions and abolishing FPC assumes an organization to which they would be sent. While present day FEA could be a recipient agency, a stronger base would be the prospective energy agency represented by either the DOE or DENR alternative. -28- Can FPC be Abolished Without Harm? No compelling reason, either legally or operationally, was identified for continuing the FPC as an institution. Assignment of functions to FPC, beginning in 1921 with the hydroelectric work, has been more historical than rational. The multi-member leadership feature helps provide a degree of stability which, from another perspective, might be described as rigidity. It is probably true that the commission form lends something to the adjudicative decisions, if not the rule-making, of FPC. However, other arrangements can be made for adjudications with minimum loss in balancing and with substantial gain in expediting decisions. Moreover, use of the adjudicative method can and probably should be reduced through a higher degree of reliance on rule- making to implement policy (subject to deregulation). In doing this, there would be fewer adjudications and those which occur would deal with narrower issues within the framework of more fully developed rules. In this way any validity in the use of the commission form would be diminished. Is there Potential for Real Gain? It would be difficult to prove in specific terms any harm done to the public interest as a result of the FPC's commission form. For one thing, observers would not agree on how to define the public interest, whether prior decisions were good or bad or what would have ensued from another decision. In any case, this analysis has not come up with a documentation of positive harm attributable to the present organizational form. However, the answer to this question of net gain is more of a management issue than a case in the Court of Claims where one has to show damage. There is a very credible case as to the inability to balance FPC's regulatory decisions with overall energy considerations under its present independent status. Cases also are slowed down as a result of difficulty in getting prompt comment and assistance from other Federal agencies, State governments or even from applicants in some instances. An executive agency would have more means available to it in applying leverage to get timely responses. FORD -29- The data needs of FPC are not fully integrated with comparable needs of other agencies. While cross-agency coordination can in time perhaps overcome much of the resulting duplication, it is harder to resolve these matters when an independent commission is involved since they are not subject to OMB's clearance function under the Federal Reports Act. Are there Non-Organizational Alternatives? No doubt FPC's performance can be improved by some process changes short of abolishing FPC and reassigning its functions. Improved performance might involve more timely actions and greater sensitivity in the substance of decisions to the nations total energy needs. They might be within FPC itself or--more usefully--they might involve FPC in relation to others. Improvements might include: Expediting of actions in process by establishing a production management system to assure more timely response by Federal agencies or others. This may require legislative backing. A stronger intervenor role by FEA or the energy agency, if created, in taking a position or furnishing on-the-record information in formal proceedings. The purpose would be to help assure that the FPC considers pending actions in the light of its impact on national or regional energy situations. Abolishing the exemption of FPC (and other regulatory commissions) from the OMB review under the Federal Reports Act. Relatively greater use of rule-making rather than adjudications. A final judgement is necessary as to whether these process improvements, fully realized, would preclude the need for major reorganization in the form of abolishing FPC. In this connection, it appears that the several process changes listed above are either unlikely to occur or of limited effect. Accordingly, while they are worth pursuing on their various merits, they should be viewed as supplementary to any possible reorganization rather than in lieu of it. In other words, the soundness of abolishing FPC should be weighed and -30- decided up or down without strong reference to the propsect for major improvement under the present arrangement. Any improvement within the existing structure would be marginal and does not strongly impact the decision of seeking to abolish FPC or not. If FPC's Functions are to be Incorporated in an Energy Agency How Should They be Organized and Managed? This question of "how" goes to the heart of the dilemma in organizing energy regulation between achieving responsiveness to policy goals, where needed, and avoiding politization where that is important. The resolution to this dilemma gives the ultimate meaning to the earlier questions of "can FPC be abolished" and "is there advantage in doing so." The key to resolving this issue is to distinguish general rule-making from adjudication. The former involves rules of general application which implement broad policy. They may be developed to the point of comprehensive and quite detailed coverage of the area under regulation, or they may be broad expressions of policy. The latter, adjudication, involves the application of governing rules to the specifics of a particular case. There is a dynamic relationship between the two in which the more detailed and comprehensive the general rules, the more narrowly confined the adjudicative decisions will be. Conversely, in the event that only broad rules exist, the greater the reliance which must be placed on de facto policy-making by case law in which the body of precedents set by the aggregate of case decisions becomes the expression of policy. General rule-making is very closely parallel to policy. It is, in effect, policy formulation in the regulatory context. Consequently, it is the rule-making aspect of regulation that should be sensitive to overall energy policy and should be mutually related. Adjudication, on the other hand, involves determination of property rights and equities in specific situations. This aspect of regulation should be insulated from politization and coordination of these decisions with policy objectives is not appropriate or completely relevant usually. A problem of conflict develops when a regulatory area is characterized by little specificity in its general rules and, consequently, by de facto policy-making through case decisions. In such a case the objective of harmonizing regulation with overall policy can only -31- occur through an effort to coordinate or influence specific case adjudication which are intended to be judicially impartial. The solution, in the event of transferring FPC's functions to an energy agency where they would be joined by FEA's regulatory functions, would contain the features listed below in order to obtain policy coordination where necessary and a political impartiality where necessary. Separate Regulatory Administration within the Department to perform all primary energy regulatory responsibilities assigned to the Department. This Administration to be headed by a single Regulatory Administrator appointed by the President, subject to Senate confirmation, and serving at the pleasure of the President. This Administrator would be clearly and openly a member of the Secretary's team and would participate fully in policy dialogues and issue resolution. Rule-making by this Administration would be consciously related to national policy and would have the benefit of all information developed by the Department. At the same time, rule-making would be performed with maximum feasible openness including advance notice, issuance of proposed rule for comment, hearings, and publication of the basis for the final decision. Rule-making would be maximized in order to enlarge the extent to which the direction and thrust of the regulatory programs are compatible with energy policy without risk of compromise in individual case decisions which would be correspondingly narrowed in scope if not reduced in number. (It should be noted that highly developed general rules can result in an apparent higher degree of Federal intervention in day-to-day business operations. Rules can become voluminous and detailed and thereby onerous. A further advantage, however, to rule-making is the greater degree to which regulated firms can predict the impact of regulation on their decisions.) -32- Cases would be adjudicated, within the rules, by Administrative Law Judges (ALJ's) who, by law, are not subject to agency direction. The ALJ's would have little or no need to create law in any significant way because of the availability of sufficiently specific rules for them to apply. Possibly, there would be a value in having an Appeals Board or panel to hear appeals and consider relief from initial rulings of the ALJ's short of a court appeal. Such an Appeals Board, if established, would be appointed and structured in a way to assure its impartiality and invulnerability to pressure. This is consistent with its non-policy character and its emphasis on assurance of procedural due process in property decisions. The need for such a Board should be studied further, if it becomes relevant to do so, including its composition, appointment, and tenure of members, and its operating rules. INVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS I. Energy Agency ENERGY AGENCY PROGRAM PURPOSE SECTOR AFFECTED NRC License nuclear materials and technology Health and safety Nuclear power exports License and regulate use and transportation Health and safety Nuclear power of all nuclear materials Licensing of construction and operations of Health and safety Nuclear power all facilities using or producing radioactive materials FPC Regulate private hydroelectric power on Economic Electricity (hydro) navigable rivers Regulate rates for interstate wholesale Economic Electricity electric power Set rates for interstate sales of natural Economic Natural gas gas Regulate construction and operation of Economic Natural gas interstate natural gas pipeline and storage facilities Regulate natural gas allocation during Emergency preparedness Natural gas shortages (stand-by) Department of Interior BLM Issues licenses and permits for exploration Public land management All sectors and development of oil, gas, oil shale, GERALD R. FORD coal, geothermal and other resources on Federal lands LIBRARY INVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS I. ENERGY AGENCIES ENERGY AGENCY PROGRAM PURPOSE SECTOR AFFECTED Sport Reviews license or permit for exploration Environmental protection Various sectors Fisheries for non-Federal hydroelectric projects & Wildlife MESA Mine health and safety promotion and Health and safety Coal (other minerals) regulation FEA Regulate price of petroleum Economic Petroleum Regulate distribution of crude oil and Economic Petroleum and petroleum products petroleum products Stategic Petroleum Reserve Economic Petroleum Coal conversion Conservation Coal, petroleum and gas Industrial efficiency standards Conservation All sectors Appliance efficiency standards Conservation All sectors INVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS II. NON-ENERGY AGENCIES ENERGY AGENCY PROGRAM PURPOSE SECTOR AFFECTED Agriculture Forest Permits or easements for electric transmission Public land management All oil, gas, coal Service lines, oil or gas pipelines or other energy and electricity facilities across National Forest lands Commerce Industry efficiency standards Energy conservation All sectors (DIBA) Export controls for energy, energy-related National security All sectors Export equipment/products/materials Control Office Appliance efficiency standards Energy conservation All sectors NOAA Reviews license permit requests for floating Environmental protection Various sectors power plants, offshore oil and gas facilities DOD Issues regulations, permits, enforces Economic Various sectors Corps of standards for construction of various Engineers facilities on or near navigable waters; discharge of dredged or fill material Labor Develops, promulgates and enforces Health and safety Various sectors including occupational health and safety standards oil and gas drilling (OSHA) and regulations of all energy facilities facilities except those situations where health and safety vested in all other Federal agencies ICC Issues permits for RR's or abandon service Economic Coal and petroleum CERALD FORD INVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS II. NON-ENERGY AGENCIES ENERGY AGENCY PROGRAM PURPOSE SECTOR AFFECTED HUD Building conservation standards Conservation All sectors JUSTICE Enforces anti-trust laws Economic All sectors DOT Hazardous Issues regulations concerned with loading, Health and safety All sectors Materials handling, transportation and storage of Board hazardous materials including energy- related Auto fuel company Conservation Petroleum Natural gas and liquid pipeline safety Health and safety Natural gas and petroleum Coast Establishes and enforces regulations Health and safety Various sectors Guard pertaining to the safety of vessels and port facilities; including design, construction and maintenance of vessels transporting petroleum and other potentially hazardous material EPA Air quality standards Health and environment All sectors -auto emissions -performance standards on major fuel burning installations Water quality standards Health and environment Various sectors -Thermal efficiency guidelines -treatment requirements for major fuel burning sources INVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS II. NON-ENERGY AGENCIES ENERGY AGENCY PROGRAM PURPOSE SECTOR AFFECTED FTC Appliance efficiency standards Conservation All sectors SEC Insures acquisitions or mergers of electric Economic Gas and electric and/or gas companies produce economies and are not anti-competitive also regulates issuance of securities holding co-systems and assures that no single holding company owns more than one gas or electric company GERALD R.

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    "ocrText": "The original documents are located in Box 13, folder \"Energy - Meeting on reorganization\nof energy activities, November 22, 1976\" of the James M. Cannon Files at the Gerald R.\nFord Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 13 of the James M. Cannon Files at the Gerald R. Ford Presidential Library\nENERGY MEETING\nMonday, November 22, 1976\n5:15 p.m.\nRoosevelt Room\n(Principals Only)\n11/22\nHold for next energy mtq.\nSCHESTIC COUNCIL STAFF MEETING\nThursday, April 8, 1976\n9:30 a.m.\nSituation Room\n11/17/76\nMr. Cannon:\nYou are invited to a meeting on Monday, November 212\nat 5:15 in the Roosevelt Room. This is being set up by\nSec. Richardson and Jim Lynn. The subject is: to discuss\nthe Administration's proposals for re-organization of\nenergy and energy-related activities. This is for\nPRINCIPALS ONLY. A separate package of materials will be\nsent to you.\nit\nThic\nI WILL ATTEND\non have Tom this not\nI WILL NOT ATTEND\n3 3\nOTHER\n(Other invitees are: Zarb, Seamans, Kleppe, Greenspan,\nMcAvoy, Dunham, Kasputys, Richardson and Mitchell)\nmalkiel, Lynn\nk\nGina 377-4951 (Kasputys' office)\nFORD is LIBRARY GENALD\nORGANIZATION OF\nFEDERAL ENERGY FUNCTIONS\nGERALD\n?\nFOR\nFEDERAL ROLE IN ENERGY: EXPANDED - BUT STILL SECONDARY\n',\nHISTORICALLY, THE PRIVATE SECTOR HAS BEEN THE PRIME ACTOR IN MEETING\nTHE NATION'S ENERGY NEEDS,\nFEDERAL ROLE IS EXPANDED AND MORE PROMINENT THAN PRIOR TO EMBARGO:\nTHREATENED CURTAILMENT OF IMPORTS PUTS ENERGY ON WORLD STAGE --\nCREATING A NEW ENERGY ROLE FOR NATIONAL GOVERNMENT.\nMASSIVE INVESTMENT AND HIGH VENTURE RISK IN DEVELOPING NEW ENERGY\nTECHNOLOGY AND FRONTIER RESOURCES CALLS FOR FEDERAL FINANCIAL\nINDUCEMENTS.\nI\nCRITICALITY OF ENERGY FORCES NEED FOR NATIONAL ENERGY POLICY,\n,\nNEVERTHELESS, PROPER FEDERAL ROLE IN ENERGY REMAINS SUPPLEMENTAL TO\nTHAT OF PRIVATE SECTOR,\nGERALD\nFORD\n-1-\nFEDERAL ROLE CAN BE EXERCISED IN VARYING DEGREE\nBUT GENERALLY INCLUDES THE GOVERNMENT AS:\nPLANNER AND FORMULATOR OF NATIONAL ENERGY POLICY\nCOLLECTOR AND PUBLISHER OF DATA\nECONOMIC REGULATOR\nHEALTH, SAFETY AND ENVIRONMENTAL REGULATOR\nFINANCIER\nO\nOWNER OR MANAGER OF ENERGY RESOURCES\n0\nTECHNOLOGY PROMOTER AND INNOVATOR\nENERGY PRODUCER - UNDER SPECIAL CIRCUMSTANCES\nREPRESENTATIVE OF NATIONAL INTERESTS IN WORLD ENERGY NEGOTIATIONS\n-2-\nAs A MATTER OF POLICY, THE ADMINISTRATION FAVORS THE MINIMUM NECESSARY\nLEVEL OF FEDERAL INTERVENTION AND INVOLVEMENT IN ENERGY AFFAIRS AND\nA CORRESPONDING MAXIMUM RELIANCE ON PRIVATE INITIATIVE, INVESTMENT\nAND DECISION-MAKING IN BOTH THE SUPPLY AND DEMAND SIDES OF ENERGY,\nHOWEVER, THIS POLICY IS ONLY PARTIALLY DETERMINANT. THE FEDERAL ROLE\nACTUALLY IN EFFECT AT ANY GIVEN TIME, IS THAT WHICH IS PRESCRIBED\nBY LAW.\nAGREE OR NOT, THE PRESIDENT IS OBLIGED TO SEE THAT THE LAWS ARE\nFAITHFULLY EXECUTED --- AND, THEREFORE, MUST PROVIDE EFFECTIVE\nORGANIZATION FOR ALL ENERGY FUNCTIONS PRESCRIBED BY LAW.\nTHOSE FUNCTIONS WHICH ARE SUB-MARGINAL IN THE LIGHT OF A POLICY OF\nMINIMUM NECESSARY FEDERAL INVOLVEMENT SHOULD NOT BE ORGANIZED IN A\nWAY THAT EFFECTIVELY INSULATES THEM FROM EXECUTIVE REAPPRAISAL.\n-3-\nWHAT IS THE OBJECTIVE IN\nCONSIDERING ENERGY REORGANIZATION?\n-\nTo ASSURE THAT THE FEDERAL ENERGY FUNCTIONS ARE EFFECTIVELY\nORGANIZED IN THE LIGHT OF THE EXPANDED AND ALTERED FEDERAL\nROLE. THAT IS: -----\n- COMPONENT FUNCTIONS ARE COORDINATED WITH EACH OTHER\nTO FORM A COHERENT FEDERAL ROLE IN ENERGY,\n- CONFUSION AND WASTE DUE TO DUPLICATION IS AVOIDED.\n- THE FEDERAL IMPACT ON ENERGY IS CONSISTENT WITH LEGISLATIVE\nINTENT AND RESPONSIVE TO PRESIDENTIAL DIRECTION.\n- ENERGY GOALS ARE PROPERLY BALANCED WITH NATIONAL GOALS\nIN OTHER FIELDS,\n-4-\nTHE IMPACT OF ENERGY IN OUR SOCIETY SAYS SOMETHING ABOUT HOW WE SHOULD\nORGANIZE TO PERFORM THE FEDERAL ENERGY ROLE\nENERGY Is:\n0\nCRITICAL TO:\nTHE ECONOMY, NATIONAL SECURITY, OUR LIFE-STYLE -- TO OUR SURVIVAL\nPERVASIVE :\nHOUSING, TRANSPORTATION, FARMING, DEFENSE, INDUSTRIAL PRODUCTION,\nRECREATION\nCOMPRISED OF\nCOMPETING\nSECTORS :\nPETROLEUM, GAS, COAL, NUCLEAR, HYDRO, SOLAR, OTHER\nOFTEN IN\nCONFLICT\nENVIRONMENT, HEALTH AND SAFETY, RESOURCE CONSERVATION,\nWITH OTHER\nNATIONAL\nPRICE STABILITY, FOREIGN POLICY\nGOALS\n:\nA BLEND OF :\nPRIVATE ENTERPRISE AND PUBLIC RESPONSIBILITY\n#-#-#-#-#-#-#-#-#--#-#-#-#-#-#-#-#-#-#--#-#-#-#--#\nIN SHORT, ENERGY IS A COMPLEX AND INTERRELATED SUBJECT AND THE FEDERAL INVOLVEMENT\nREQUIRES CAREFULLY COORDINATED POLICIES AND DISCIPLINED IMPLEMENTATION IN\nMEETING VITAL NATIONAL GOALS,\n-5-\nOUR PRESENT FEDERAL ENERGY ORGANIZATION INHIBITS COHERENT AND\nEFFECTIVE ACCOMPLISHMENT OF THE FEDERAL ROLE IN ENERGY\nNo ONE -- UNDER THE PRESIDENT -- IS CLEARLY \"IN CHARGE\" AND ACCOUNTABLE.\n- ERC LACKS STAFF OR AUTHORITY\n- FEA HAS POLICY ROLE, BUT IS OPERATIONAL, SUB-CABINET, AND TEMPORARY\nPRIMARY FEDERAL ENERGY PROGRAMS ARE FRAGMENTED AMONG FEA, ERDA AND OTHERS,\n- COMPLICATES TASK OF PRESIDENTIAL CONTROL\n- DIFFICULT TO ACHIEVE CONCERTED ACTION TOWARD SUPPLY DEVELOPMENT,\nDEMAND REDUCTION OR OTHER BROAD GOALS\n- SEPARATE ENERGY AGENCIES RESULT IN DIFFERING ENERGY PROJECTIONS --\nPRODUCES CONFUSION\n- RESOURCE TRADE-OFFS AMONG FEDERAL PROGRAMS ARE LESS LIKELY.\nPOLICY DEVELOPMENT IS DISCONNECTED FROM PROGRAM IMPLEMENTATION AND EVALUATION\n-6-\nAGENCIES TEND TO ENLARGE THEIR ROLES CAUSING INCREASING DUPLICATION\nAND CONFUSION\n- COMMERCIALIZATION OF NEW TECHNOLOGY - FEA, ERDA (EIA)\n- CONSERVATION - FEA, ERDA AND DOT, COMMERCE, HUD\n- MINE TECHNOLOGY RESEARCH AND DEVELOPMENT - INTERIOR AND ERDA\n- DATA COLLECTION AND ANALYSIS - FEA, FPC, INTERIOR, ERDA AND OTHERS\n- SUPPLY/DEMAND PROJECTIONS - FEA, ERDA, INTERIOR\nREGULATORY POWERS OF FPC AND NRC ARE SUBSTANTIAL INFLUENCES -- BUT NOT\nRATIONALIZED WITH NATIONAL ENERGY GOALS\n-7-\nTWO ISSUES, IN PARTICULAR, ARE COMPLEX AND CENTRAL TO ENERGY ORGANIZATION:\nISSUE 1 - ENERGY REGULATION: A. - BALANCE BETWEEN INDEPENDENCE AND RESPONSIVENESS\nB. - POTENTIAL CONFLICT BETWEEN REGULATION AND PROMOTION\nA. INDEPENDENCE vs, RESPONSIVENESS - THE SIGNIFICANT IMPACT OF REGULATION SHOULD BE\nCONSISTENT WITH NATIONAL ENERGY NEEDS AND POLICY -- BUT ACTIONS MUST BE\nIMPARTIAL AND CREDIBLE.\nRESOLUTION - KEY IS DISCTINCTION BETWEEN RULE-MAKING AND CASE ADJUDICATIONS.\nATTEMPT TO MAXIMIZE RULE-MAKING. PLACE ECONOMIC REGULATORY\nPROGRAMS IN ENERGY AGENCY TO ASSURE RESPONSIVENESS IN RULE-\nMAKING, INTERNALLY ISOLATE ADJUDICATIONS - ALJ's AND\nINDEPENDENT APPEALS BOARD.\nB. REGULATION vs, PROMOTION - ENERGY DEVELOPMENT CAN CONFLICT WITH HEALTH, SAFETY\nAND ENVIRONMENT. PROGRAMS LIKE NRC AND MESA NOT SUITABLE FOR INCLUSION IN\nENERGY AGENCY. ENERGY VIEWPOINT CAN BE COMMUNICATED OPENLY TO REGULATORS AND\nSHOULD INFLUENCE DECISIONS. ECONOMIC REGULATION NOT IN CONFLICT TO SAME\nDEGREE -- CAN BE INCORPORATED AND SHOULD BE FOR RESPONSIVENESS.\n-3-\nISSUE 2 - ENERGY ADVOCACY AND LAND MANAGEMENT\nOUR SHORT TO MID-TERM ENERGY NEEDS REQUIRE NEW AND ACCELERATED\nRECOVERY FROM PUBLIC LANDS -- ESPECIALLY ALASKA AND OCS. MANAGING\nTHESE ASSETS INVOLVES JUDGMENTS BY INTERIOR BETWEEN COMPETING CLAIMS,\nHow IS THE PUBLIC INTEREST IN ENERGY DEVELOPMENT TO BE REPRESENTED\nIN THIS PROCESS? WHAT ORGANIZATIONAL ARRANGEMENT IS NEEDED.\nRESOLUTION - BROAD POLICY RE ENERGY AND OTHER USES OF NATURAL RESOURCES\nINVOLVES INTERIOR AND OTHER AGENCIES AND, USUALLY,\nPRESIDENT AND CONGRESS. ENERGY REPRESENTED IN THESE\nBROAD DECISIONS BY FEA (OR PROSPECTIVE DoE) AS AN ADVOCATE.\nSPECIFIC SITE DECISIONS HANDLED WITHIN INTERIOR WITH ENERGY\nAS WELL AS ALL OTHER VIEWS CONSIDERED IN BALANCED WAY.\nCONCLUSION IS THAT ENERGY ADVOCACY AND LAND MANAGEMENT\nNEED NOT BE ORGANIZED TOGETHER, AND -- IN FACT --\nCREDIBILITY IS GREATER IF KEPT SEPARATE.\n-9-\nUSDA\nFPC\nFEA\nREA only\nINTERIOR\nERDA\nDEPARTMENT OF ENERGY\nBureau of Mines\n(Energy Functions)\nBonneville, Alaska, SE, & SW\nStaff\nBudget ($M)\nPower Administrations\nBur. of Reclamation\nFrom ERDA\n8350\n6097\n(Power Marketing)\nFEA\n3200\n598\nFPC\n1460\n42\nINTERIOR\n6000\n250\nUSDA\n820\n21\nTOTAL DOE\n19,830\n$7,018\nREA\nDEPARTMENT OF ENERGY . A Special Purpose Department Comprised of Primary Federal Energy Functions.\nPROS\nCONS\nConsolidates fragmented energy functions and fosters a more coherent Federal energy role.\nEnergy advocacy role of DOE requires extensive balance at the Presidential level.\nHighlights energy as a long-term national issue by assigning it department status and a\n011/gas leasing activities remain separate; continue to require Interagency coordination.\ncabinet level accountable spokesperson.\nDepartmental status could be marginal based on small size and narrow focus.\nResolves FEA/ERDA jurisdiction issue.\nSpecial internal arrangements required to assure autonomy and Integrity of regulatory. date\nAppropriately raises major energy policy tradeoffs to Presidential level.\nR&D, and weapons functions.\nDOD\nCOMMERCE\nOSDA\nNPR only\nNOAA only\nREA only\nDEPARTMENT OF\nENERGY & NATURAL RESOURCES\nFEA\nStaff\nBudget ($M)\nFPC\nFrom ERDA\n8350\n6097\nFEA\n3200\n598\nFPC\n1460\n42\nINTERIOR\n61,380\n4200\nCOMMERCE-NOAA\n13,190\n573\nUSDA REA\n820\n21\nERDA\nINTERIOR\nDOD - NPR\n130\n406\nTOTALS DENR\n88,530\n$11,262 (M)\nDEPARTMENT OF ENERGY & NATIONAL RESOURCES A Multi-Purpose Department Comprised of Primary Federal Energy Functions\nGERALD\nTogether with Functions of the Department of Interior.\nTORD\nservers\nPROS\nCONS\nConsolidates fragmented energy functions and fosters a more coherent Federal energy role.\nDilutes top level representation and accountability for energy.\nCabinet level representation for energy (with some natural and other functions).\nEnergy objectives could dominate other natural resource and land use requirements (or vise-versa).\nResolves FEA/ERDA jurisdiction disputes.\nDifficulty of managing large conglomate type Department.\nPermits resolution of many competing claims for resources within a single Department.\nBuries major and critical programs (e.g. Energy R&D, Nuclear Weapons, NOAA, NPS, etc.)\nPermits integration of related NOAA/USGS functions.\nA large conglomerate - but still fails to consolidate major natural resource functions (e.g. Corps,\nSCS, Forest Service).\nDEPARTMENT OF ENERGY\nDOE\nREGULATORY\nSECRETARY\nTENTATIVE INTERNAL STRUCTURE\nAPPEALS\nUNDER SECRETARY\nBOARD\nA/S\nENVIRONMENTAL\nA/S NATIONAL\nGENERAL\nA/S ENERGY\nA/S\n& CONSUMER\nENERGY POLICY\nCOUNSEL\nCONSERVATION\nADMINISTRATION\nAFFAIRS\nENERGY RESEARCH AND\nENERGY REGULATORY\nENERGY DATA AND\nENERGY RESOURCES\nDEVELOPMENT ADMIN.\nADMINISTRATION\nANALYSIS ADMIN.\nDEVELOPMENT ADMIN.\nADMINISTRATOR\nDEPUTY FOR MILITARY\nADMINISTRATOR\nADMINISTRATOR\nADMINISTRATOR\nAPPLICATIONS\nLABS\nApprox. Size\nBudget - $7,018 (M)\nStaff - 19,830\nREGIONAL OFFICES\nDEPARTMENT OF ENERGY & NATURAL RESOURCES\nDENR\nSECRETARY\nTENTATIVE INTERNAL STRUCTURE\nUNDER SECRETARY\nA/S CONG &.\nOFFICE OF\nA/S ADMIN.\nGENERAL COUNSEL\nLEGISLATION\nTERRITORIAL\nAFFAIRS\nUNDER SECRETARY\nREGULATORY\nUNDER SECRETARY FOR\nCOMMISSIONER\nAPPEALS\nFOR ENERGY\nNATURAL RESOURCES\nOF INDIAN AFFAIRS\nBOARD\nA/S LAND AND WATER\nA/S NATIONAL ENERGY POLICY\nBIA\nMANAGEMENT\nBLM\nADMIN. ENERGY DATA\nBU REC\nA/S CONSERVATION &\nADMIN. ENERGY R&D\nRECREATION\nNPS\nADMIN. ENERGY REGULATION\nFWS\nBOR\nADMIN. ENERGY RESOURCE DEVELOP\nA/S OCEANIC, ATMOSPHERIC\nAND EARTH SCIENCES\nADMIN. ENERGY CONSERVATION\nNOAA\nUSGS\nApproximate Size\nBudget - $11,927 (M)\nStaff - - 88,530\nREGIONAL OFFICES\nWHAT ARE THE EXISTING ENERGY FUNCTIONS IN THE FEDERAL GOVERNMENT?\nSTAFFING\nBUDGET ($1000's)\nERC\nDRAFT\n0\n0\nFEA\nDEVELOP ENERGY POLICY (POLICY)\n46\n1,300\nCOLLECT AND ANALYZE ENERGY DATA (DATA)\n356\n27,300\nREGULATE PETROLEUM PRICES (Econ. REG.)\n1,395\n34,000\nPROMOTE ENERGY CONSERVATION PRACTICES (MIXED ROLES)\n287\n51,800\nEXPAND DOMESTIC ENERGY PRODUCTION (MIXED ROLES)\n294\n12,700\nPARTICIPATE IN INTERNATIONAL ENERGY AFFAIRS (INTERNATIONAL)\n46\n1,700\nMANAGE STRATEGIC PETROLEUM RESERVES (PRODUCTION)\n42\n313,600\nOTHER FEA\n734\n155,700\nFEA SUBTOTAL\n3,200\n598,100\nFPC\nLICENSE NON-FEDERAL ||YDROELECTRIC PROJECTS (Econ.& ENVIRON.REG.) 220\n6,470\nREGULATE INTERSTATE ELECTRICITY RATES (Econ. REG.)\n320\n9,220\nCERTIFY NATURAL GAS FACILITIES (Econ. & ENVIRON. REG.)\n360\n11,570\nREGULATE INTERSTATE NATURAL GAS RATES (Econ. REG.)\n290\n7,720\nOTHER FPC\n268\n6,620\nFPC SUBTOTAL\n1,458\n41,600\n2\nERDA\nDRAFT\nDEVELOP ENERGY R&D POLICY (POLICY)\n167\n11,000\nCONDUCT FOSSIL, SOLAR, NUCLEAR, & GEOTHERMAL ENERGY\nR&D (TECHNOLOGY)\n1,487\n2,687.190\nCONDUCT ENVIRONMENTAL, HEALTH & SAFETY R&D (TECHNOLOGY)\n271\n21,500\nDISSEMINATE ENERGY R&D INFORMATION (DATA)\n80\n500\nCONDUCT ENERGY CONSERVATION R&D (TECHNOLOGY)\n182\n91,000\nENCOURAGE INTERNATIONAL ENERGY R&D (TECHNOLOGY)\n80\n7,770\nSPONSOR ENERGY R&D TRAINING (TECHNOLOGY)\n9\n16,540\nPERFORM URANIUM ENRICHMENT FUEL REPROCESSING (PRODUCTION)\n100\n574,000\nENCOURAGE PRIVATE DEVELOPMENT OF GEOTHERMAL RESOURCES\n(FINANCIER)\n36\n4,400\nCONDUCT RESEARCH, DEVELOPMENT, TEST, AND PRODUCTION OF\nNUCLEAR WEAPONS AND MATERIALS (PRODUCTION)\n319\n1,599,300\nDEVELOP NAVAL NUCLEAR PROPULSION PLANTS (PRODUCTION)\n82\n220,500\nDEVELOP NUCLEAR POWER SOURCES FOR SPACE PROGRAM (PRODUCTION) 17\n32,300\nOTHER ERDA INCLUDING FIELD CONTRACT ADMINISTRATION\nAND PROCUREMENT ACTIVITIES\n5,520\n831,300\nERDA SUBTOTAL\n8,350\n6,097,300\nGERALD\n3\nNRC\nDRAFT\nREGULATE CONSTRUCTION AND OPERATION OF NUCLEAR REACTORS\n(SAFETY REGULATOR)\n1,012\n50,025\nREGULATE HANDLING OF NUCLEAR MATERIALS (SAFETY REGULATOR)\n405\n22,880\nCONDUCT RESEARCH TO SUPPORT LICENSE AND REGULATORY\nFUNCTIONS (MIXED ROLES)\n135\n121,550\nDEVELOP EMERGENCY PREPAREDNESS PLANS (PLANNER)\n128\n5,015\nCOLLECT NUCLEAR REACTOR SAFETY DATA (DATA)\n2\n20\nREGULATE IMPORT AND EXPORT OF NUCLEAR MATERIALS/\nFACILITIES (MIXED ROLE)\n3\n205\nOTHER NRC\n844\n49,735\nNRC SUBTOTAL\n2,529\n249,430\nDEPARTMENT OF INTERIOR\nLEASING AND MANAGEMENT OF FEDERAL ENERGY RESOURCES\n(OWNER/MANAGER)\n2,490\n170,000\nMANAGEMENT OF ALASKAN PETROLEUM RESERVE (PRODUCTION)\n105\n106,700\nCOLLECT AND ANALYZE ENERGY RESOURCES DATA (DATA)\n1,240\n56,500\nRESEARCH AND DEVELOP ENERGY MINING TECHNOLOGY\n(TECHNOLOGY PROMOTER)\n950\n98,000\nREGULATE HEALTH & SAFETY ASPECTS OF COAL MINING\n(HEALTH & SAFETY REGULATIONS)\n3,440\n90,148\nGENERATION & MARKETING OF ELECTRICITY (ENERGY PRODUCER)\n6,160\n269,600\nDEPARTMENT OF AGRICULTURE\nDRAFT\n4\nFINANCE RURAL ENERGY DEVELOPMENT AND MARKETING (FINANCIER)\n820\n21,600\nDEPARTMENT OF DEFENSE\nMANAGE OIL AND OIL SHALE RESERVES IN NPR (OWNER/MANAGER)\n130\n406,000\nEPA\nRESEARCH TO IMPROVE COAL COMBUSTION (MIXED ROLES)\n32\n21,800\nDEPARTMENT OF TRANSPORTATION\nREGULATE AUTO FUEL ECONOMY STANDARDS (ECONOMIC & ENVIRON.REG.)\n40\n4,500\nREGULATE OIL AND NATURAL GAS PIPELINE SAFETY\n(HEALTH AND SAFETY REGULATOR)\n40\n4,000\nDEPARTMENT OF TREASURY\nCONDUCT FINANCIAL AND POLICY ANALYSIS OF DOMESTIC AND\nINTERNATIONAL ISSUES (POLICY)\n14\n300\nDEPARTMENT OF STATE\nFORMULATE INTERNATIONAL ENERGY POLICY (POLICY)\n34\n800\nDEPARTMENT OF COMMERCE\nFOSTER IMPROVED ENERGY UTILIZATION (ECONOMIC REGULATOR)\n60\n2,244\nADMINISTER COASTAL ZONE ENERGY IMPACT AID (FINANCIER)\n20\n146,500\n5\nCEA\nDRAFT\nPARTICIPATE IN FORMULATING NATIONAL ENERGY POLICY (POLICY)\n2\n40\nTOTAL DIRECT INVESTMENT IN FEDERAL ENERGY ROLE 1/ 2/\n31,114\n$8,385,162 ($1000)\n1/ TVA's POWER PROGRAM IS ESTIMATED AT $1.6 BILLION IN FY 77 AND WILL REQUIRE A STAFF OF\nSEVERAL THOUSAND. THIS PROGRAM WILL BE FINANCED FROM PROCEEDS FROM CURRENT POWER\nOPERATIONS AND BORROWINGS, RATHER THAN APPROPRIATION AND ARE THEREFORE EXCLUDED\nFROM THESE TOTALS,\n2/ THERE ARE A NUMBER OF SMALL ENERGY ACTIVITIES (DATA, REGULATORY, RESEARCH, ETC.) THAT\nARE INCORPORATED IN PROGRAMS WITH NON-ENERGY PURPOSES WHICH ARE NOT READILY IDENTIFIABLE\nAND HAVE BEEN EXCLUDED FROM THESE TOTALS.\nDRAFT\nSUMMARY - DOE\nSTAFFING\nFUNDING (M)\nTOTAL DIRECT FEDERAL INVESTMENT\n31,114\n$ 8,385\nPROPOSED FOR CONSOLIDATION IN DoE OPTION\n19,830\n7,018\nNOT PROPOSED FOR CONSOLIDATION\n- NRC\n2,529\n249\n- INTERIOR ENERGY\n8,385\n541\n- OTHER\n370\n577\nPERCENT OF TOTAL FEDERAL ENERGY FUNCTIONS\nCONSOLIDATED IN A DoE\n64%\n84%\nDRAFT\nSUMMARY - DENR\nSTAFFING\nFUNDING (M)\nTOTAL DIRECT FEDERAL INVESTMENT\n31,114\n$ 8,385\nENERGY FUNCTIONS NOT IN A DENR OPTION\nNRC\n2,529\n249\nOTHER\n222\n34\nENERGY FUNCTIONS IN A DENR OPTION\n28,363\n8,102\nPERCENT OF TOTAL FEDERAL ENERGY FUNCTIONS\nCONSOLIDATED IN A DENR\n91%\n97%\nPROPOSED FOR CONSOLIDATION IN DENR OPTION\n88,530\n11,262\nPERCENT NON-ENERGY FUNCTIONS IN DENR\n68%\n28%\nGERALD\nR.\nFORD\nPRESIDENT\nEXECUTIVE OFFICE OF THE PRESIDENT\nOFFICE\nUNITED\nOFFICE OF MANAGEMENT AND BUDGET\nSTATES\nWASHINGTON. D.C. 20503\nEYES ONLY\nNOV 17 1976\nMEMORANDUM FOR: SEE DISTRIBUTION LIST\nKasputys\nFROM:\nJames T. Mitchell\nJoseph E. Kasputys\nCo-Directors of Energy and Energy-Related\nOrganization Study\nSUBJECT:\nEnergy Organization\nThis memo forwards for your personal review selected key papers\nin draft form relating to a decision on energy organization.\nThe enclosed papers and basic content of each are:\nTAB A - Draft Presidential Decision Memorandum\n- States major assumptions underlying this study,\nsummarizes present energy organization, identifies\nand describes primary energy organization alter-\nnatives, evaluates each alternative in terms of its\npros and cons, indicates the recommended alternative,\nand provides for showing the President the position\ntaken by each affected agency head and other rele-\nvant Administration policy officials.\n- Attached to the Presidential Decision Memorandum\n(TAB A) is an identification of some major sub-\nissues regarding the exact composition of each\norganizational alternative.\nTAB B - Analysis of Organization for Energy Policy Formulation\nCoordination and Monitoring\nA staff analysis covering (1) the factors inherent\nin the energy policy task which bear on the proper\ndesign of organization to perform energy policy re-\nsponsibilities; (2) relationship of energy policy\nformulation to other energy functions; (3) evaluation\nof the existing policy process; (4) comparison of the\nmajor alternatives for energy organization in terms of\ntheir ability to effectively perform the energy policy\ntask, and (5) the relative need for special Executive\nOffice machinery for energy policy versus reliance\non general purpose units such as OMB, Domestic Council,\nCEA or other.\n11/503\n2\nTAB C - Staff Paper on Organization of Energy Regulatory\nFunctions\nAn analysis of organizational issues in the field of\nenergy regulation generally and with particular\nattention to the functions of FPC including the\nrelative merits of continuing the FPC functions in\nthe independent commission mode versus incorpora-\nting them in an executive energy agency.\nSeveral other staff papers which have been developed as parts\nof the overall analysis of energy organization were sent on\nNovember 10, 1976 to your respective representatives for energy\norganization for their review and any comment. These papers\nare descriptive and analytical pieces rather than issue papers\ndesigned for decision-making. While they all relate to the\nenergy organizational question, they are less sensitive than\nthe papers forwarded by this memo for your attention.\nObviously, they are available to you if you wish to see them.\nThese analyses, sent to your representatives are summarized\nbelow for your information:\nEnergy Data Collection and Analysis. Numerous agencies play a\ndirect or collateral role in energy data collection and analysis\nespecially FEA, Interior (Mines), FPC and ERDA. This has caused\nsome problems, but duplication is becoming progressively better\ncontrolled via interagency coordination. Elimination of dupli-\ncation should therefore not be viewed as a compelling reason for\nconsolidation; however, consolidation could enhance the develop-\nment of a more integrated data system. Consolidation will also\nhelp unify the voice of the Administration in energy supply and\ndemand projections. Credibility of energy data is enhanced\nby separation of the data function from the policy function, as\nprescribed within FEA by the recent extension act. This principle\nof separating data and policy analysis should continue in any\nreorganization planning.\nEnergy Resource Development. Assuming the policy objective of\nincreasing the domestic energy supply, this paper identifies\nthe numerous activities which play a part in implementing that\npolicy. Included are direct governmental operations such as\nstrategic petroleum reserve, uranium enrichment, and power\ngeneration and marketing as well as indirect methods such as\nfinancial incentives and assistance, resource leasing,\nfacility siting and technology transfer. These activities are\nwidely distributed among agencies and are susceptible to\ninfluence by other factors such as tax policy, and regulatory\nEYES ONLY\nGERALG, FORD LIBRARY\n3\nactions both economic and safety or environmental. It is\ndifficult to achieve concerted action by the many programs\naffecting the supply of energy in view of their degree of\nfragmentation among agencies.\nEnergy Research, Development & Demonstration. The Federal\nrole in developing new and improved energy technology is\nsupplementary to that of the private sector and involves\nestablishment of a favorable climate, providing incentives\nand sponsoring selected R&D work. Governmental regulatory\npolicy and action can also directly affect the rate of tech-\nnology introduction. Because of these public/private inter-\nactions in the energy technology field, the Federal energy R&D\nwork should be integrated with other aspects of our total energy\nefforts, there are some special considerations for assuring its\noptimum productivity - e.g., long-term perspective, continuity\nin funding, support and direction and, at times, a controlled\namount of duplication among competing ideas.\nInterior Energy Functions. This paper related only to a pros-\npective Department of Energy as one organization alternative.\nSpecifically, it addresses the question: \"Assuming a DOE, what\nenergy functions from Department of Interior should it include?\"\nThe analysis identifies and describes the energy functions of\nInterior and determines which are separable without serious\ndisruption to the DOI mission or damage to the function itself\nand, conversely, which are not separable. Findings: Readily\nseparable energy functions are power marketing and energy\nrelated emergency responsibilities. In contrast, energy leasing\nby BLM and assessment of physical availability of energy\nresources by USGS are deeply integral to DOI land-management\nand geological missions and not feasibly separable. Separable\nwith only moderate and acceptable disruption are the fossil\nfuel mining research and data programs of Bureau of Mines.\nEnergy Conservation. Activities in this field are fragmented\namong a number of agencies although FEA and ERDA together have\n80% of conservation funding. There is no clear lead agency for\nconservation and it is difficult to pull together a coherent\nand coordinated policy for conservation and relate it effectively\nto energy supply policy and programs. Some of the fragmenta-\ntion takes advantage of clientele relationships and is therefore\nlogical, i.e., DOT, HUD, Commerce. There is a potential for\ngrowing overlap and conflicting jurisdiction between ERDA and\nFEA stemming from legislative assignments to each. This is\ndifficult to prevent or reconcile in the absence of common\ndirection over both programs.\nFORD\nEYES ONLY\nGERALD\n4\nEnergy Advocacy and Decision-Making in Federal Land-Management.\nThis paper reviews the organizational roles and the decision-\nmaking process involved in developing energy resources located\non Federal lands. It was found that the need for energy\ndevelopment is adequately represented or advocated in both broad\npolicy decisions at Presidential level (especially by FEA as\nan energy advocate) and in site specific decisions (by internal\nprocesses within Interior). Interior's total mission incor-\nporates pressures for energy development, for other uses, and\nfor conservation, all of which are balanced in specific cases in\na reasonably open and impartial way. While there is adequate\nresponsiveness within BLM and Interior to national energy goals,\nother competing interests are assured of being represented as\nwell by influences such as environmental impact statements,\nopenness, and the prospect of court review.\nFollowing your review of the enclosed papers, we anticipate\na final decision memorandum going to the President toward the\nend of this month. Based on the President's decision, we will\nproceed to complete the report to the Congress and any related\nlegislative proposal by December 31, 1976 as required by the\nFEA extension act. The final report as we visualize it will\ncover:\nA brief introductory discussion of the general\nenergy situation, our major policy positions and,\nin particular, the Federal role in energy.\na summary description and evaluation of the\npresent structure and assignment of energy\nfunctions among Federal agencies;\nan identification of alternatives considered\nand an evaluation of each;\nsummary analysis of pertinent issues, and\nconclusions and a statement of the President's\nproposed energy organization.\nWe will be in touch with each of you personally to confirm\narrangements for next steps leading to a Presidential decision.\nEYES ONLY\nFORD\nGERALD\n5\nDISTRIBUTION LIST\nCEA Chairman - Mr. Alan Greenspan\nAssistant to the President for Domestic Affairs - Mr. James Cannon\nFEA Administrator - Mr. Frank Zarb\nERDA Administrator - Dr. Robert E. Seamans\nSecretary of Interior - Mr. Thomas Kleppe\nFPC Chairman - Mr. Richard L. Dunham\nEnclosures:\nTAB A - Draft Presidential Decision Memorandum\nTAB B - Analysis of Energy Policy Organization\nTAB C - Staff paper on Organization of Energy Regulatory\nFunctions\nCC:\nElliot L. Richardson\nJames T. Lynn\nFORD\nEYES ONLY\nGERALD\nTHE SECRETARY OF COMMERCE\nDRAFT\nWASHINGTON, D.C. 20230\nMEMORANDUM FOR THE PRESIDENT\nFROM:\nElliot L. Richardson, Chairman, ERC\nJames T. Lynn, Director, OMB.\nSUBJECT: Organization For Federal Energy And\nEnergy-Related Functions\nI. Purpose\nThe purpose of this memorandum is to obtain\nyour decision on the results of the ERC/OMB study\non reorganizing the Federal Government to perform\nenergy and energy-related functions.\nA joint ERC/OMB study was initiated in May to\ndetermine the most effective organizational arrangement\nfor performing Federal energy and energy-related functions.\nThe study was first proposed by the Chairman, ERC,\nto the Senate Government Operations Committee to counter\nthe Committee's intention not to recommend an extension\nof the Federal Energy Administration beyond June 30, 1976.\nThe Committee not only accepted the study proposal, but,\nin an amendment to the FEA extension which has been\nenacted into law (P.L. 94-385), required that the\nPresident transmit a reorganization plan covering\nenergy and natural resources to the Congress by\nDecember 31, 1976. The ERC/OMB study was performed to\nfulfill this requirement. More details on the circum-\nstances giving rise to this study are outlined in Tab A.\nWhile the study report has not been put in final\nform, the supporting analyses, which have been prepared\nwith the assistance of the affected agencies, are\ncomplete and have been reviewed by the principals involved.\nThe final report should be available for distribution\nat the same time as the reorganization plan is transmitted\nto the Congress. The balance of this memorandum contains\nFORD\nGERALD\n2\nthe following sections:\nII - Assumptions\nIII - Methodology\nIV - Present Organization for Energy and\nEnergy-Related Functions\nV - Organizational Problems\nVI - Alternatives\nVII - Conclusions and Recommendations\nII. Assumptions\nMajor assumptions regarding broad energy policy\nand particularly the Federal role in energy include:\nContinued maximum possible reliance on\nprivate sector decisions and actions;\nreliance on a system of Federally created\nincentives and disincentives to influence\nand stimulate private decisions regarding\nboth energy supply and demand toward the\nachievement of national energy goals of\nlowered demand as well as assured and\nadequate energy supply at a reasonable\nprice;\nminimum necessary direct Federal involvement\nin areas such as regulation, new technology\ndevelopment, data collection and energy\nresource development; and\nassurance that energy development actions\nare properly balanced with other goals such\nas environment, health and safety, national\nsecurity and economic stability.\nFor the purposes of organizational planning, it was\nassumed that the recommended structure should facilitate\nthe implementation of proposed legislative initiatives\nof the Administration, while still accommodating the\nexecution of existing programs.\nFORD\nIII. Methodology\nRALD\nThe study began by collecting descriptive data\non all energy, energy-related and natural resource\n3\nfunctions, including mission, programs, resources\nand critical interactions. This permitted the\nidentification of related programs, together with\nany duplication and overlaps. Extensive interviews\nwere conducted at several levels in affected\norganizations to identify operating problems. Outside\nadvice was obtained through a three-day seminar on\nenergy organization conducted by the Congressional\nResearch Service at the request of Senator Percy and\nthrough a survey of the literature. As a result,\nseven broad organizational alternatives were developed.\nThese were reviewed by the ERC and narrowed to the\nthree options presented later in this paper.\nOnce the three final options were identified,\na series of individual studies were performed to\nexamine how selected critical functions would be\nperformed under each option. These studies were in\nthe areas of:\nPolicy Formulation and Coordination\nData Collection and Analysis\nEnergy Resource Development\nResearch Development and Demonstration\nEnergy Conservation\nEnergy Regulation\nNuclear Weapons Production\nIn addition, several special studies were performed on\nthe functions of the Department of the Interior, an\nin-depth review was made of the FPC and analyses were\ncompleted on the appropriateness of including selected\nagencies, e.g., NOAA, in certain options. The results\nof the efforts have been synthesized into this options\npaper and will be included in the final study report.\nIV. Present Energy Organization\nPractically all Federal agencies play some part\nin energy matters, due to the pervasive nature of\nenergy issues. However, there are several agencies\nwhich are solely related to energy and which may be\nregarded as central to Federal energy involvement--the\nERC, FEA, ERDA and, taking in regulatory commissions,\nthe NRC and FPC.\n4\nCertain functions of the Interior Department are\nequally critical even though the Department is not\nsolely concerned with energy. Specifically, the\nincrease of domestic energy supply over the near\nand mid-term depends heavily on accelerated recovery\nof oil, gas, coal and uranium from the public lands--\nespecially frontier areas such as Alaska and Outer\nContinental Shelf.\nBeyond the principal energy agencies, many other\norganizational entities have a collateral energy\nrole, at times quite significant, especially in\nformulation of energy policy--examples--Treasury,\nCEA, State, Justice and EPA. Tab B is an organization\nchart showing the considerable number of agencies\ninvolved with energy, energy-related and natural\nresource functions. Much of this fragmentation is\nrational and desirable as in the case of Justice\nrepresenting the U.S. in energy-related litigation or\nState participating in energy policy formulation from\nthe point of view of foreign relations.\nIn addition to energy responsibilities being\ndivided among many agencies, most of the component\nenergy functions are dispersed, i.e., data collection,\nregulation, energy supply development and energy\nconservation. The major exception is energy research\nand development, which is consolidated in ERDA except\nfor mine technology R&D in Interior.\nIV. Organizational Problems\nThere is evidence that organizational problems\nare interfering with the execution of energy programs\nand the accomplishment of energy objectives, or at\nleast are not facilitating positive results to the\nFORD\ndegree possible. The following are among the more\nsignificant problems identified during the course\nof the study:\nGERALD\nA. Lack of a fully effective mechanism to\ndevelop and oversee the implementation of energy policy.\nThe ERC has been reasonably successful in developing\na balanced Administration position on the major energy\n5\n7\nissues. However, it has no staff and therefore no\nindependent analytical capability. What staff support\ndoes exist is chiefly provided by the FEA, which itself is\none of the participants in the policy development\nprocess. There is no mechanism to direct action, to\nassure implementation of policy decisions or to evaluate\nresults. With the development of an independent ERDA,\nthe research and development planning process has not\nreceived the attention it should from the operational\nagencies and has tended to form its own goals.\nFinally, because of the composition of the ERC, more\nissues tend to be forced to the President for\nresolution.\nB. Lack of an effective structure to facilitate\nresource trade-offs among competing energy programs.\n?\nWhile resource allocation to energy programs is done\nby OMB within the ERC-developed policy framework, energy\nprograms are highly fragmented throughout the Federal\nGovernment. Therefore, within the various Federal\nagencies, these programs must frequently compete for\nscarce resources with nonenergy programs and not with\neach other. A more rational structure would permit\nresource allocation to be made among similar programs\nat a lower organizational level, facilitating the\nassignment of resources to the more effective programs.\nC. Need for the regulatory function to be\nresponsive to needed policy direction while maintaining\nindependence. Energy regulation is carried out across\na spectrum of mechanisms, from the independent regulatory\ncommissions of FPC and NRC to the executive actions of\nFEA and Interior. The independent regulatory commissions\nemphasize the mandates of their enabling legislation\nand are often inhibited by these statutes from revising\nFORD\ntheir interpretation of the national interest, regardles\nof the views of the Executive Branch on current needs\nevolving from a changing international or domestic\nsituation. Energy regulation should be responsive to\noverall policy direction. At the same time, individual\nregulatory decisions made under this policy direction\nshould be fair, objective and free from outside influence.\nThis has often caused regulatory activities to be\nseparated from promotional activities, which is not\nthe case with FEA. Improvements need to be made in the\n6\nregulatory structure to strengthen objectivity and\nindependence while at the same time strengthening\nthe responsiveness to policy input. Finally, energy\nregulation itself is fragmented among agencies, e.g.,\nFPC, NRC, FEA, which makes the use of regulatory\npower to optimize the use of various energy sources\nvery difficult.\nD. There are duplicating and overlapping agency\nresponsibilities because of the fragmentation of energy\nfunctions. Some duplication is legislatively sanctioned,\ne.g., FEA and EPA in converting utilities from oil to\ncoal; FPC and Office of Pipeline Safety (DOT) in LNG\nsafety standards. Beyond specific legislative problems,\nFEA has responsibility for energy planning and\ndevelopment, while specific energy sources are the\nresponsibility of other agencies. The overlap has become\nsignificant in conservation programs between FEA and\nERDA. While fragmentation does contribute to the\nexamples of duplication that have been cited, it also\ncan lead to difficulty in developing well-coordinated\nbroad programs, such as an emergency preparedness program\nthat can effectively respond to supply interruption.\nE. There is the potential for greater duplication\nbetween FEA and ERDA. Both FEA and ERDA originally were\nfounded with distinct missions, but both are collecting\nfunctions, by legislation and otherwise, and expanding\ninto general purpose energy agencies. In this\nevolution, both interact with the private sector and\nhave a growing number of incentives that can be\napplied to business and industry to achieve energy\ngoals. These incentives should be directed through\na single channel to maximize their effectiveness\nand to avoid undesirable effects on the private sector.\nThe present structure for energy functions is not\nwithout some assets. For example, the ERC has provided\na useful forum for top-policy level dialogue across\nagency lines concerning major policy issues; the\nseparate status of ERDA helps assure a stable environment\nand the long-term continuity needed to manage a\nprogram which is intended to emphasize long-range\ntechnology development; the independent commission\nstatus of FPC and NRC permits a separation\n7\nof promotional and regulatory functions and thereby\nhelps allay any public concern that regulatory\ndecisions could be politicized. However, these\nbenefits can be preserved under alternative\nstructures SO long as they are properly designed.\nIV. Alternatives\nWhile a wide range of feasible alternative structures\nwas considered, they were narrowed to the three most\npromising options. Basically, these options represent\nvarying degrees to which the fragmented energy and\nenergy-related functions might advantageously be\nconsolidated. Each alternative has been presented\nin the configuration judged to be best by the study\nteam. However, determining the exact composition\nof each of the alternatives poses some controversial\ndecisions. The most significant and sensitive of\nthese decisions to include or exclude functions in\nthe alternative structures are listed below for your\ninformation. More detail is contained in Tab C on\neach item together with provision for you to make\nthe decision on each if you wish to do SO.\nNuclear Regulatory Commission (NRC) - exclude\nFederal Power Commission (FPC) - include\nRural Electrification Administration\n(REA) - include\nNaval Petroleum Reserve (NPR) - include\n(DENR only)\nNational Oceanic & Atmospheric Administration\n(NOAA) - include (DENR only)\nUnder all options the ERC has been retained. Even\nif a Department of Energy were formed with a strong\npolicy operation, the ERC would be a valuable vehicle\nto coordinate with EPA, State, Treasury and other\nagencies.\nA. Department of Energy and Natural Resources (DENR)\nDescription\nA grouping together into a new multi-purpose\ndepartment all primary energy functions\ntogether with selected natural resource\nprograms. Composition of the DENR would\n8\ninclude:\nInterior\nFEA\nERDA\nFPC\nREA (Agriculture)\nNOAA (Commerce)\nNaval Petroleum Reserves (DOD)\nAdvantages\nMaximum feasible consolidation of presently\nfragmented energy functions.\nPermits resolution of unclear jurisdiction\nbetween FEA and ERDA in areas such as\nenergy forecasting, conservation and\ntechnology commercialization.\nCabinet-level representation for energy--\ntogether with some, but not all, natural\nresource functions.\nProvide resolution within one Cabinet\nDepartment of many competing claims in the\nmanagement of public lands between energy\ndevelopment and resource preservation\nor other land uses.\nProvides a stronger base for subsequent,\nmore complete, consolidation of natural\nresource programs - e.g., Forest\nService, Army Corps of Engineers\nCivil Works, etc.\nPermit closer integration of earth sciences\nof geological survey with atmospheric\nand oceanic sciences of NOAA.\nDisadvantages\nGrouping energy with natural resources\nin a large multi-purpose department\nfails to put highest possible focus on\nenergy and does not provide a top level\ndedicated energy advocate.\n9\nResults in a very large conglomerate-\ntype Department with a wide span of\nconcerns from energy and natural resources\nto Indian and Territorial Affairs.\nExperience indicates these conglomerate\narrangements are hard to manage and\nhold accountable.\nO Energy objectives could dominate land\nmanagement decisions at the expense\nof other land use requirements.\nO Grouping of so many diverse programs\ncould result in an internal DENR structure\nthat \"layers in\" some functions excessively,\ne.g., the nuclear weapons work performed\nby ERDA could be relegated to third\nechelon status prompting strong pressure\nto transfer it to DoD despite recognized\nbenefits of associating nuclear power\nwith nuclear weapons work.\nO Despite broad span represented by this\nalternative, it would still not encompass\nall relevant concerns in energy policy\nformulation (foreign affairs, environment\nand others) necessitating Executive Office\nbalancing; nor would it incorporate all\nmajor natural resource programs, (Corps\nof Engineers, Forest Service, and others)\nwith the resulting prospect of still great\nfuture consolidation.\nB.\nDepartment of Energy (DoE)\nDescription\nA consolidation of primary Federal energy\nGERAZO R. FORD\nfunctions which are not integral and\ninseparable aspects of the mission of other\nagencies to form an advocate or special\npurpose type of department. This consolidation\nwould include:\nFEA\nERDA\nFPC\nREA (Agriculture)\n10\nPower Marketing (DOI)\nEnergy Functions of the Bureau\nof Mines (DOI)\nOther important energy functions of Interior,\ne.g., oil and gas leasing by BLM and energy\nresource assessment by USGS were found to be\ndeeply integral to the land management and\ngeological missions of Interior and not\nsusceptible to excision.\nAdvantages\nProvides feasible consolidation of energy\nfunctions thereby facilitating a unified\nand coherent Federal role in the national\nenergy system with component parts subject to\ncommon policy direction.\nPermits resolution of unclear jurisdictions\nbetween FEA and ERDA as in the case of DENR.\nHighlights energy as a difficult, major and\nlong-term national issue area and gives it\na Cabinet-level spokesman and point of contact\nwho is \"in charge\" of energy in dealings\nwith other agencies, Congress, Governors,\nindustry and the public in keeping with this\nstatus.\nProvides that national energy policy will be\nformulated by a single spokesman who\nhas his own policy analytical staff,\ndirect authority over major energy programs\nand Cabinet status. The ERC will continue\nto be used for interagency energy policy\ncoordination.\nNarrower focus than DENR alternative would\nmake this alternative disturbing to fewer\ninterest groups and Congressional committees,\nthus enhancing prospect for enactment.\nDisadvantages\nWould not take in some major Federal energy\nfunctions, notably oil and gas leasing on\n11\npublic lands, and as a result, continued\ncross-agency coordination would be necessary\nin important areas.\nConcentrated focus on energy and consequent\nadvocacy orientation would mean that some\ncheck and balance mechanism would be\nneeded especially in energy policy formulation\nto assure that the President gets objective\nadvice and that conflicting interests are\nrepresented.\nSeveral of the projected components of the\nDoE are very controversial and vulnerable\nto being trimmed out in the legislative\nprocess-most particularly FPC and REA.\nWere this to occur, the proposed DoE would\nbe little more than a merged FEA and ERDA\ngiving rise to serious question of whether\nDepartment status is warranted.\nSeveral of the energy functions to be incorporated\nin DOE would require a measure of autonomy\nin order to avoid being overpowered, submerged\nor lose credibility - these include:\nenergy regulation, data, R&D, weapons--\nspecial internal arrangements would be\nnecessary to assure the integrity\nor visibility of these functions within\nthe DoE/energy advocacy climate.\nAn alternative within this option would\nconsolidate the same functions as DOE, but\nthey would be organized at sub-cabinet\nlevel in an expanded energy agency.\nAdvantages\nThis alternative would retain many of the\nprogram cross-coordination advantages of the\nDoE concept and provides a fall-back means\nof achieving these advantages if the DOE\nconsolidation becomes marginal because too\nmany of the potential program consolidations,\ni.e., FPC, REA, energy functions of the\n12\nBureau of Mines, fail to materialize.\nDisadvantages\nO\nWould continue the present problem of no\nCabinet rank energy policy spokesman.\nConsequently, the energy policy formulation\nmachinery would continue to have some of\nthe institutional weakness of the present\nERC/FEA system, although to a lesser degree.\nC. Retain the present structure - with improvements\nSome of the problems inherent in the present\nfragmented placement of energy functions can\nbe mitigated by relatively modest actions such\nas improved coordination of policy formulation\nby strengthening the ERC, recognizing FEA as\na permanent agency which has been expanded\nbeyond its original emergency role, and clarifying\nsome jurisdictional issues. The disruption\nwhich comes from any organizational change would\nbe generally avoided. However, most of the\nserious weaknesses inherent in the fragmented\nand uncoordinated system described earlier would\nnot be addressed by this alternative. Energy as a\nmajor problem area would continue to lack a top\nlevel spokesman and there would continue to be\nno one with direct authority over most energy\nfunctions. Moreover, any action to strengthen\nERC in terms of staff or authority can engender\nproblems of its own, i.e., an advocate in the\nExecutive Office without operational\nresponsibility as in the case of the CEQ.\nV. Conclusions and Recommendations\nBased upon the findings of the study, reorganization\nof Federal energy functions is well-warranted and, on\nbalance, the Department of Energy alternative will provide\nthe most effective long-term arrangement for coordinating\nand performing Federal functions in this area. The\nsignificance and difficulty of the energy situation will\npersist well into the future and the coherency and\ncontinuity needed to accomplish the Federal role can best\nbe provided by a Department dedicated to that purpose.\nGERALD R. FORD\n13\nThe critical need for balanced and credible\nconflict resolution in the management of the public\nlands can best be met by an arrangement which separates\nenergy advocacy from the responsibility for managing\nthe nation's natural resource assets - i.e., a DoE\nseparate from the Department of Interior (or ultimately\na Department of Natural Resources). This arrangement\nwill permit continued accelerated development of coal,\noil, gas and uranium resources while other values\nsuch as environmental safeguarding, preservation and\nalternate land uses are fully and fairly represented\nas well. Retention of the CEQ/EPA system will also\nforce critical trade-offs between energy and environment\nto the Presidential level, which is appropriate for\nissues of this magnitude.\nCareful consideration of all alternatives indicates\nthat:\nThe present fragmented structure is seriously\ninadequate for the task and that any administrative\nimprovements of it will not basically alter\nits ineffectiveness for the long-haul.\nThe disadvantages cited for the DoE plan\ncan be offset by proper design of its\nstructure and other management actions.\nFor example, existing regulatory functions\ncan be divided into two categories--general\nrulemaking and adjudicatory responsibilities\nassociated with individual case decisions.\nThe rulemaking can become part of the\npolicy office of a new Department of Energy,\nwhere this function can be effectively\ncoordinated with other policy decisions.\nThe adjudicatory decisions, e.g., granting\nof licenses, etc., can be made in a\nquasi-independent component of DOE, headed\nby a Presidential appointee subject to Senate\nconfirmation. While this process would operate\nwithin the overall policy framework established\nby the Secretary, individual decisions\ncould be insulated by having them made by\nAdministrative Law Judges, with final review\nFORD\nby an Appeals Board. Subsequent challenge\nwould be in the courts, with no appeal to the\nSecretary.\nConversely, the disadvantages of the DENR plan,\n14\ni.e., size and diversity and internal conflict,\nappear to be more intractable with no effective\nway to offset them.\nPresidential Decision\nApprove the Department of Energy (DOE) .\nApprove the DoE concept, but create\nas an agency in lieu of a cabinet\ndepartment.\nApprove the Department of Energy\nand Natural Resources (DENR). .\nContinue with the present structure--\ndevelop specific ways to improve\nperformance.\nOther\n(Note: The recommendations of administration officials\nwill be shown under the applicable alternative\nin the final paper that is delivered to the\nPresident.)\nGERALD FORD\nTAB A\nCircumstances Leading to Current Study of Energy Organization\nand Its Relationship to Recent (1974) Changes in Energy\nOrganization\nWhen the Arab oil embargo struck in November of 1973\nprecipitating the energy crisis, the Administration had\nenergy organization legislation pending before Congress.\nI.e., Split the former AEC into R&D work (ERDA) and regu-\nlatory work (NRC) and establish a Department of Energy\nand Natural Resources (DENR)\nIn view of the crisis the Administration agreed to forego\nthe controversial DENR in order to expedite Congressional\nconsideration of ERDA and NRC. They were enacted in\nOctober 1974 together with the Energy Resources Council (ERC).\nMeanwhile, also in response to the energy crisis, the\nFederal Energy Administration had been created first by\nExecutive order and then by law in June 1974.\nThese changes in energy organization soon after imposition\nof the embargo were generally regarded both by the Adminis-\ntration and Congress as only partial (ERDA and NRC) and\nshort-term (FEA and ERC) treatment of overall energy\norganization.\nHowever, the early time period following the embargo was\nalso a time of major reappraisal of national energy policy\nincluding a reassessment of the Federal role in relation\nto the private sector role. During this period of fundamental\nreappraisal, it was untimely to determine the most effective\nlong-term organization for Federal energy activities which\nclearly should rest on a well-developed concept of the\nFederal policy and role. We now have these concepts in\nhand, if not necessarily universally agreed upon.\nIt is, therefore, now timely to make this fundamental\norganizational review and we have been so engaged for several\nmonths working with the heads of affected agencies and their\nstaffs.\nAfter this study was initiated and well underway, a require-\nment was inserted, with our concurrence, in the FEA extension\nlegislation, which you recently signed, that the President\nshall direct a comprehensive study of energy and natural\nresources and forward a report with his recommendations and\nproposed legislation by December 31, 1976.\nTAB\nB\nLOCATION OF ENERGY, ENERGY-RELATED, AND NATURAL RESOURCE\nFUNCTIONS IN THE EXECUTIVE BRANCH\nKEY:\nENERGY\nTHE PRESIDENT\nENERGY-RELATED\nNATURAL RESOURCES\nERC:\nNOTE:\nOTHER EXECUTIVE\nOther agencies may participate\nAGENCIES SOLELY CONCERNED WITH\nOFFICE UNITS\nCEQ\nin energy goals collateral to their\nFUNCTIONS UNDER STUDY\nbasic missions.\nDEPARTMENTS\nAGRIC\nCOMM.\nDEFENSE\nHEW\nHUD\nINT.\nJUST.\nLABOR\nSTATE\nTRANS.\nTREAS.\nX\nAGENCIES\nACTION\nCSA\nEPA\nEEOC\nERDA\nFCA\nFEA\nFRS\nGSA\nNASA\nNLRB\nNSF\nSBA\nTVA\nUSCSC\nUSIA\nUSITC\nVA\nWRC\nREGULATORY COMMISSIONS\nCAB\nCFTC\nCPSC\nFCC\nFMC\nFPC\nFTC\nICC\nNRC\nSEC\nTAB C\nMajor Inclusion or Exclusion Issues in Possible Consolidated\nEnergy Reorganizations\nIn determining the functional composition of either the Department\nof Energy (DoE) alternative or the Department of Energy and Natural\nResources (DENR) a number of sub-issues occur as to whether various\nexisting programs should be included or excluded from one or both\nconcepts. Some of these are fairly small issues or non-\ncontroversial -- others are more significant questions deserving\nyour attention.\nThe major inclusion or exclusion issues are described and evalu-\nated below with provision for an indication of your guidance.\nI. The Nuclear Regulatory Commission\nA. Background\nThe NRC was established by the Energy Reorganization Act\nof 1974. It is responsible for all the regulatory and\nlicensing functions of the former Atomic Energy Commission\nwhich was abolished by the 1974 legislation, and is the\nFederal agency responsible for the regulation of nuclear\npower generation.\nB. Major NRC Program Functions are as Follows\nNuclear Reactor Regulation - Assures adequate safety,\nenvironmental protection, and safeguards in the issuance\nof reactor licenses.\nStandards Development - Produces engineering standards\nfor siting, fuel cycle facilities, safeguards, trans-\nportation and product safety standard development.\nInspection and Enforcement - Conducts nuclear powerplant\nsafety inspections including the issuance of construction\npermits and operating licenses. Also conducts safety\ninspections of fuel cycle facilities and nuclear materials.\nNuclear Material Safety & Safeguards - Performs a safe-\nguard licensing program devoted to waste management and\nthe development of generic environmental impact statements\nfor consumer products which contain nuclear material.\n3\nMay be difficult to demonstrate in advance\nthat abolishing NRC would improve the executive\nbranch capacity to achieve coordinated manage-\nment of national energy programs. Thus, in view\nof the opposition which such a proposal would con-\nfront, the inclusion would be hard to win and\ncould jeopardize the whole energy reorganization\npackage.\nAgency Position\nChairman Rowden has not been consulted on this issue.\nConclusion - Retain Functions in NRC\nThe disadvantage relating to further accelerating public concern\nfor nuclear safety and the consequent difficulty in winning public\nacceptance of nuclear power overwhelms the potential advantages.\nThe real advantage relating to bringing nuclear export licensing\nunder Presidential control can just as well, or better, be achieved\nthrough a change in law authorizing the President to make the\nfinal decision in these cases, in keeping with his responsibility\nfor the conduct of foreign affairs (as with CAB ruling on overseas\nroute awards)\nPresidential Decision\nAgree to functions remaining in NRC\nDisagree. Revise planning to include NRC functions\nin energy agency.\nFORD\nRALD\n4\nII. The Federal Power Commission (FPC)\nA. Background\nThe FPC's regulatory authority extends over portions of\nthe natural gas and electric power industries. The FPC\nexercises its regulatory powers in four program areas:\n(1) licensing of hydroelectric projects; (2) setting\nrates for interstate wholesale sales of electric energy;\n(3) certification of pipeline facilities for the trans-\nportation of natural gas; and (4) setting rates for\ninterstate wholesale sales of natural gas. The purposes\nof these programs are broader than economic or rate setting.\nThey aim also at conservation of energy resources,\npromotion of hydroelectric development, safety, environ-\nmental protection, assuring an abundant supply of electric\nenergy and emergency preparedness. Pursuit of these\nobjectives necessitates extensive coordination between\nFPC and other agencies including particularly Interior\nand EPA.\nB. Advantages and Disadvantages of Inclusion\nAdvantages\nAdvantages apply generally to either the DOE or the\nDENR alternative energy organization.\nInclusion of the FPC programs would help assure\ntheir sensitivity to overall national energy policy\nas formulated and coordinated by the Energy Agency.\nRegulatory actions regarding natural gas and electric\npower could be developed over time in relation to\nregulation of petroleum resulting in a more rational\nand even-handed treatment among these competing\nenergy sectors.\nInclusion would facilitate improvements and\nsimplification in Federal energy data gathering\nand use, as well as better emergency preparedness\ncoordination across energy sectors. The DENR alter-\nnative affords an added advantage over the DoE alter-\nnative since the FPC functions would be housed with\nrelated natural resource programs now in Interior.\nNatural resource coordination would be significantly\nimproved and expedited.\n5\nDisadvantages\nThe independent commission form, while not very\nresponsive to national policy or changing conditions,\ndoes have the merit of stability and avoidance of\nundue political pressure, at least as a common\nperception.\nAbolishing FPC as an independent commission and\ninclusion of its functions in an energy agency could\nalarm the regulated industries as well as conserva-\ntion and environmental groups.\nCongress would probably react very negatively to dis-\nestablishing this, or any, independent commission\napart from the merits of the case because of an\nimplied threat to this \"arm of Congress\" mode of\ngovernance.\nIf In DOE\nThe case would be weaker because inclusion in DOE\nwould fail to significantly mitigate present natural\nresource coordination problems which would still\nrequire cross-agency contacts.\nC. Conclusion\nA convincing case can be presented for abolishing FPC\nand intorporating its functions in an energy agency.\nThis is particularly true if the DENR alternative is\nselected.\nThe concern for the credibility and objectivity of\nregulatory decisions, if placed in an executive agency,\ncan be mitigated by having adjudicatory proceedings heard\nby an Administrative Law Judge, subject or review by an\nAppeals Board, the members of which serve fixed terms,\nand by having regulation functions insulated from develop-\nment functions. Therefore, on balance, we feel the FPC\nfunctions should be incorporated in the DoE or DENR\nplanning since the objections can be partially offset\nand in spite of anticipated strong Congressional opposition.\nD. FPC Chairman Position\nVariation in Disposition of FPC's Hydroelectric Licensing\nProgram if DOE is Selected as Alternative for Energy\nOrganization.\nThe siting of proposed hydroelectric facilities deeply\ninvolves land and water planning and use. The hydro-\nelectric licensing work of FPC, of all its programs, is\ntherefore the most intimately associated with Interior's\n6\nmission and capabilities. Conversely, this FPC\nprogram has less to gain by grouping it with DoE\nprograms. Consequently, if FPC is abolished, hydro-\nelectric licensing could be excluded from DOE even\nthough such an action would split Federal electric\nenergy regulation between two programs.\nHydroelectric licensing may be split off from the\nother FPC programs and stay in the independent regulatory\ncommission structure.\nHydroelectric licensing can be transferred to an\nexecutive agency (Interior) with natural resource\nprograms if the hydroelectric program is sufficiently\ninsulated to assure necessary independence of regulatory\nactions.\nIncluding hydroelectric licensing together with other FPC\nprograms in a DENR would be the most satisfactory disposition\nfor this function. In the event of a DOE selection, hydro-\nelectric licensing should be transferred to Interior, or next\nbest, left as an independent Commission.\nE. Agency Position\n\"\non the subject of including the Federal Power\nCommission\nour minds are open to any proposal which\nwould place all of the Federal government's energy\npolicy-management in one agency.\" (Excerpt from a letter\nto James L. Mitchell from Richard L. Dunham, dated\nSeptember 16, 1976.)\nF.\nPresidential Decision\nAgree that functions of FPC be transferred\nto either DOE or DENR, whichever is selected.\nand that FPC be abolished.\nDisagree. Leave FPC as is.\nAgree to abolishing FPC but if DOE is selected,\nhydroelectric regulation is to go to Interior\nDepartment with other functions going to DoE.\nAgree to abolishing FPC but if DoE is\nselected, hydroelectric regulation disposition\nshould be studied further.\n7\nIII. Rural Electrification Administration (REA)\nA. Background\nThe Rural Electrification Administration (REA) in the\nDepartment of Agriculture was created in 1935 to make\nlow cost loans to finance electric and telephone service\nin rural areas and thereby expedite rural electrification\nand phone service.\nREA makes loans to qualified borrowers, with preference\nto non-profit and cooperative associations and to public\nbodies, normally at 5 percent interest. REA borrowers\ncan also finance their capital needs from non-REA\nsources with the aid of REA loan guarantees.\nIn 1975, approximately 25 million Americans were being\nprovided service from electrical systems financed by REA.\nAlso in 1975, borrowers from the telephone loan program\nprovided service to 9 million people in 42 States. REA\ndoes not own or operate facilities in either the electric\nor telephone program.\nWhile originally established to provide electricity for\nAmerica's farms, this job has been essentially completed.\nNearly 99% of all farms are electrified and virtually all\nof the new customers are non-farm. Since 1961, more than\n8,000 .commercial, industrial, and community facility\nprojects have been assisted by REA borrowers.\nB. Advantages and Disadvantages of Inclusion\nAdvantages\nREA electric programs are no longer agricultural in nature,\nbut are directly related energy development and marketing.\nConsolidation of these programs with other similar programs\nrelating to power marketing and development would greatly\nimprove overall coordination and administration of these\nefforts. Additionally, it would reduce significantly the\namount of energy organizational fragmentation which now\nexists.\n8\nDisadvantages\nThe associations of REA borrowers constitute a broad\nbase and highly organized interest group which can be\nexpected to strongly oppose any change in status because\nthe loan programs have fared very well under the Agriculture\nCommittees of both Houses. The major concern of the REA\nconstituency would be that inclusion in an Energy Agency\nwould highlight the REA loan policies as out of date, no\nlonger needed, and perhaps even counter-productive from\nan energy policy point of view. It could signal to\nthem, the beginning of the end of very favored treatment.\nC. Conclusions\nThe REA electric programs clearly have their primary impact\nin the energy area with secondary rural development impacts.\nAs such, these programs properly belong in a consolidated\nenergy organization where they can be rationalized with\nother programs realting to power marketing and general\nenergy policy. The telephone loan programs are not directly\nenergy related and could, from a programmatic viewpoint,\njust as well be left in USDA. However, the total adminis-\ntrative costs of both programs would probably increase if\nthey were separated.\nOrganizationally, REA divides cleanly and evenly between\nthe electric and telephone programs. Consolidation could\ntherefore be accomplished with little administrative\ndifficulty. This would result in about 400 REA employees\nassociated with the electric programs being transferred to\nthe proposed Energy Department and an equal number of REA\nemployees remaining with the telephone programs in USDA.\nIn summary, there is no sound reason to leave REA out of\nthe energy consolidation planning other than the strong\nprospect of losing the case on political grounds. It is\nrecommended that it be included therefore. If it sub-\nsequently is ruled out and retained in USDA, it would not\nbe a crucial loss to the viability of an energy consolidation.\nD. Department of Agriculture Position\nThe Department of Agriculture prefers not to take an\nofficial position concerning the potential consolidation\nof REA into an Energy Agency.\nFORD\n9\nE.\nPresidential Decision\nAgree to inclusion of REA in either a\nDOE or DENR proposal\nAgree to inclusion of REA electrification\nprograms in either a DOE or DENR proposal,\nbut rural telephone programs to remain in\nUSDA.\nDisagree. Leave in USDA.\n10\nIV. Naval Petroleum Reserves Program\nA. Program Description\nThe Naval Petroleum Reserves (NPS) were originally\nestablished, in the early 1900's, to insure an adequate\nsupply of petroleum for national security purposes in\nthe event of wartime interruption of the supply of\npetroleum. However, P.L. 94-258, enacted at the insti-\ngation and support of the Administration in response to\nthe energy crisis altered the concept and status of the\noriginal NPS by providing for the transfer of NRP No. 4\n(Alaska) to the Department of Interior in 1977 and by\nauthorizing production of NPR's Nos. 1, 2, and 3 (in\ncontinental U.S.) through 1982 by the Navy to facilitate\nthe development of the Strategic Petroleum Reserve\nauthorized by the Energy Policy and Conservation Act of\n1975, P.L. 94-163.\nIn effect, P.L. 94-258 assumes that all national needs\nfor petroleum, military and civilian, can be critical in\ntime of emergency and all sources of petroleum are to be\npooled without prior earmarking. Similarly the strategic\nstorage of petroleum would be set aside for emergency\ncircumstances, but without prior earmarking as to end use.\nIn addition to the four petroleum reserve sites, the Navy\npresently has administrative responsibility for three oil\nshale reserves which are currently undeveloped.\nB. Issue Relates to DENR only\nThe transfer of NPR responsibility from DoD as part of\na general energy reorganization relates to the DENR\nalternative because of its comparable functions of fossil\nfuel leasing on public lands. The DOE alternative would\nnot assume these functions from Interior where they are\nnow performed, and, consequently, NPR would not be a\ncandidate for transfer to a DoE.\nHowever, if Interior remains in being because the DOE\nalternative is chosen rather than DENR, serious consider-\nation should be given to transferring all of NPR to\nInterior. Finally, if it is decided to retain the present\nstructure rather than other DOE or DENR, serious con-\nsideration still should be given to transferring all of\nNPR to Interior. These actions would be consistent with\nthe change in concept of the NPR from a military-only\nemergency supply.\nC. Advantages and Disadvantages of Inclusion in DENR\nAdvantages\nTo find an economically viable, yet environmentally\nacceptable process to extract petroleum from oil shale\nin the near future is going to require a coordinated\nenergy resource development effort by both private\nand government concerns. To date, this has largely been\na fragmented effort which requires extensive, time\nconsuming interagency coordination. It makes sense,\nboth programmatically and administratively to consolidate\nthese oil shale resource development programs within a\nsingle department or agency whose primary mission involves\nenergy resource management and leasing. Navy oil shale\nreserves are only a small portion of the total national\nreserves and, therefore, transferring the administration\nof these reserves to a DENR could be accomplished with\nrelative ease.\nDOD and Navy recently initiated an oil shale RD&D program\njointly with ERDA and a private company. Consolidation\nof this oil shale program with other similar civilian\nenergy agency programs would provide a more distinct\nseparation of civilian and military functions.\nWith respect to the petroleum portion of the NPR, there\nare several benefits that would be derived from con-\nsolidation into the agency responsible for energy\nleasing and Federal land management.\nIt. provides a single clear cut picture of the total\nnational petroleum reserves, both in the ground and\nin strategic storage.\nIt facilitates tradeoff analysis to determine how\nmuch reserves should be maintained in each account\n(i.e., military VS. civilian), as well as provide\na mechanism for shifting resource reserves from one\naccount to another as needed.\nIt simplifies total program administration.\nIn summary, our Nation's security includes not only a\nstrong national defense, but also a sound and stable\neconomic base. Obviously, the administration of our\nnational petroleum and oil shale reserve programs affects\nboth the country's defense and economic well-being.\nInasmuch as these programs are clearly energy oriented,\nthey could be best administered by a department or\nagency with responsibility for energy resources develop-\nment on public lands. NPR programs also could more\n12\nreadily obtain support in DENR than in DcD because\nof closer affiliation with expertise of Geological\nSurvey, Bureau of Land Management, Bureau of Mines,\nand others.\nDisadvantages\nStrong political resistance is likely from the Armed\nServices Committees of both Houses.\nD. Conclusion\nConceptually and for practical administrative efficiency,\nall of NPR - not just the Alaskan portion - should be in\nDENR if that alternative is selected.\nManagement of the NPR, both petroleum and shale, is now,\nby law, viewed in a different light from its historic\nconcept of a military-only set aside. It is now part\nof a more integrated energy approach for both military\nand civil uses. Also, the management of these resources\nis administratively closely related and analogous to\nthe Interior energy leasing and lease management functions\nwhich would be in the DENR if that alternative is chosen.\nThese points seem compelling in judging the best placement\nfor NPR.\nE. DoD Position\nDoD opposes transfer of both oil shale and petroleum\nreserves to a civilian Energy Agency, primarily on the\nbasis that further commercialization of NPR for non-DoD\npurposes is unwarranted.\nF. Presidential Decision\nAgree that all of NPR 9both shale and petroleum)\nshould be included in the DENR concept, if that\nalternative is chosen.\nIf basic energy organization decision is for\neither DoE or the present structure, pursue\nthe transfer of all NPR (shale and petroleum)\nto Interior.\nDisagree. Leave NPR in Navy.\nFORD\n13\nV.\nNational Oceanic & Atmospheric Administration (NOAA)\nA. Background\nNOAA, located in the Department of Commerce, has\nresponsibility for a wide range of scientific programs\nin oceanic and atmospheric services and research,\nin coastal zone management and in fisheries resource\nmanagement. The interaction of NOAA programs with\nnatural resource and, to a lesser degree, energy\nmatters, is considerable.\nB. NOAA Relationship to DENR and DoE\nNOAA, in total, would be a candidate for inclusion in\nDENR but not in DoE. IF the DOE alternative is chosen,\nNOAA functions should be studied further to determine\ntheir best disposition including some possibly to the\nDOE (e.g., impact aid), others possibly to Interior\nor to remain in Commerce.\nThe following advantages and disadvantages relate only\nto the inclusion of NOAA in DENR.\nC. Advantages and Disadvantages of Inclusion in DENR\nAdvantages\n1. It would facilitate the coordination of those\nservices which NOAA currently provides in support\nof energy and energy-related programs in FEA, ERDA,\nand Interior, particularly those related to Coastal\nZone Management (CZM) programs and CZM energy\nimpact funding.\n2. It would consolidate almost all of the Federal\nGovernment's knowledge, expertise and facilities\nfor the conduct of surveys, assessments and\ninvestigations of the physical, chemical and bio-\nlogical characteristics of the oceans and the\nlakes as well as the geological and geophysical\nprocesses of the solid earth and its resources.\n3. It would consolidate all Federal programs relating\nto the conservation, restoration and management of\nmarine mammals and marine, fresh water and anadromous\nfishery resources.\n4. It would consolidate the Federal Government's\nexpertise and capability for monitoring streamflow\n14\nand water quality, determining the distribution and\ncharacter of sub-surface water, and assessing the\nNation's water supply. This centralized capability\nwould be particularly valuable in developing plans\nfor western coal development and for identifying\nsuitable sites for locating nuclear power plants.\n5. It would consolidate, and make more effective and\nresponsive, those Federal programs which were\ndesigned to reduce loss of life and property from\na broad spectrum of natural disasters, including\nfloods, tornadoes, severe storms, earthquakes,\ntsunamis, volcanic eruptions and landslides.\n6. It would provide a central source of almost all\nof the environmental data essential for making\ncomprehensive assessments of the environmental\nimpact of various energy and natural resource\ndevelopment activities.\n7. It would consolidate much of the civilian production\nof maps and charts for the earth, the oceans and\nthe national air space.\nDisadvantages\nFrom a program operational standpoint, there are a\nfew disadvantages to including NOAA in a Department of\nEnergy and Natural Resources. The disadvantages to\nsuch inclusion basically focus on the reaction of\noutside organizations.\n1. NOAA is perceived as an environmental organization\nnot biased by resource utilization and development\ninterests. Placing NOAA in the department that is\ncharged with resource development could jeopardize\nthis relationship and the reaction of the environ-\nmental community to consolidating NOAA into DENR\nwill probably be negative.\n2. NOAA joining DENR runs contrary to other study\nrecommendations on how the Federal effort in\nocean and atmospheric affairs should be organized,\ni.e., that, NOAA should be the central element in\na separate ocean organization at Cabinet level\nFORD\nD. Conclusions\nIn the event the decision is to form a Department of\nEnergy and Natural Resources, NOAA should be included\nas a major and integral part of this Department,\nprimarily for natural resource management reasons.\nOn the other hand, if the DoE option is selected,\nfurther study should be given to whether or not NOAA\n15\nfunctions should be dispersed to Interior, DOE, Commerce,\nand other Federal agencies.\nE.\nDepartment of Commerce Position\nNOAA programs in the fiscal 1977 budget comprise\napproximately 30% of the Department's funds and\napproximately 40% of its full time permanent employees.\nUnder these circumstances, it would be difficult to\nsay that the transfer of NOAA from Commerce to DENR\nwould be without impact. From an operational stand-\npoint, however, such a transfer would result in few\nactual disadvantages. Although the Department would\nhave to make a greater effort to assure continued\ncoordination with the Economic Development Adminis-\ntration and Maritime Administration programs.\nThe Department of Commerce may actually benefit from\ntransferring NOAA to DENR because such a transfer may\nallow overall Departmental program managers and policy-\nmakers to focus more of their time and attention on\nthose programs which bear a more direct relationship\nto the economic growth and development orientation of\nthe Department.\nF.\nPresidential Decision\nAgree to inclusion of NOAA in the DENR,\nif that alternative is chosen.\nIf DoE is selected, perform further\nanalysis to determine feasibility of\ntransferring parts of NOAA to DOE,\nInterior, and other Federal agencies.\nDisagree, leave in Department of Commerce\nregardless of energy organization decision.\nOrganization For\nEnergy Policy Formulation, Coordination and Monitoring\nExecutive Summary\nThe question addressed in the attached paper is: Assuming each\nof the major alternative organizations being considered for\nFederal energy and energy-related functions --- what kind of\norganization or system would be needed to formulate and coordinate\nnational energy policy and see that it is implemented? The scope\nof the question takes in a composite energy policy system\ncomprised of:\nThe role of the lead energy agency or agencies;\ninput from other line agencies including such\n\"non-energy\" agencies as State and Treasury, and\nthe coordinative function of Executive Office units\nincluding those which are either general purpose or\nspecial purpose.\nThis subject is not easily susceptible to analysis and clearcut\nanswers. The issue involves an interplay of numerous factors all\nof which are judgmental in character and some of which require a\nfuture projection of the energy situation and Federal organization\nfor energy matters. The balance of this summary itemizes and\ndescribes briefly the governing factors in determining the\nmechanism needed for national energy policy.\n1. Understanding the nature of the energy policy task\nis basic in determining how to organize for it.\nFocus is on national policy from the perspective\nof the President.\nThe whole policy cycle is involved: formulation,\ncoordination, decisionmaking, implementation\nmonitoring, evaluation and reformulation.\nIn many important areas of energy policy the course\nhas been charted and substantial progress made in\nachieving agreement on basic directions. Some\nimplementation decisions have been reached as well.\nBut others remain unresolved. In succeeding years,\nsome new fundamental decisions will be required and\nsome already made will require reexamination. Even\nwhen the energy agencies have themselves shifted\ninto a monitoring and implementation phase, the\n- 2 -\nbroad variety of interfaces (i.e., international,\nenvironmental, etc.) characteristic of energy\nissues will require interagency policymaking.\nEnergy policy is a compound of domestic and\ninternational considerations. The energy policy\ngroup should have an international expertise.\nEnergy policy decisions must be balanced with\nother goals whichare often the province of non-\nenergy agencies; e.g., general economy, environment,\nresource management, foreign affairs, national\nsecurity and others.\nEnergy decisions and actions may have short or\nlong-term consequences, but since these interact,\nthey must be analyzed as one.\n2. The function of energy policy formulation and\ncoordination has recognizable organizational\nrelationships with other energy functions.\nData collection and analysis. Credibility of data\nis seen by many including Congress, to be\nthreatened if the data process is organized as a\nsubordinate unit of the policy group or directly\nreporting to the same individual. Yet, the data\nsystem must respond to needs of the policy\nformulation process.\nResearch and development. R&D planning should be\nsensitive to technology needs identified outside\nitself including those surfaced as a product of the\npolicy process. At the same time, R&D is a long-\nterm investment requiring stability to reach maximum\nproductivity, and it should not be directly governed\nby the dynamics of the policy process.\nEnergy regulation. Regulatory actions, especially\nrulemaking should be compatible with carefully con-\nstructed and widely debated energy policy, so as not\nto be counter-productive in terms of meeting national\nobjectives. On the other hand, regulatory decisions,\nespecially case actions, must be sufficiently free\nof policy pressure to be seen and accepted as\ncredible and as satisfying due process requirements.\nEnergy development and conservation operations.\nShould clearly be governed by program policies which\nare specifically reconciled with overall energy policy.\n- 3 -\n3. It is instructive, with cautions, to evaluate the\nexisting policy process in determining how to best\norganize for policy functions in the future.\nThe ERC/FEA system for energy policy formulation\nand coordination has several structural flaws which\nmight be avoided with a DENR or DOE arrangement.\nThese include:\n- In the absence of a Cabinet-level energy\nagency, ERC is chaired by a Secretary who\ndoes not otherwise have a basic energy\nmission. This arrangement fragments the\nalready difuse energy policy process. There\nis no single energy spokesman. Consolidation\nof energy organization would clarify the\nenergy perspective.\n- ERC must rely on FEA for backup. Some other\nagencies tend to view the ERC/FEA system as\nan FEA vehicle regardless of the quality of\nthe ERC's analysis. Consequently, they take\nup energy policy issues through other channels.\n- Energy policy formulation is not comprehensive:\nERC/FEA concentrates on short range and\nlegislative; other agencies have other primary\ninterests, i.e.: ERDA - long-range; State/NSC -\nforeign aspects; Treasury/CEA/EPB - economic\naspects.\n- In some cases ERC/FEA duplicates the general\npurpose coordinative bodies of the Executive\nOffice, especially OMB's legislative review\nprocess.\nOn the positive side, the ERC/FEA system has\nprovided a forum for high level interagency dis-\ncussion of urgent energy issues over a tumultous\nperiod. This forum might not have been available\nthrough strictly convential mechanisms.\n- More senior level attention has been given to\nconfronting problems than might otherwise have\nbeen the case.\n-4-\n4. The major energy organization alternatives - i.e.,\nDENR, DOE, and the present structure - have differing\ncapabilities and limitations in performing the energy\npolicy making task.\nDENR and DoE would provide a Cabinet-level capability\nto formulate policy. DENR would have a relatively wider\nspan of relevant concerns than DoE. Both would have a\nSecretary to serve as a top level interagency spokesman\nwho is directly concerned and who has the policy capa-\nbility directly at this command.\nThe DoE alternative, unlike DENR, would result in an\nenergy spokesman at Cabinet-level who is basically a\nsingle-minded energy advocate. As the chief formulator\nof energy policy, it would be necessary for the system\nto provide some check and balance so that the necessary\nreconciliation of energy with other concerns takes place.\nAn energy agency EA would be less able to clarify the\nenergy policy perspective in an interagency context.\nA limitation is that neither DENR nor DoE would cover\nall pertinent concerns such as economic, foreign\naffairs, general environment, and others.\nEither DENR or DoE would offer a more established policy\nformulation and coordination capability than the present\nERC/FEA systems which has the limitations described\nearlier. Providing the ERC with its own policy analysis\nstaff would retain some of the existing coordination\nproblems and either duplicate or replace existing\npolicy coordination capability.\n5. Assuming DENR or DoE, the \"normal\" or conventional\narrangements for policy formulation and coordination could\nbe utilized, but also might be supplemented with more\nexceptional policy coordination arrangements as needed to\nperform the energy policy job.\nThe \"normal\" procedure would include staff analysis and\ninitial formulation of policy in the energy department.\nInteragency consultation as appropriate would be performed.\nCoordination of draft positions of the Department, such\nas legislative material or Presidential decision papers\nwould go through usual Executive Office units including\nOMB's legislative review process which formally involves\nall affected agencies.\nTo supplement these usual processes, it may be useful to\nhave a top-level interagency forum to resolve the many\nimplications of energy policy. If so, as a first\n- 5 -\nincrement of \"exceptional\" arrangements, an interagency\ncommittee such as the ERC could be continued. It could\nbe chaired by the Secretary of the energy agency who would\nutilize his regular policy staff. Several of the struct-\nural flaws in the present ERC/FEA system might be rem-\nedied by such an institutional arrangement. Any agency\nhead not satisfied with the product of coordination\nthrough this interagency committee process would be free\nto carry his views forward to the President if necessary.\nThis would check any tendency for the Energy Secretary\nfrom pushing unbalanced positions to the President.\nSome further escalations could be considered - but do not\nappear to be useful at this time. For example, a more\nelaborate staffing mechanism could be established in the\nExecutive Office even if there were a consolidation of\nenergy functions. A general purpose Executive Office\nagency such as the Domestic Council or OMB could be given\nspecial responsibility for energy policy leadership.\nAlternatively, a new organization such as the CEQ could be\ncreated for the purpose of establishing an institutional\ncoordinating point. These forms of exceptional escalation\nmight be considered, if needed, at a later point.\n6. Assuming no Cabinet consolidation of energy functions\nand establishment of an Energy Agency or a continuation\nof present organizations, more formal coordination of\npolicy should be considered.\nStructural flaws in the present ERC arrangement suggest\nthat more comprehensive coordination of energy policy\nissues should be established if there is no reorganiza-\ntion of energy functions. A more \"neutral\" coordinating\narrangement might also be useful in reducing the concern\nof some agencies that FEA dominates the policy process.\n- In the case of an establishment of an Energy Agency\nwhere there would not be the same level of energy\nadvocate as in a Cabinet-level energy department, it\nmay be useful to have a formal and full-time Energy\nAdvisor in the Executive Office chair the interagency\ncommittee.\n- In the case where the present organizational arrange-\nments are continued, it may be useful to establish an\neven stronger policy coordination mechanism in the\nExecutive Office than the present ERC/FEA system. A\nlong-term need for an energy policy forum capable of\nintegrating points of view across agency lines is\nevident. The ERC can do this. However, the addition\nFORD\nis\nGERALD\n- 6 -\nof a small staff could help make the continuing\nERC more \"neutral\" with respect to FEA activities\nand an improved forum for the full range of energy\npolicy matters as it affects all agencies. Once\nthe energy policy issues have been thrased out in\na broad way at the top policy and interagency basis,\nthe bulk of any legislative coordination should be\nprocessed through the normal OMB legislative review\nprocess.\nAnalysis of\nOrganization to Perform\nEnergy Policy Formulation and Coordination\nI.\nScope and Purpose of Paper\nThis analysis is a component part of the overall organi-\nzation study of Federal energy and energy-related functions.\nIts purpose is to address the question of effective\norganizational arrangements for formulation and coord-\ninating national energy policy, subsequent monitoring\nto assure implementation and, as necessary, reformulating\npolicy. The scope covers all national energy policy and\nthe part played by all affected agencies, existing or\npotential, and any Executive Office role.\nThe focus of this paper is on the institutional arrange-\nments needed to perform the energy policy task. It does\nnot reexamine policy content as such, nor the process\nby which policy issues are publicly debated or negotiated\nwith Congress.\nSince this paper is part of a larger study, it is not\nintended to recommend final answers but instead, to\nanalyze what is needed and derive guidelines regarding\npolicy-making arrangements which should be considered\nin overall energy organization planning.\nIn terms of overall energy organization planning, this\npaper assumes three alternative organizations as leading\ncontenders following Phase I of the general study:\nconsolidation of prime energy programs\ntogether with some natural resource programs\nto form a-Department of Energy and Natural\nResources.\nConsolidation of prime energy programs to form\na - Department of Energy or an Energy Agency.\nContinuation of essentially the present agency\nstructure for energy and related functions.\nFORD & LIBRARY GERALD\n2\nThis first two cases above involve a question of\nwhether or not an ERC or similar Executive Office\nmechanism would still be required, and if so, what\nform it should take. The third case involves the\nquestion of whether or not the ERC should be strength-\nened, and, if so, how.\nThe remainder of this paper is sub-divided as follows:\nII. Analysis as to the nature of the energy\npolicy task -- especially in the foreseeable\nfuture.\nIII. Relationship of the policy function, to other\nenergy functions -- especially data, regula-\ntion, and research and development.\nIV. Description and evaluation of the existing\nenergy policy system.\nV. The capability and limitation of each major\nalternative energy organization in performing\nenergy policy formulation and coordination.\nVI. Options for energy policy formulation and\ncoordination.\nII. Nature of the Energy Policy Task\nThe task of formulating and coordinating national policy\nand assuring its implementation differs among the various\nfields of public affairs. This section of the report\nidentifies the major characteristics of the policy task\nin the energy field in order to help assure that the\nenergy policy machinery is tailored to the task. Some\nof the characteristics of the energy policy task cited\nin this section are peculiar to the energy subject, others\nare not.\nA. National Policy Requiring Presidential Perspective.\nPrimary concern is with the major and overriding\npolicy issues which transcend specific programs or\nagencies and can be thought of as national in character.\nDecisions at this level clearly require Presidential\ninvolvement and the integration of many points of\nview. Broad energy policy at this level -- e.g.,\ncontinued major reliance on private sector and\n3\nminimum feasible intervention in free market\ndecisionmaking -- sets directions for subordinate\nand more program specific policy decisions --\ne.g., transfer of uranium enrichment to private\nsector and natural gas deregulation.\nThe policy machinery must serve the President's\nneed for balanced and objective advice which inte-\ngrates many points of view on the broad policy\nissues and major subordinate level issues which,\nwhile they may be program or energy-sector specific,\nare instrumental in achieving national energy\nobjectives. In short, the energy policy mechanism\nshould be geared to serve the top-down perspective\nof the President comprehending the broadest pos-\nsible issues and reaching down to such levels of\ngreater specificity as is needed to assure that\nmajor goals are being achieved.\nB. Must Cover the Full Policy Cycle.\nThe energy policy task involves the full policy\ncycle -- formulation, coordination, decision-\nmaking and, subsequently, monitoring implementation,\nevaluation and reformulation as necessary. Again\nthe emphasis is on the Presidential or national\nperspective.\nBoth the steps leading up to decision (formulation\nand coordination), and the post-decision steps\n(monitoring and evaluation) contemplate a central\nstaff capability which has an established and recog-\nnized relationship with major energy program officials\nwherever they may be organizationally placed.\nC. Future Mix of Policy Issues as to Formulation\nand Implementation\nThe type of policy formulation and coordination\nmachinery needed in the years ahead should be governed\nin large part by future trends that can be anticipated\nin the energy policy task. There is some reasons to\nbelieve that the unstructured nature of energy policy-\nmaking over the last three years will not continue to\nthe same degree in the future and has\nFORD\nGERALD\n4\nalready changed somewhat from that which\nprevailed in the early post-embargo period.\nThe key question might be stated, - will future\npolicy issues continue to cover novel and un-\ncharted ground, or, will they increasingly fit\nwithin the guidance offered by established,\nbroad policy? Another view of this same question\nis whether or not energy policy issues in the\nyears to come will continue, in many cases, to\ndemand Presidential attention or can be resolved\nat lower levels.\nThe picture is mixed. In many areas, decisions\nhave now been made. Policies have been set in\nmotion. In these situations, the energy policy\ntask is to monitor implementation of these agree-\nments rather than to formulate new policy. But\nthe picture also includes other areas in which\ndisagreement on the course that the government\nshould follow continues to persist. In these\ninstances, formulation of basic policy will still\nbe required.\n1. Increasing focus on policy implementation\nMany close observers of energy matters feel\nthat much of the policy ferment of recent years\nhas been resolved. Broad outlines of consensus\nare beginning to emerge in important policy areas.\nFor the first time, key Congressional and executive\npolicy makers are in essential agreement on many\noil issues. There has emerged some semblance of\nagreement on the role of regulations governing\nmost fuel products and the broad goal of national\nenergy policy -- self sufficiency and reducing\ndependence. Some of the broad general principles\nby which energy is to be developed and conserved\nhave been established. The central role of private\nenterprise has been confirmed. The limited use to\nwhich coersive regulations will be used to enforce\nconservation has also emerged as an element of\nconsensus. Even the role of price in inducing\nsupply and limiting demand is becoming more widely\naccepted.\n5\nMajor policy decisions have been made as well\nat the level of more specific programs or energy\nsectors. For example, an oil pricing policy has\nlargely been established. The decision has been\nmade to construct a strategic storage system.\nDecisions have been made to produce the naval\npetroleum reserves; to build an Alaskan oil pipe-\nline; to develop off-shore oil reserves; to provide\nmajor new sources of energy efficiency information\nto consumers in order to encourage conservation;\nand to employ a variety of means to encourage\nconservation in residential structures.\nThe energy policy task in these areas is to\nmonitor the implementation of the policy decisions,\nand assess any need for modification to the policy.\n2. Major policy formulation issues still remain\nIn important areas of energy policy, there is\nno full consensus.\n-- Natural gas is still regulated at artifici-\nally low levels. Supplies are decreasing.\nEach winter the prospect of shortages becomes\na more pressing concern.\n-- Nuclear issues are becoming more intensely\ndebated. Following the Nuclear Regulatory\nCommission's recent ruling on waste disposal,\nnuclear plant construction has, in effect,\nbeen suspended. Major investments will be\nrequired in the nuclear industry in order to\nsustain growth. In the meantime, estimates\nare cut back each year on the role that\nnuclear power can play in generating electri-\ncity. Since Project Independence was heavily\ndependent on nuclear power playing a major\nrole, these cutbacks could require major\npolicy reevaluations.\n-- Coal production has increased since the\nembargo. But Clean Air Act restrictions\ncontinue to limit coal use. Proposed amend-\nments tightening restrictions may even increase\nfuture difficulties in burning coal.\nGERALD\n6\nDevelopmentof synthetic fuels and other\nimportant substitutes for conventional fuel\nwill require government commitment to pro-\ntecting early investors. But, without\nCongressional agreement on the merits of such\nguarantees, major legislative development\nwork will have to take place.\nIn addition to these clear policy issues left unre-\nsolved by years of debate, there are two other kinds\nof problems. The first is that big issues exist even\nin seemingly settled policy areas. Although the\nessential policy framework may have been established,\nthe implementation of the major decisions may require\nsignificant policy coordination on an interagency\nbasis. In other words, some issues of implementation\nsuch as controversies over the Alaskan pipeline, or\nthe production of the naval petroleum reserves have\nmajor interagency significance necessitating Executive\nOffice and very likely Presidential level attention\nin the coming years.\nThe second kind of energy policy problem is the fund-\namental problem of issues which were not considered\nor resolved in the past. For example, United States\npolicy toward OPEC has never been clearly articulated.\nOPEC investment in the United States (particularly in\nenergy facilities) is another issue area in which there\nhas been little attention to date. Finally, the\ngovernment will some day have to cope with the funda-\nmental short term issues of environmental and energy\nsignificance concerning the continuing national\nreliance on the automobile.\nD. Careful blend of domestic and international considerations\nIt is, by now, well recognized that national energy\npolicy must take into consideration both domestic and\nworld-wide factors. The stage for projecting energy\nsupply and demand is global. Because of its signifi-\ncance on world stability, energy - especially oil -\nis a matter of high concern in conducting our foreign\naffairs. Actions to strengthen our domestic position\nmust be weighed in the light of their effects on other\nnations whose viability is important to us.\n7\nThis intertwining of foreign and domestic energy\nissues and policies says something further about\nthe kind of energy policy machinery we need. For\none thing, the State Department and the National\nSecurity Council are, and will continue to be,\nvitally concerned and will, therefore, want to\ncontinue to have staff capability or expertise in\nenergy matters.\nThe State Department and NSC, however, are not,\nand will not be, centrally charged with the develop-\nment or implementation of national energy policy.\nThey are participants and should have a clear voice,\nselectively, in energy policy debates.\nThere is no way, however, of segregating energy\npolicy issues which are \"domestic\" from those which\nare \"international.\" As a consequence, the agency\nand the group which has central responsibility for\nenergy matters must have a sufficient staff capability\nwhich is well-informed and participating in inter-\nnational energy matters. The close coordination\nneeded for domestic and foreign aspects of energy\ncannot be left to a \"pass-over\" system, but requires\nmutual involvement of both kinds of agencies even\nat the cost of some apparent overlap.\nE. Energy policy decisions will continue to involve\nheavy trade-offs with competing objectives and values\nBoth at the level of broad course charting policy\nand, even more so, at subordinate or implementing\ndecisions, energy objectives tend to collide with\nother values and objectives. The most apparent are\nenvironmental, health, safety, conservation, national\nsecurity, consumer and national or regional economic\nstability. Less evident but of potential great con-\ncern are the impacts that energy decisions can have\non citizen life styles, freedom from excessive regula-\ntion, privacy, and others.\nIf energy policy decisions involve a balancing of\nso wide a range of considerations, the question occurs\nas to how these points of view are to be represented\nin the decisionmaking process or in the advice coming\n8\nto the President where the decision is at that\nlevel. A part of the answer related to the span\nof responsibilities of the principal energy agency.\nThe wider the span, the less the need to externally\ncounterbalance the energy agency. However, no matter\nhow comprehensively the energy mission is structured\nto include moderating responsibilities -- natural\nresources for example -- it will not include all\npertinent points of view such as overall functioning\nof the economy or protection of air and water quality.\nThe consequence of this is that the total energy\npolicy making apparatus will need to provide for\nhearing from and reconciling\npoints of view\nwhich are not primarily focussed on energy. The\nrelative ability or shortfall of the several alter-\nnatives for energy organization to take in the whole\nrange of pertinent factors is discussed further in\nSection V.\nF. Short-term and Long-term considerations must be\nviewed together\nSome policy issues in the energy field have a very\nimmediate time factor. Others involve gradually\nevolving problems and solutions which are long-term\nin paying off. The analysis of short-term actions\nand long-term investments must be carefully inte-\ngrated for maximum results.\nIII. Organizational Relationship of the Policy Function to\nother Energy Functions\nThe organizational placement, authority and structure of\nthe energy policy function can be defined in part by looking\nat other energy functions and seeing their relationship\nwith policy-making.\nData collection and analysis. Obviously, data is\nneeded to formulate and analyze policy options. The data\nsystem, therefore, has an obligation to respond with data\nthat is valid and pertinent to real policy issues. However,\nif the relationship is too close in a hierarchial sense,\nthere is a problem of credibility in the data gathered or\nanalyses made. The concern is that the data system will\nbe more motivated to produce answers that are hoped for\n9\nrather than those which are objectively straightforward.\nData which is lacking in credibility is of limited value\nto anyone.\nTo counteract this concern, the data system should not\nbe subordinate to the policy analysis function. It\nshould support the data needs of the policy group, but\nnot its policy positions. This relationship is analyzed\nfurther in the critical issue paper on Data Collection\nand Analysis including treatment of the newly legislated\n\"separate\" office in FEA.\nResearch, Development and Demonstration. To what\ndegree should th RD&D program address technology needs\nidentified by the policy-makers versus independently assess\nwhat is needed? This relationship of policy-maker and\nscientist is very critical in the long-range productivity\nfrom the R&D investment. A simple answer categorically\nsupporting an extreme position either way is not indicated.\nIn any case, the team which prepared the critical-issue\npaper on RD&D concluded, among other things, that the R&D\ncapability should be governed in part by technology needs\nidentified external to themselves with certain cautions\nto assure the continuity, integrity, and flexibility\nof the R&D function and its constituent projects.\nRegulation. A fundamental question to be worked out\nin the planning of energy organization is the proper\nrelationship between policy formulation and implementation\non the one hand, and regulation on the other. Many feel\nthat they are inherently conflicting and that they should,\ntherefore, not be located together lest one - presumably\nregulation - be compromised in the conflict with the other.\nConversely, others point out that it can be counter-\nproductive for the regulatory power to be applied in\ncomplete isolation from balanced and rational policy\nobjectives. This matter is extensively addressed in the\ncritical issue paper on Energy Regulation. There is some\nvalidity in both points of view, but it is felt that the\nintegrity of regulatory decisionmaking does not compel\ncomplete separateness, and the achievement of regulatory\nresponsiveness does not depend upon its specific sub-\nordination to policy-making.\nGERALD R. FORD\n10\nResource development and conservation operations. A\nnumber of Federal activities are underway in pursuit of\nthe policy goals of increasing domestic energy supply and\nlimiting energy demand. The operating programs for these\npurposes are not now consolidated and, as indicated in\ncritical issue papers on each of these subjects, are not\nlikely to be entirely consolidated in any possible alter-\nnative. Regardless of where they may be located, the\nenergy policy function should have a continuing relation-\nship with them to obtain policy decisions, when applicable,\nand to monitor their continued operation to assure that\nbasic policy is being adhered to.\nIV. Description and Evaluation of the Present Energy Policy\nSystem.\nA. Description\nThe central unit in the development and coordination\nof energy policy under present arrangements is the ERC.\nTo describe the ERC further, it is a statutory, inter-\nagency body comprised of the heads of Departments,\nagencies and Executive Office units which are con-\ncerned with energy matters. The ERC is chaired by\nthe Secretary of Commerce, although the Department of\nCommerce, as such, does not have major energy functions.\nThe Federal Energy Administration plays the leading\nrole in ERC affairs other than serving as Chairman.\nFor example, the FEA Administrator serves as Executive\nDirector of ERC, and the FEA policy staff is, in\neffect, the principal analytical staff for the ERC.\nFEA also provides the ERC Secretariat role of keeping\nrecords, preparing agenda items, etc. Frequently\nthe ERC functions through its Executive Committee\nrather than the entire body. This Executive Committee\nincludes, in addition to the ERC Chairman and Executive\nDirector, the heads of Treasury, Interior, OMB, ERDA,\nCEA, EPA, the Assistant to the President for Economic\nAffairs and the Undersecretary of State. Over the\npast eight months, 23 of 26 meetings of the ERC have\nactually been of the Executive Committee, not the full\nERC. The full ERC generally meets bi-monthly for\ninformational presentations, but not generally to\ndebate policy issues.\n11\nEnergy issues and economic issues inevitably con-\nverge. Consequently, the Executive Committee of ERC\nand the Economic Policy Board frequently meet jointly.\nIn fact, the membership of these two groups tends to\nbe the same persons in any case.\nThe ERC initially provided the vehicle for the\ncomprhensive Cabinet-level review of detailed energy\npolicy options which led to the President's 1974\nEnergy Message. More recently, the ERC has reviewed\nand analyzed discrete policy proposals such as those\ninvolving LNG imports and Alaskan natural gas trans-\nport. The ERC also has assessed major issues which\nrelate more to implementation of existing policies\n(at least in the sense that new legislation is not\nrequired). Examples include review of EPCA implementa-\ntion, and natural gas curtailments.\nIn these cases, the ERC typically has reviewed papers\nprepared by the lead agency on a given issue, has\nformed a task force or study group to analyze the\nissue, has used a permanent ERC subcommittee, or has\nformed a new one. Temporary task forces have been\nformed on the Federal energy organization, west coast\noil transport, synthetic fuels commercialization, and\nother issues. Ongoing subcommittees include (a) the\nIntergovernmental Coordinating Committee (ICC), which\nin turn has established subcommittees on conservation,\nsynthetic fuels, impact assistance, and coal programs;\n(b) the Task Force on Thermal Standards; (c) the Task\nForce on Motor Vehicle Goals Beyond 1980; (d) the\nNuclear Subcommittee and (e) the International Sub-\ngroup, among others.\nThe ERC also serves as a forum to update positions\non pending legislation resulting from Administration\npolicy proposals and at times to discuss tactics\nrelating to such legislation. Again, the ERC relies\nprimarily on lead agencies (e.g., Clear Air Act\nAmendments Task Force) for its analysis. The ERC\nemploys the same process to develop Administration\npositions on and tack other energy-related legislation,\nsuch as that on oil company divestiture or the\nKennedy conservation bill.\nWith the exception of the initial efforts leading\nto the President's Energy Message, the ERC, which\n12\nhas no permanent staff, has acted more as a\npolicy coordination body than as an organization\nwhich initiates the formulation of policy. On the\nother hand, there are obvious exceptions (e.g.,\nAlaskan gas transport and LNG import policy). Since\nthe FEA has initiated many recommendations which the\nERC then has taken up, the ERC Executive Director,\nwho is also the Administrator of FEA, in fact, has\nbeen able to initiate policy development.\nAs a coordinating body, the ERC, besides producing\ndiscrete outputs such as decision memoranda, also\nprovides a forum for top-level decision-makers to\nmeet periodically to discuss energy policy.\nB. Evaluation\nSince its creation in 1974, the ERC mechanism has\nbeen confronted with a situation of major policy\ninnovations going to such basics as a reexamination\nof the relative role of the public and private sectors.\nPolicy issues have been large in number as well as\noften fundamental in character. The fact of having\nan exceptional mechanism such as ERC has served us\nwell in the light of these events, especially in the\nabsence of a Cabinet-level Department and Secretary\nwith a clear lead role. In situations where there\nwere fundamental disagreements, even within the\nAdministration, the ERC provided a point of focus\nfor senior policy makers with a broad interest in\nenergy topics. These individuals might otherwise\nhave been too disassociated with the day-to-day\nenergy issues to be well informed and see the need\nfor dramatic steps. Without being informed, such\nsenior officials might have been more likely to oppose\ncontroversial energy actions which impacted on their\nareas. The ERC became a vehicle for permitting\npositive action. But there have been criticisms of\nthe ERC as well which should not be overlooked.\nAn analysis was made of ERC actions taken on agenda\nitems over a year's time indicating the subject\nmatter, the lead responsibility, and the action taken.\n(See Attachment A). Summary is then given of issues\nhandled by lead agency with FEA predominating by a\nsubstantial margin. Over the year, policy/legislative\nitems occurred 35 times, while implementation issues\ncame up for discussion 13 times.\n13\nWhile much good work has been performed under\nintense pressure, the structural arrangements for\nenergy policy formulation and coordination as\ndescribed above is not well suited to all aspects\nof the continuing energy policy task.\nA critical evaluation of ERC/FEA policy mechanism\nincludes the following points:\n1. Comprehensive overview is missing. FEA has a\nshort-term view, ERDA concentrates on policy decisions\nthat would pay off in the long-term. State Depart-\nment takes a foreign-policy oriented look at energy\nwhile the FPC and the NRC quite independently regulate\ntheir respective sectors. The ERC has not performed\nthe role of integrating these fragmented views.\n2. May be duplicative of normal coordinative machinery.\nThe ERC at times represents an alternative track for\npolicy development which duplicates the more conven-\ntional staffing process of OMB budget and legislative\nreview and the Domestic Council's coordination role.\n3. ERC as an FEA device. Some feel that the analysis\ndeveloped by the ERC has been limited in value. In\nsome cases, the critics charge, the ERC has played an\nadvocacy role. In others, it has represented FEA's\npoint of view to such an extent that some agencies\ntry not to bring issues to the ERC. Agencies tend\nto use ERC if it is likely to be to their advantage,\nbut can easily go an alternate route if the chance\nfor controlling the action appears better - i.e., OMB,\nNSC, EPB, etc.\n4. Implementation monitoring is weak. The ERC can\nengage in secondary policy issues to the degree that\ntime permits, but this is not the same as system-\natically following major decisions to see that they\nare being implemented. ERC, as noted, has no\nanalytical capability of its own. The FEA staff is\na non-Cabinet agency and has direct jurisdiction\nitself over only a fraction of the implementation\nactions of the government. Its ability to track\nbroad decisions to the implementation and feed-back\nstage is limited.\nGLRALD FORD\n14\nV.\nEnergy Policy Capability and Limitations of Major\nEnergy Organization Alternatives\nThe major alternatives to the present energy and\nrelated structure are (1) a Department of Energy and\nNatural Resources, (2) a Department of Energy or (3) an\nEnergy Agency as described in the interim report on\nEnergy Organization. The possible consolidations are not\nequal to each other in terms of their respective ability\nto handle the energy policy task or their limitations\nin doing SO.\nThe machinery for formulating, coordinating, and monitor-\ning implementation of energy (or any other kind) policy\nincludes, in fact begins with, one or more line agencies\nand includes whatever Executive Office role may be neces-\nsary to assure balanced and objective support to the\nPresident. At present there is no one agency that has\nclear lead responsibility for energy. FEA perhaps comes\nclosest, but it has clearly less than a full range and it\nis non-Cabinet in rank. Consequently, a heavy share of\nthe load falls on the Executive Office including ERC.\nIn contrast, the possible alternatives of DENR and DOE\nwould be in a much more comprehensive position, especially\nDENR, than is FEA. In addition, they would be at Cabinet-\nlevel. The dependence on Executive Office machinery\nwould be less.\nDENR would constitute a Department and a Secretary charged\nwith energy and also with conservation and management of\nnatural resources and, therby, would take into its sights\none of the major continuing energy trade-offs. Energy\npolicy initially formulated in such a Department would be\nexpected to incorporate some balance in this regard.\nDOE, especially if it did not have Interior's energy-\nrelated land management functions, would have a lesser span\nof concerns than DENR, and energy policy formulated in such\na Department might need more extensive coordination above\ndepartmental level before it was ready for Presidential\nattention.\nEither DENR or DoE, however, would require external coord-\nination to assure other considerations were adequately\ngiven -- national economy, national security and foreign\naffairs and environmental protection.\n15\nThe prospect of an Energy Agency in lieu of a\nDepartment of Energy would result in the same span as\nthe DOE, but the agency would have a serious handicap\nin effecting interagency coordination by virtue of\nbeing sub-Cabinet.\nVI.\nAlternative Arrangements for Energy Policy Formulation,\nCoordination and Monitoring - Normal or Exceptional\nUnder the conditions of the last several years, i.e.,\nturmoil in the energy policy field together with the\nlack of a Cabinet-level spokesman with wide-ranging\nenergy responsibilities - exceptional arrangements for\nformulation and coordination of energy policy has been\nwarranted, i.e., the ERC/FEA arrangement.\nA. Assuming a DENR or a DOE\nThe prospect of a consolidation of most prime energy\nfunctions in a Cabinet Department together with a\nmore stabilized energy policy framework raises the\nquestion of whether exceptional arrangements would\ncontinue to be warranted or whether more normal\narrangements would be sufficient.\nNormal in this context would include:\n- formulation of national energy policy in\nthe energy department based on analysis by\na properly staffed policy group. Consultation\nacross agency lines at staff level would take\nplace as necessary.\n- Interagency formal coordination under the\nauspices of the lead agency itself - or -\n- Interagency coordination through regular\nExecutive Office processes such as legislative\nreview by OMB or staffing of Presidential\ndecision papers with general purpose Executive\nOffice and White House units such as CEA,\nOMB and Domestic Council.\nExceptional\nIf it appears that exceptional arrangements are still\nwarranted to cope with the energy policy task and to\nassure adequate coordination and balancing of views,\n16\nthe first level of escalation might be a formally\nestablished interagency committee or council similar\nto the ERC - but chaired by the energy department\nsecretary and utilizing policy analysis support from\nhis own department. Energy policy making involves many\npoints of view and consequently there is an important need\nfor checks and balances so that the energy secretary\nwill not be in a position to completely stifle dissenting\nviews. Any other member on such an interagency committee\nwho felt that his view was not adequately reflected in\na policy position could make his dissent known to the\nPresident through normal channels.\nA second possible exceptional arrangement for energy\nmight be to follow the normal channels of involving\nregular Executive Office units such as OMB, CEA and\nDomestic Council but to augment the staffing of one or\nmore of these to deepen their expertise and workload\nhandling capacity in energy matters.\nA final and more extreme exceptional arrangement would\nbe a separate Executive Office body for energy chaired\nby a separate Assistant to the President and with a\npolicy analysis staff separate from that of the Secretary.\nThis would be along the lines of the CEQ or the NSC.\nAgain, assuming a consolidation of energy functions\nunder a Cabinet Department and Secretary, it seems\nlogical to unify the energy task there to the greatest\nextent possible and to go up the scale of supplementary\nand exceptional policy coordinating machinery only as\nneeded.\nB. Assuming consolidation of energy functions in a\nnon-Cabinet Energy Agency\nThe chief difference here is the lesser ability of the\ntop energy official to coordinate his agency's policy\ninitiatives with the concerns of Cabinet officials\nrepresenting foreign affairs, natural resources, tax\npolicy, etc., or Executive Office officials representing\nbudgetary concerns, economic policy or, national\nsecurity. Correspondingly, if this alternative for\ngeneral energy organization were adopted, it would\nrequire a higher degree of exceptional arrangement\noutside of the agency to coordinate energy policy\n17\nprobably along the lines of the present ERC without\nstaff or even possibly with some small staff. Such\na body might be chaired by a Cabinet Secretary, as\nat present, or by an Executive Office Energy official.\nC. Assuming the present structure for energy functions\nActually, the weakness and illogic in the energy policy\nsystem is one of the primary faults with the present energy\norganization. Nevertheless, if we assume no change in\norganization for energy functions, the present system of\nan unstaffed ERC would probably be required as a minimum\nto elevate the ERC to a level that it provide formal\nleadership at the Executive Office level for energy matters.\nThe alternatives would be to (a) augment OMB's staff in\nthe energy field and thus unify the development of energy\nlegislation with its interagnecy coordination - or -\n(b) to provide the ERC with a portion of the policy staff\nnow vested in FEA and thereby continue to provide an\ninteragency and top policy level forum for shaping energy\npolicy. As a variation of the present arrangement, it\nmight be desirable to have a full-time Executive Office\nofficial to chair the continuing ERC. In any case, once\npolicy decisions have been reached, any legislative\ncoordination that results should be processed through the\nestablished OMB legislative review procedure.\nATTACHMENT A\nAnalysis of ERC Action on Agenda Items\nABBREVIATIONS/CODES IN SUMMARY OF ERC AGENDA ITEMS\nGroup Meeting\nEC\nERC Executive Committee\nERC\nFull ERC\nEPB/EC\nEconomic Policy Board/Energy Resources Council\nExecutive Committee\nGOVS\nGovernors on Energy Subcommittee of the National\nGovernors Conference\nType of Actions\nDM\nDecision Memo for the President\nIM\nInformation Memo for the President\nRP/RC\nStatutory Report to the President/Congress\nR\nReport for a future ERC meeting\nTF\nTask Force formed (long term)\nL\nLegislative liaison action\nC\nInteragency coordination (ad hoc, short term task\nforce, interagency issue paper, or comments to specific\nlead agency)\nB\nBriefing/status report\nO\nOther\n--\nNo action\nR.FORD\nGERALD\nSUMMARY OF ERC AGENDA ITEMS\nGroup\nDate\nMeeting\nIssue\nLead Agency\nAction\n7/20/76\nEC, ERC\nAlaska pipeline welds study\nDOT, DOI\nIM\n7/14/76\nEC, EPB/EC\nClean Air Act amendments\nOMB, FEA, EPA\nDM\nEnergy Organization Study--\nOMB, DOC\nR\nstatus\nEPCA Implementation--6-month\nFEA\nRP\nreview\nDraft Presidential Energy Brief\nFEA\nB\nFEA Extension- status\nFEA\nB\nPosition on Mineral Leasing Act\nDOI\n--\n7/14/76\nEC, ERC\nClean Air Act amendments\nOMB, FEA, EPA\nC\nNatural gas curtailments--FPC\nFPC\nC\ndraft paper\nBailey powerplant decision\nDOI, NRC\n:\n7/8/76\nEC, ERC\nAlaska pipeline welds--status\nDOC, DOI\nR\nPost- 1980 auto efficency\nDOI\nR\nstandards- - ERC task force status\nreport\n7/7/76\nEC, EPB, EC\nLNG import policy--options paper\nFEA\nDM\nAlaskan gas (S. 3521),\nFEA\nC\n6/25/76\nEC, ERC\nCoastal Zone Management Bill\nOMB\nC\nFEA Act Extension\nFEA\nB\nMineral Leasing Act amendment\nOMB, DOI\nC\n6/9/76\nEC, ERC\nScrubber technology options\nEPA\nR\nSynthetic fuels commercialization\nERDA\nB\nlegislative status\nGroup\nDate\nMeeting\nIssue\nLead Agency\nAction\n5/28/76\nEC,ERC\nProposed ERC statement on uranium\nERC\nC\nreserves\nKennedy Conservation Bill (S.3422)\nERC\nTF/L\nRandolph Coal Bill (S.1777)\nFEA\nL\nSenate Natural Gas Bill\nFEA\nL\n5/19/76\nEC,EPB/EC\nFederal Energy Organization\nDOC, OMB\nTF\nStudy Outline and Work Plan\nLegislation to protect retail\nFEA\nC\ngasoline dealers\nNatural Gas Bill (S.3422)\nFEA\nC\n5/18/76\nERC\nNational Energy Outlook discussion\nFEA\nB\n5/12/76\nEC,ERC\nPrivate sector technology role\nERDA\nB/R\nFederal Energy Organization\nDOC, OMB\nR\nLegislation to protect retail gasoline\nFEA\nC\ndealers\n5/4/76\nEC,EPB/EC\nNuclear Waste Management Statement\nERC\nC\nFederal Energy Organization request\nDOC, OMB\nTF\nto start\nOCS Leasing (H.R. 6218)\nDOI\nDM\n4/26/76\nEC,EPB/EC\nClean Air Act amendments\nEPB\nC\n4/19/76\nEC,EPB/EC\nClean Air Act amendments\nERC\nC\n4/13/76\nEC,EPB/EC\nConservation Contingency Plans\nFEA\nC\nInternational Energy Negotiations--\nStatus Report\nState\nB/C\nOCS Lands Act amendments (H.R. 6218)\nDOI, DOC\nC\nGER\nStrategic Storage briefing\nFEA\nB\nGroup\nDate\nMeeting\nIssue\nLead Agency\nAction\n4/7/76\nEC,EPB/EC\nClean Air Act amendments\nEPB\nTF\nVertical divestiture bill\nERC\nO\nNatural gas legislative alterna-\nFEA\nC\ntives\n3/16/76\nEC,EPB/EC\nSurface Mining Legislation (H.R. 9725)\nDOI\nL\nDivestiture Legislation\nFEA\nTF\nWest-East oil transport\nFEA\nTF\nFEMP whether to raise again to\nFEA, OMB, GSA\nDM\nPresident\nMisc. legislative update\nERC\nB\n3/2/76\nEC,EPB/EC\nSurface Mining Legislation\nDOI\nC\nImpact Aid Legislation\nDOC\nC/L\n2/23/76\nEC,ERC/GOVS\nImpact Air Legislative Proposal\nDOI\nO\nState Energy Conservation Programs\nFEA\nB\nSynthetic Fuels (and other issues)\nERDA\nO\n2/10/76\nEC,EPB/EC\nAlaskan OCS\nDOI\nL\nClean Air Act amendments\nFEA\nL\nProject Independence Update\nFEA\nB\n1/21/76\nERC\nStatus of Energy Program\nFEA\nB/C\nAgency responsibilities under EPCA\nFEA\nC\n1/13/76\nEC,EPB/EC\nAgency EPCA responsibilities\nFEA\nC\nAlaskan Gas\nFEA\nDM\nLNGS Import POlicy\nFEA\nDM\nReview of Administration Energy\nFEA\nB\nPolicy Positions\n1/5/76\nEC,EPB/EC\nAlaskan Gas Transport\nFEA\nC\nLNG Import Policy\nFEA\nC\nGroup\nDate\nMeeting\nIssue\nLead Agency\nAction\n12/12/75\nEC, ERC\nEPCA status\nFEA\nB\nIEA Long-term Cooperative Program\nState\nB\n12/4/75\nEC, ERC\nAlaskan Gas\nDOI\nB/O\nSynthetic Fuels/Governors\nERDA, FEA\nO\n11/14/75\nEC, ERC\nCurrent Status of Congressional\nFEA\nB\nOmnibus Energy Bill\n11/14/75\nERC\nEIA\nERC\nB\n11/3/75\nEC, ERC\nCoal Mining and Leasing\nDOI\nB\nUranium Enrichment (Administration\nERDA\nB\nlegislative proposal)\n10/23/75\nER,ERC/GOVS\nSynthetic Fuels Commericialization\nERC\nC/O\nProgram\n10/9/75\nEC, ERC\nOuter Continental Shelf Leasing\nFEA, OMB, DOI\nDM\nLNG Import Policy\nC\n9/29/75\nEC, ERC\nOCS Legislation\nFEA, OMB, DOI\nC\nLegislative Update\nFEA\nB\n9/10/75\nEC, ERC\nFEMP Multi-year Action Plan\nFEA\nC\n8/26/75\nEC, ERC\nOCS Development\n(no summary of meeting\nDecontrol Strategy\nwas prepared)\n7/22/75\nEC, ERC\nIndexation\nTreasury\nO\nSynthetic Fuels Commercialization\nERC\nC\nSharing U.S. energy resources with\nState\nB\nother countries\nGroup\nDate\nMeeting\nIssue\nLead Agency\nAction\n7/16/75\nEC, ERC\nPresident's Decontrol Action\nFEA\nB\nCanadian Natural Gas Situation\nFEA, State\n7/9/75\nEC,ERC\nIEA Negotiations\nState\nB\nLegislative Update\nFEA\nB\n6/26/75\nEC, ERC\nChapter V, IEA Negotiations\nFEA, State\n-\nStrip Mining Follow-up\nFEA, DOI\nIM\nNatural Gas Deregulation\nFEA\nHouse Commerce Committee Energy Bill\nFEA\nO\nUranium Enrichment\nDomestic\nO\nCouncil\nERDA Report to Congress, Vol. I\nERDA\nC\nGasoline Shortages\nFEA\nB\nConsumer Advisory Committees\nERC\nC\n6/20/75\nEC,ERC\nIEA Negotiations Objectives\nFEA, State\nDM\nERDA R&D Plan\nERDA, OMB\nC\nLegislative Status\nERC\nB\n5/21/75\nERC\nNatural Gas Policy and Contingency\nFEA\nO\nTask Force Participation\n5/8/75\nEC,ERC\nAuto emissions/fuel economy\nOMB\nC\nElectric Utility financing\nFEA\nDM\nEnergy Legislation Status\nFEA\nB\n4/17/75\nEC,ERC\nDeepwater Port Licensing Policy\nDOT\nO\nElectric Utilities Policy\nFEA\nO\nInternational Agreements\nState\nC\nGERALD\nAuto Emission Standards\nFEA, DOT, EPA\nC/O\nA\nAuto Fuel Efficiency Tax\nTreasury, FEA\nC/DM\ncuos\nRebates to Fishing Industry\nFEA\nC\nRebates to Nonprofit Institutions\nOMB\n0\nUtilities Policy Development\nFEA\nC\nAirlines Situation\nDomestic Council\nC\nCongressional Tax Package\nFEA\nC/IM\nERC ISSUES, BY LEAD AGENCY\n1975\n1976\nTotal\nFEA\n29 (54%)\n30 (37%)\n59\nERC\n6 (11%)\n12 (15%)\n18\nDOI\n4 (7%)\n13 (16%)\n17\nOMB\n3\n6\n9\nERDA\n4\n4\n8\nDOC\n0\n5\n5\nSTATE\n3\n1\n4\nTREASURY\n3\n1\n4\nDOT\n1\n2\n3\nEPA\n0\n3\n3\nDOC\n0\n2\n2\nNRC\n1\n1\n2\nFPC\n0\n1\n1\n54\n81\n135\nTotals differ from other computations and text because some\nissues involve more than one Agency and some issues, where\nlead Agency was not clear, have been omitted.\nTOAL\n&\nGERALD\nERC ISSUES, 1976 (January to mid-July)\nPROGRAM IMPLEMENTATION ISSUES\n1. Alaska pipeline welds\n2. EPCA implementation issues\n3. Natural gas curtailments\n4. Nuclear waste management\nPOLICY/LEGISLATIVE ISSUES\n1. Clear Air Act amendments\n2. FEA Act Extension\n3. Post-1980 auto efficiency standards\n4. LNG import policy\n5. Alaskan gas transport\n6. OCS/coastal zone management bills\n7. Mineral Leasing Act amendments\n8. Synthetic fuels commercialization\n9. Administration position on minimum wage legislation\n10. Kennedy Conservation Bill\n11. Randolph Coal Bill\n12. Senate Natural Gas Bill\n13. Legislation to protect retail gasoline dealers\n14. Private sector role in energy technology development\n15. Vertical divestiture bill\n16. Surface minining legislation\n17. International energy policy issues\n18. West-East oil transport\nERC ISSUES, 1975\nPROGRAM IMPLEMENTATION ISSUES\n1. FEMP Multi-Year Action Plan\n2. Petroleum and natural gas shortage issues\n3. Strip mining regulations\n4. Coal mining and leasing\n5. Gasoline shortages\n6. Consumer Advisory Committees\n7. Conservation public education\n8. DOT fuel economy improvement program\n9. NRC order to inspect 23 nuclear powerplants\nPOLICY/LEGISLATIVE ISSUES\n1. EPCA/Omnibus energy bills\n2. International energy policy issues\n3. Alaskan gas\n4. Synthetic fuels legislation\n5. EIA legislation\n6. Uranium enrichment legislation\n7. OCS legislation\n8. Oil decontrol strategy\n9. Indeflation\n10. Natural gas deregulation\n11. Auto emission/fuel economy policies\n12. Electric utility financing\n13. Energy rebates policy\n14. Congressional tax package\n15. Socioeconomic impacts\n16. LNG policy\n17. Oil import floor price\nFORD LIBRAL & EENALD\nORGANIZATION OF\nENERGY REGULATORY\nFUNCTIONS\nPrepared as part of the\nlarger study of organization\nfor Federal energy functions\nOctober 1976\nGETALD d. FORD LIB NERRA.\nTABLE OF CONTENTS\nI. Scope and Purpose\n1\nII. Issues in the Organization of Energy Regulation\n2\nIII. Regulation in Relation to Other Energy Functions\n6\nIV. Federal Power Commission\n11\nV. Regulation by the Federal Energy Administration\n17\nVI. Other Energy Regulatory Programs\n21\nVII. Organizational Guidelines and Conclusions\n23\nA. Co-location of Regulation and Promotion\n23\nB. Consolidation of Energy Regulation\n25\nC. Placement of Energy Regulation\n26\nD. Relation to Other Energy Activities\n27\nE. Federal Power Commission\n27\n-i-\nEXECUTIVE SUMMARY\nAnalysis of the Organization of Energy Regulatory Functions\nIntroduction\nThis report, within the context of the larger study of energy\norganization, deals with the energy regulatory functions of\nthe Federal government and how they can be most effectively\norganized. It was prepared in recognition that energy regulatory\norganization is a complex matter in its own right as well as\nbeing a critical factor in total energy organization decisions.\nAs a subsidiary part of the overall energy organization study,\nthis report does not develop final recommendations on\norganization of regulatory functions. It does, however, analyze\nand reach numerous conclusions about regulatory organization to\nbe fitted into total energy organiztion recommendations\nGeneral Findings and Conclusions\nAn overriding issue was identified that permeates energy\nregulatory functions regardless of what agency currently performs\nit or the private sector activity to which it relates. That is,\nhow to resolve the dilemma of achieving adequate coordination\nor responsiveness of regulatory decisions with national energy\ngoals, without improperly compromising the impartiality of\nregulatory decisions. A corollary question is to examine the\nvalidity and applicability of the prevalent injunction that\n\"regulatory responsibility shall not be combined with promotional\nresponsibilities\" because they inherently conflict. In\norganizational terms this overriding issue can be expressed as\none of finding the proper balance between independence and\naccountability of energy regulation in relation to political\nleadership.\nThe study concludes that it is both possible and proper to\ndistinguish those aspects of energy regulatory programs which\ninherently need to be sensitive to and reconciled with broad\nnational policy and goals, from those aspects which require\napolitical impartiality. Specifically, the rulemaking aspect\nis closely related to policy and, within the tolerance of\nlegislative mandates, should be subject to coordination by\npolitical leadership (as well as developed with full observance\nof openness requirements of due notice, public hearings, etc.)\nIn contrast, the regulatory aspect of adjudicative decisions\nconcerns the determination of property rights or privileges in\nspecific cases, and should be decided in an impartial due\nprocess context free of political influence or even the\npossible appearance thereof. The functioning of this\ndistinction of what to coordinate and what to isolate works\n-ii-\nbest when in actual practice reasonably comprehensive and\ndetailed rulemaking is relied upon and case adjudications,\ntherefore, need not become de facto policymaking in the\nabsence of sufficient established policy in the form of\npublically debated and openly arrived at rules.\nWhile rulemaking and adjudication can and should be distinguished,\nthey are dynamically related within a single regulatory program\nand not readily susceptible to splitting apart into totally\nseparate agencies. (viz.-one independent and the other\naccountable). The report concludes that any regulatory program\nwhich directly impacts major national energy goals, such as\nthose of FPC and FEA, should be politically accountable but\nshould also provide internal arrangements to assure independence\nof adjudicative actions. The converse does not work. That is,\nto assign such a regulatory program to an independent\ncommission, and expect that its rulemaking can be held\naccountable.\nThe report finds that there is valid reason, at this time, to\ntreat NRC as an exception. That is, while it is an energy\nregulatory program significantly impacting national energy goals,\nit should not be incorporated into an executive accountable\nframework, at this time, because such an action could exacerbate,\njustly or not, the public concern for nuclear safety, and its\nwillingness to accept nuclear power as a major energy alternative.\nWhile speaking of NRC, it may be timely here to return to the\ncollateral injunction about joining regulation and promotion\nunder the same administrative hierarchy. The leading example\nof such a conflict was the old AEC. The conflict in that\nsituation was the chief rationale for separating NRC from\nERDA. However, this study finds that AEC was a peculiarly,\nperhaps uniquely, severe instance of conflict in which a single\nagency had both roles with respect to a single industry and\nwithout balancing responsibility for other matters. Where a\nwider range of responsibilities is present in terms of competing\nindustries and functions other than regulation, this injunction\nis far less compelling. In fact, when regulation (rulemaking\nFORD\naspect) is viewed as a tool for implementing broad policy\ngoals, the value of its cross-coordination is evident.\nOn another plane, this review surveyed all Federal regulatory\nprograms which strongly affect the production and marketing of\nenergy, to determine which of them should be considered for\norganizational consolidation. It was found, partly by reference\nto an earlier study of energy regulation in 1973, that there\nare a large number of regulatory programs which affect the\nenergy industry. They range in organizational format from\nindependent commissions (FPC, NRC), to discrete units within\n-iii-\nexecutive agencies (MESA, Pipeline Safety) to incidental\nconcerns of programs whose mission is not directly energy-\nrelated per se, (EPA, OSHA, BLM/Interior, ICC). In general,\nit was concluded that regulatory programs which are alligned\ndirectly with a sector of the energy industry as their\npurpose-for-being should be considered for consolidation in\norder to permit a less parochial treatment; among other\nreasons (FPC-gas and electric, FEA-petroleum and NRC-nuclear).\nConversely, regulatory programs which are aimed at such non-\nenergy purposes as environment, health and safety and are\nconcerned with energy together with other industries should not\nbe seriously considered for consolidation.\nFederal Power Commission (FPC)\nFinally, major attention was given in this study to the question\nof whether or not the functions of FPC should be incorporated\nin any prospective consolidated energy agency. Treatment of\nthis issue obviously drew heavily on the analyses reported\nabove. In addition, it is recognized that the issue of\ncontinuing or abolishing FPC transcends the field of energy\nregulation as such, and enters into the historical debate in\nthe American governmental system concerning the role and status\nof independent regulatory commissions. Any proposal to abolish\nFPC would inevitably be viewed in this historical and\ninstitutional perspective over and above the narrower particulars\nof the Federal role in energy.\nIt is implicit that the prospect of reassigning FPC's functions\n(or their residue following deregulation) assumes as a pre-\nrequisite the establishment of some form of consolidated\nenergy agency or Department to which they would be assigned.\nThe report discusses the FPC organizational issue in terms of\nfour propositions as follows:\nCan FPC be abolished without serious harm? No compelling\nreason was found, legally or operationally, to preclude\nits disestablishment. The commission form lends some\nstability and predictability to the regulated areas, but\nto the extent these are virtues, they can be achieved\nwithout reliance on the commission form, while at the\nsame time, getting away from the well documented\ndifficulties associated with it.\nAre there positive gains to be achieved by reassigning\nFPC's functions to an energy agency? It would be\ndifficult to draw up an indictment showing tangible harm\nto the public interest resulting from FPC's independent\nstatus. Too many variables would enter into such a\ncalculation as well as ambiguity in defining the public\ninterest. However, a case can be made as to how actions\n-iv-\nand decisions of FPC interact with other Federal energy\nactivities and impact on national goals. Under the\npresent isolated and non-accountable arrangement it\nis difficult to effect coordination or trade-off\nassessments where they are legitimately needed.\nThere are also some administrative advantages to\nincorporating FPC such as the facilitation of a more\nintegrated, non-duplicative Federal energy data system.\nAre there real alternatives to organizational change in\nachieving needed improvements? There are possibilities\nfor process improvements within the present arrangement\nof an independent FPC. Some improvement can be done by\nadministrative action, and others would require\nlegislation. An example is the expediting of actions\nin process by setting time limits for comments by\nExecutive agencies, or, through legislation, from State\nand private bodies. However, all these system\nimprovements have only limited potential if, indeed,\nthey can be achieved at all under the present structure.\nThey should be viewed as supplements to organizational\nchange and not as an alternative.\nIf FPC's functions are to be incorporated, how would it\nbe arranged to avoid loss of impartiality where this\nis important? A separate Administration under a\nPresidentially appointed, Senate confirmed, Administrator\nto administer energy regulation and coordinate with\nrelated functions and goals. This Administrator\nwould promulgate rules which would be developed to a\nreasonably comprehensive and detailed state. Case\nadjudications, however, would be decided initially by\nAdministrative Law Judges who are independent by law.\nAppeals for administrative relief could be heard by an\nAppeals panel which similarly is insulated.\nThe foregoing summarizes the main findings and conclusions of\nthis study. Considerably more detailed information and\nrationale is contained in the full report which follows.\nAnalysis of the\nOrganization of Energy-Regulatory Functions\nI.\nSCOPE & PURPOSE OF STUDY\nThis study and staff paper is a sub-part of the general\nstudy of the organization of Federal energy and energy-\nrelated functions. More specifically, it examines the\nplacement and organizational relationships of energy\nregulatory functions within the framework of current and\nmajor alternative organization for energy and related\nfunctions.\nIt was recognized, based in part on earlier analyses,\nthat many Federal programs exercise a regulatory impact\non energy actions and decisions by the private sector.\nFor purposes of this study an inventory of all energy\nregulatory programs was compiled and is shown at TAB A.\nFor convenience, this inventory has been divided into\nthe following three categories:\nenergy regulation performed by independent\nregulatory commissions;\nenergy regulation performed as a major mission of\nan executive agency;\nenergy regulation performed as an incident to a\nmission other than energy.\nSection II of this paper identifies and briefly describes\nthe principal issues identified and examined in this study\nof organization for energy regulation.\nSection III relates energy regulation to the other chief\nenergy functions and describes their mutual interactions\nin order to identify any pertinent organizational guide-\nlines for energy regulatory functions vis a vis the other\nfunctions. The other functions discussed in relation to\nregulation are policy formulation, data collection and\nanalysis, energy resource development, and research and\ndevelopment.\nSections IV and V take up the regulatory functions of FPC\nand FEA respectively. The issue of whether or not FPC\nshould be incorporated in any proposed energy agency is a\nparticularly complex and controversial subject. For this\n-2-\nreason, an in-depth separate study of FPC was done and\nits findings and conclusions are incorporated in summary\nform in this general paper on energy regulatory organization.\nSection VI surveys the numerous Federal programs which\nimpact private sector energy actions as an incident to a\nmission which is not primarily energy-oriented. The pur-\npose of doing so is to determine whether these programs\nmight be affected by change in energy organization.\nFinally, Section VII draws from the preceeding sections\nand recaps any organizational guidelines which may be\napplicable to the energy regulatory functions. This\nsection is, in general, a response to the issues raised in\nSection II.\nII. ISSUES IN THE ORGANIZATION OF ENERGY REGULATION\nThe overriding issue in the analysis of energy regulatory\norganization is the problem of rationalizing the impact of\nenergy regulatory decisions with national energy goals, while,\nat the same time, avoiding compromise to the real and\napparent impartiality and objectivity of regulatory decisions\nwhere this is a valid requirement. In other terms, this\nissue can be expressed as a search for the proper degree\nof regulatory independence on the one hand versus regula-\ntory responsiveness to external coordination on the other\nhand.\nTotal independence and consequent lack of accountability\nof regulators who are making significant decisions regard-\ning our energy future is not good government. Conversely,\ncomplete subservience of regulatory decisionmaking to\nelective or appointed officials -- legislative or executive --\nis also unsound at least in terms of public credibility.\nThe art form is to find that balance or combination in\nthe structural arrangements for energy regulation which will\nprovide accountability and rationalization with general\nenergy goals where that is important and also assure apolitical\nimpartiality where that is important.\nNumerous subsidiary issues and findings go into the analysis\nof the overriding issue described above. Some of these\ncomponent issues which are addressed in the remainder of\nthis paper are:\nFORD\nCERALOR\n-3-\n1. Fragmented placement of energy regulation in\nvery different types of organizational settings\nincluding: sole purpose of an independent commis-\nsion, (FPC and NRC) limited part of an independent\ncommission (ICC, SEC), major purpose of an executive\nagency (EPA, FEA), separate unit within an executive\nagency (Pipeline Safety in DOT, MESA in Interior) and\nincident to a major mission other than energy (BLM in\nInterior). Is there a rational basis for this variety\nof organizational placements? Is there validity in\nbringing some or even all energy regulatory programs\ntogether.\n2. Is regulation inherently and invariably incompati-\nble with promotion, prompting a need for organizational\nseparation? If so, what degree of separation is called\nfor? Conversely, is this injunction to \"separate\" regu-\nlation and promotion a situational thing that has validity\nor not depending on circumstances? This issue immediately\ninvokes the old AEC situation in which a single Federal\nagency was charged with fostering and, at the same time,\nregulating a single industry. Both the President and\nCongress recognized that this was unsound, and it has\nbeen changed with the creation of ERDA and NRC. In the\nprocess the regulate/promote conflict of interest within\none agency received very prominent attention and has\nachieved status as a virtual principle of governmental\norganization. The findings, however, tend to reveal this\n\"principle\" as an over-simplification which has validity\nonly when applied selectively.\n3. It is striking to note the unevenness with which\nsectors of the energy industry are subject to regulation.\nGas, hydro-electric generation, interstate electric trans-\nmission are all subject to rate regulation and to licensing\nand permitting of facilities (and, therefore, to health,\nenvironment and land-use prior approvals). Nuclear power\nis subject to Federal permitting of sites and other\nrestraints with major concern given to health, safety and\nenvironmental factors, but is not subject to rate regula-\ntion. Petroleum is subject to price control and some\ncontrol of the internal structure of the industry but is\nnot subject to Federal prior approval of facility siting,\nexcept as it may affect public lands. Coal is subject to\nneither price control nor facility siting approvals,\nagain except as it involves public lands.\n-4-\nThese varying levels or degrees of regulation among\ncompeting energy industries is governed in the first\ninstance, of course, by statutes. However, it does\nnot appear to be rational. Whether or not this dis-\nparity is a problem, in fact, and the relationship to\nderegulation is touched on later although this tends to\ngo beyond the scope of this study. Of more direct interest\nis whether or not this \"unevenness\" of regulation among the\nenergy sectors which is charged to a range of separated\nagencies has a clear organizational implication..\n4. Regulatory programs, like any other Federal program,\nshould meet the highest possible standard of efficiency\nand effectiveness. While the system has factors built\nin which complicate this objective, e.g., openness, due\nprocess, impact statements, etc., these factors are part\nof the process for good reasons and must be accommodated.\nEfficient and timely regulatory actions are important\nbeyond the internal bureaucracy because they affect the\nwillingness and ability of the private sector to play its\nrole in the national energy system. For example, excess-\nively long processing time for completing action on an\napplication adds to the cost of industry performance and\nincreases the risk of capital investment.\nThis paper cannot thoroughly address the problem of\nregulatory efficiency, but that subject is viewed gener-\nally to ascertain what, if any, organizational implica-\ntions it may contain. There is some question, for example,\nwhether management process improvements as an alternative\nto organizational change can rectify problems in energy\nregulation. Conversely, it may be that present organiza-\ntional arrangements make real process improvements very un-\nlikely to occur.\n5. Both the efficiency aspect and the lack of jurisdiction\nof any one regulator in the present arrangement to look\nacross competing energy sectors give rise to the concept\nof a single energy regulatory body. Such a body has been\nthought of by various observers as either, in theexecutive\nmode or, organized as an independent regulatory commission.\nThis super energy regulator concept was analyzed quite\nthoroughly in 1973 and found to be neither feasible,\ndesirable nor politically saleable. However, in the light\nof the current analysis of overall energy organization,\nthis concept is again explored.\n6. Should the FPC be continued as an independent commission\nor should its functions be reassigned to an executive\nagency responsible for Federal energy programs in order to\nassure greater consistency of gas and electric regulation\nwith other Federal energy objectives. The same question\n-5-\napplies also to the NRC. This issue unavoidably invokes\nhistorical and theoretical questions of general government\norganization and legislative/executive relationships that\ngo beyond the specifics of FPC, NRC and their functions.\nHowever, while general historical and theoretical issues\nbecome involved, the answer with respect to FPC and NRC\nmust ultimately be resolved in terms of those respective\nprograms and the energy situation to which they relate.\nLessons learned in reviewing the alternatives of continuing\nor discontinuing FPC and NRC cannot be directly transposed\nto other regulatory program areas such as communications\nor transportation.\nIn resolving the FPC and NRC issue, there are a number\nof sub-issues to examine:\nAre there any tangible needs in the regula-\ntion of natural gas, electricity, or nuclear\npower which intrinsically require the commis-\nsion form with its multi-member, fixed-term,\nbi-partisan form?\nDo FPC or NRC actions impact on the attainment\nof the nation's energy goals and, if so, is this\nimpact adequately weighed?\nWhat actions or decisions do FPC and NRC take\nwhich, by their nature, require independent\njudgment which is uninfluenced by political\nfactors and is seen as such by the public?\nAre there any clear instances in which serious\ndamage to the public interest has occurred\nbecause decisions of the FPC or NRC were either\ncontrary to openly and responsibly arrived at\nnation policy or goals - or were inappropriately\ninfluenced by partisan politics, or special interests.\nAre there any activities performed by FPC or\nNRC which are essentially executive functions\nand which relate closely to or duplicate comp-\narable activities in executive agencies?\nPossible examples: the FPC data collection work\nand the NRC radiation standards work.\n-6-\nIf the FPC functions were reassigned to an\nexecutive agency it would tend to increase\ncoordination between regulatory actions and\nnational energy policy. What steps could be\ntaken to offset the possible disadvantage of\nsuch a transfer and particularly the prospect\nof politicizing regulatory decisions improperly?\nThese steps would relate, among other things, to\norganizational placement, authority delegation\npatterns, appointmen t and removal of regulatory\ndecision-makers, and the separation of rulemaking\nand adjudication.\nIII. REGULATION IN RELATION TO OTHER ENERGY FUNCTIONS\nRegulation of the energy industry affects, and is\naffected by, other governmental approaches to energy\nmatters such as energy policy formulation, data collect-\nion and analysis, energy resource development, research\nand technology development, and energy conservation. In\nsome cases, these mutual effects of regulation and other\nfunctional approaches to the Federal energy role are\nsupplementary and may go toward the same objectives. In\nother cases, the effect of regulation may be in conflict\nwith other governmental efforts. Either way, whether regu-\nlatory actions are compatible or incompatible with other\nFederal energy policies and actions, these mutual effects\ntend to be somewhat obscure or not self-evident. For this\nreason and because they are often not subject to common\ndirection or guidance, these important interactions are\nnot fully recognized and addressed. This is particularly\ntrue when the regulatory power is vested in an independent\ncommission.\nMany observers would state that this isolation of regula-\ntion from interacting programs is normal and proper - i.e.,\nthat the regulatory power should be exercised independent\nof any coordinative hierarchy and that only in this way can\nregulators be free to evaluate equities and impartially\ndecide issues in a due process atmosphere.\nWithout commenting for the moment on this issue of the\nneed and desirability of regulatory independence, the pur-\nposes of this section of the report are to reveal in summary\nform the ways in which energy regulation can and does\nmutually interact with other energy functions, and to\nidentify any organizational consequences which follow from\nthese interactions.\n-7-\nRegulation in relation to policy formulation and\ncoordination\nThe power to regulate is, de facto, the power to make,\nor at least strongly influence policy. This applies\nboth to regulatory rulemaking and to the aggregate effect\nof regulatory adjudications which are made in an area\nungoverned or little governed by general rules. Examples\nin the energy field include the power of the NRC to\ninfluence the rate of introduction of nuclear power gener-\nation based on the standards they set or their handling\nof specific plant siting applications. Again, the FPC\ninfluences the rate of exploration and development of\nnatural gas by the energy industry through the rulings\nthey make on gas prices under their jurisdiction.\nThus the power to make policy through regulation coupled\nwith the idea of regulatory independence constitutes an\norganizational dilemma. From the point of view of\nPresidential leadership and accountability, there is a\nstrong motivation to reduce the independence barrier so\nthat regulatory impacts on overall trends in the production\nand distribution of energy are compatible with national\npolicy goals and non-regulatory program actions of the\nincumbent Administration.\nAt the same time, there is a well-recognized need to assure\nand to visibly demonstrate that regulatory actions,\nespecially case adjudications, are not unduly influenced\nby the political process even in the general sense and\ncertainly in the partisan sense. It is largely for this\nreason that regulatory powers, as in the case of NRC and\nFPC, have often been assigned to independent bi-partisan\ncommissions.\nThere may well be some organizational arrangement that can\nbetter serve the need to integrate regulatory effects which\nare de facto policy with politically responsible policy-\nmaking (Congressional and executive) without impairing the\nimpartiality needed in specific regulatory actions which\ncenter on determination of equities and assurance of due\nprocess.\nThis dilemma - i.e., reconciling the need for regulatory\nindependence with the need for consistent governmental\npolicy is examined further elsewhere in this paper as a\nmajor issue.\n-8-\nRegulation in relation to data collection and analysis\nRegulators need data on two levels. First, they need\nbroad data and analyses to understand as well as possible\nthe industry segment they relate to, and its place in the\ntotal economy both currently and as projected. FPC regu-\nlators in the natural gas field and FEA regulators in the\npetroleum field, for example, must understand the dynamics\nof their respective industries, how each can contribute\nnow and in the future to our total energy needs, and how\nalternative actions on their part are likely to effect\nthe picture. This involves a need for both basic data and\nanalyses.\nSecondly, on a different level, regulators often need\nmore company-specific data as one of their principal tools\nof enforcement. Regulatory programs, such as the FEA\npetroleum programs, which are enforcement-oriented and are\ndeeply involved in the internal functioning of the petroleum\nindustry have a major need for data at the level of trans-\nactions occurring within specific companies.\nOrganizationally, the broad analytical data needed by\nregulators including information on the nation's energy\nsystem and the general economy clearly should be shared,\nwith major parts of it provided through an integrated, if\nnot consolidated, data system outside of the regulatory\nstructure. This avoids duplication, excessive reporting\nburden and promotes consistency and comparability of data.\nThe more specific enforcement related data, where needed,\nis an area in which regulatory managers, as in FEA, express\na need to have close contact with the data collection process\nand to participate in its planning so that their needs will\nbe understood and served. However, it would appear logical\nthat the data collection planning and operation should not\nbe directly under control of the regulators since their\nassessment of need could easily become excessive. It would\nappear that placement of data collection and regulation in\nthe same agency, but under separate direction would serve\nboth needs, i.e., close access to assure responsiveness of\nthe data system but separation to avoid having the regulators\n(or other users) dominate data collection decisions.\n-9-\nRegulation in relation to research, development and\ndemonstration\nThe Federal role in energy RD&D is essentially catalytic.\nThat is, the Federal effort is aimed at perceiving the\nneed for new or improved energy technology and assuring\nthat it is developed and introduced into the market-place\nby private initiative. The role is to do what must be done\nand will not occur through natural forces, but to leave\noff as early as possible in favor of the private sector\nwith technical assistance and financial incentives as\nneeded to help effect the hand-off.\nThe regulatory process can be quite influential in this\nRD&D stimulation by affecting the point at which private\nsector initiative \"takes over.' This is true most partic-\nularly in regard to price setting which can have a depress-\ning affect on the introduction of new technology. Excess-\nively tight limits on price, for example, can reduce the\nincentive for private risk taking in the form of investing\nin unproven technology. Another way of looking at regula-\ntory powers in relation to technology development and\ncommercialization is to see the price mechanism as an alter-\nnative to either tax policy or direct financial assistance.\nThese theoretical alternatives cannot be realistically\nevaluated against each other unless there is some coordina-\ntive authority which spans all of them.\nAnother relationship between regulation and R&D became\nclear in the course of this analysis. That is, R&D managers\nin the government energy programs attribute great importance\nto the fostering of cooperative relations with their private\nsector counterparts. This is consistent with the idea of\npooling information and diffusion of emerging technology\nsubject to the usual rules of competition. The R&D managers\nfear that any organizational merging of regulatory responsi-\nbilities with technology development responsibilities will\ncause their private counterparts to withdraw from the mutual\ncooperation mode. They do not want to participate in the\ndevelopment of something which will be used against them.\nThis injunction probably has most meaning in relation to\nregulatory programs which are aimed at protecting health,\nsafety and the environment rather than at economic regulation.\nThe historical association of nuclear development and\nnuclear regulation in the old AEC is an example and the\none that occurs most frequently and strongly to the R&D\nmanagers.\n-10-\nRegulation in relation to energy resource development\nThis is an important relationship in which opposing\ninterests are likely to occur, and the effects of these\nprograms can be mutually contrary. The goal of energy\nresource development is clear -- increasing the domestic\nsupply of energy. Regulatory power applied to the energy\nindustry is usually aimed at other purposes such as\nrestraining prices, controlling entry, protecting health,\nsafety or the environment. These other purposes quite\nconsistently have the effect of holding down increases\nin energy supply. (Coal conversion by regulatory order\nis an exception - it shifts demand from petroleum to coal\nand thus has the effect of increasing domestic supply.)\nIt is not the purpose of this paper to choose between the\nconflicting goals of energy supply development and those\nof FPC, NRC, EPA, MESA or others. Each of these regulatory\nprograms have statutory mandates to be observed. The point\nis to show how pursuit of narrow mandates, especially if\ndone in the relative isolation of independent status, can\nmake it difficult to balance regulatory decisions aimed in\nthat particular direction with all of its collateral\neffect on other goals, including energy supply development.\nThe fact of basic conflict between energy supply develop-\nment and the several purposes of energy regulatory programs\nlead some observers to conclude that these responsibilities\nshould not be assigned to the same agency for fear the\nregulatory purposes will be given short shrift (or perhaps\nthe drive to increased energy supply will be muted)\nCertainly both cannot be merged into a single program.\nThere is, however, a credible possibility of assigning\nboth to the same agency but separated therein for individual\nattention to each. This would require that the balancing\nbe performed at some higher level, most likely the agency\nhead. Each would be modified by the other and regulatory\nactions would be more sensitive to energy supply consider-\nations without being dominated by them.\nWhether or not the regulatory functions are in the same\nagency as supply development, several actions can be taken\nto narrow the gap.\nThe ERD staff can appear as intervenors in\nselected proceedings of the FPC, NRC, ICC and\nState regulators to introduce views on how the\npending action affects energy supply for the\n-11-\nnation, region, or a particular market area --\nand how the decision relates to other specific\nFederal actions.\nSubmit comment on proposed regulatory rule-\nmakings from the point of view of supply\ndevelopment.\nIV. FEDERAL POWER COMMISSION\nThis section of the report describes briefly the functions\nand programs assigned to FPC and discusses the merits of\ntheir alternative possible organizational placement in an\nexecutive agency. Since this issue is of unusual importance\nand complexity, a separate in-depth report on FPC has been\ndeveloped. This section draws upon that report substantially\nand adds other considerations particularly bearing on the\norganizational status of FPC and its functions.\n1. Description of FPC programs\nFPC's responsibilities under the Natural Gas Act give it\nimportant influence over natural gas production, distri-\nbution and pricing. Its responsibilities under the\nFederal Power Act give it important influence over the\ngeneration of hydro-electric power (non-Federal) and the\ninterstate distribution and pricing of wholesale electric\npower. FPC's responsibilities in both natural gas and\nelectric power has distinct limits as described below,\nbut its position at the national level tends to give its\naction influence beyond its formal charter.\nFor information purposes, the FPC programs are divided\ninto three areas and described below: (1) hydro-electric\nlicensing, (2) interstate wholesale electric rate setting,\nand (3) natural gas regulation.\nA. Hydro-electric Licensing\n1. Program\nThe Federal Power Act requires the FPC to issue\npreliminary permits to study and grant licenses\nto construct, operate and maintain non-Federal\nhydro-electric projects on waters or lands of the\nUnited States or otherwise subject to the Com-\nmission's jurisdiction. (Federal hydro-electric\nprojects are not licensed by FPC: - e.g., TVA,\nCorps of Engineers, Bureau of Reclamation.)\nFOR\nGERALD\n-12-\nThe Federal Power Act prescribes a maximum\nlicense term of 50 years, at which time a new\nlicense must be issued, possibly to a competing\napplicant, or the project may be taken over by\na Federal agency other than the FPC, such as\nBureau of Reclamation or Corps of Engineers.\nDuring the entire physical life of the project,\nthe FPC is required to continue to exercise\njurisdiction over proposed changes in project\nfacilities, project operations, project land\nholdings, project land and water uses, public\naccess, transfers of licenses, surrenders of\nlicenses, collection of headwater benefits pay-\nments, and inspection of projects for safety\nand adequacy.\nThe ultimate decision includes making a\nfinal decision in areas where the Commission\nhas requested comments from other Federal,\nState and local agencies, generally relative\nto siting, emissions, and effluents, and\nsafety. Interior, EPA, and Agriculture are\nmajor Federal coordinants.\nThe FPC decides if a proposed project is\nthe best adapted (use) for the portion of\nthe waterway proposed to be affected.\nThe FPC decides if the development should\nbe made by the Federal government, i.e.,\nBureau of Reclamation or Corps of Engineers.\nThe FPC must find that the applicant is able\nto finance the project, that there is an exist-\ning market for the power, that the applicant's\n(utility) system needs the type of generation\nbeing proposed, and that the project is econ-\nomically feasible (will recover its costs).\nThese findings require consideration of con-\ntinued economic viability of the applicant;\nlimitation of costs to those necessary, there-\nby giving the consumer the best available\nservice at the lowest possible price; the need\nfor the use of the resource; and the use of\nthe resource in the most efficient and effective\nmanner.\n-13-\nThe FPC must decide whether the mechanical\nand structural proposals are engineeringly\nsound and safe.\nThe FPC must find provision for sufficient\npublic recreational use of project lands\nand waters.\nThe FPC must find sufficient mitigation for\nenvironmental damage done by construction,\nmaintenance and operation of the project,\nthereby balancing environmental concerns and\nthe need for power.\nThe findings or determinations of the Com-\nmission are a prerequisite to the location,\nentry or selection of lands of the United\nStates which have been withdrawn for water\npower purposes.\n2. Status\nThe hydro-electric licensing program (Part I of\nthe Federal Power Act) is staffed by 200 people.\nThis number includes all support staff Commission-\nwide such as technical experts, attorneys, clerks,\nadministrative programs staff, etc. The total\ndirect cost of the program in 1975 was $5,360,134.\nThe FY 1975 on hand applications covering all areas\nof jurisdiction under this program were 520; 118\napplications were received during the year and 143\ncompleted, leaving 495 pending at year end including\na mix of problems including incomplete applications,\napplications awaiting comments from other agencies,\napplications assigned a low processing priority\ndue to staff limitations, and cases in which it\nbecame necessary to order a hearing.\nReviews and comments by other agencies along with\napplicant reluctance, legislative requirements\nimposed by statutes other than the Commission's\nenabling legislation (e.g., Endangered Species\nAct, the various Rivers and Harbors Acts,\nEnvironmental Policy Act), and, in some instances,\nsubstantial resistance to the proposal by inter-\nvenors representing special interest groups,\ncombine to create extensive delays on may applica-\ntions. This is partly because there is an absence\nof legislation or regulations which place a time\nlimit on reviews by agencies other than the\nlicensing agency.\n-14-\n3. Federal and State Relationship\nThe Commission has extensive coordination\nmechanisms with Federal, State and local\nagencies. This coordination has come about\ndue to requirements of the statute FPC Regu-\nlations under the Federal Power Act, or informal\ncoordination agreement at the staff level. It\nhas been the FPC experience that processing of\napplications is often slowed due to delays by\ncommenting agencies.\nIt should be noted that even if not required\nto obtain agency comments, the FPC is desirous\nof receiving comments from the agencies as to\nhow the particular proposal may affect their\noverall program. This information, representing\npart of the public interest, is then balanced\nagainst information from other agencies managing\nother programs. FPC technical staff gives the\nCommission its independent technical assessment\nof the application and the views of the comment-\ning agencies and then the Commission makes its\ndecision based on full and complete information\nas to how all the aspects of the proposal interact.\nB. Interstate Wholesale Electric Rates and Corporation\nRegulation\n1. Program Description\nThe Federal Power Act requires the FPC to regulate\nrates and services of public utilities selling electri-\ncity in interstate commerce at wholesale. The FPC\nprescribes accounting systems and reporting procedures\nfor interstate power companies. The FPC impacts 15-20\npercent of the interstate electric sales. (The other\n80-85 percent includes retail and statutorily exempt\nsales, which may be in whole or in part regulated by\na State agency, depending upon the State agency's\nlegislative mandate.)\nThe FPC impacts State ratemaking bodies through its\nhaving been recognized as a leader in the area by\nthe National Association of Regulatory Utility\nCommissioners, an association of national (FPC, FCC,\nICC, etc.) and State ratemaking bodies.\n-15-\nThe FPC coordinates with the Department of\nJustice and as applicable the Nuclear Regula-\ntory Commission in matters of anti-trust.\nThe FPC regulates certain issuances and sales\nof securities by electric public utilities and\nthe merger or consolidation of such utilities.\nIn this connection, it coordinates with the\nSecurities and Exchange Commission.\nThe FPC regulates the holding of interlocking\ndirectorates between electric public utilities\nand electric supply companies or companies\nauthorized to underwrite securities.\nThe FPC, in coordination with the Department of\nState and Department of Defense, authorizes\nexportation of electricity into a foreign country\nand issues permits for maintaining facilities at\ninternational borders for transmission of\nelectric energy between the United States and a\nforeign country.\n2. Status\nThe regulation of interstate wholesale electric\nsales and corporate regulation program required\n289 people in FY 1975. This number includes all\nsupport staff Commission-wide such as field\nauditors, technical experts, attorneys, and\nsupporting personnel. The total direct cost\nof the program in 1975 was $8,194,444.\nFY 1975 on-hand applications covering all areas\nof jurisdiction under this program were 1,027;\n3,580 applications were received during the year,\nand 3,848 completed, leaving 759 pending at year\nend. The cases pending at year end include a\nmix of problems including incomplete applications,\napplications assigned a low processing priority\ndue to staff limitations, cases in which it became\nnecessary to order a hearing, etc.\n3. Federal and State Relationships\nUnder this program, the FPC coordinates with the\nDepartment of Justice and NRC on questions of anti-\ntrust. Further, the FPC's expertise is heavily\nrelied on by the State ratemaking bodies both in\nthe individual cases and through its leadership in\nthe National Association of Regulatory Utility\nCommissioners.\n-16-\nC. Natural Gas Regulation\n1. Program Description\nContrary to the common perception, FPC is\nresponsible, under the Natural Gas Act, for\nmore than rate setting for natural gas. The\nFPC is required to issue certificates of public\nconvenience and necessity for the construction\nand operation of interstate pipelines and storage\nfacilities including Liquified Natural Gas and\nSynthetic Natural Gas. The FPC passes on pro-\nposals for allocation of limited supplies of\nnatural gas, for both curtailment of service and\nspecial relief to a particular user or group of\nusers. The FPC's permission must be obtained\nbefore service through a certificated pipeline\ncan be discontinued and the facilities can be\ndiscontinued and the facilities abandoned.\nThe Natural Gas Act also requires the FPC to\nregulate the price of gas bought and sold in\ninterstate commerce. The FPC, through certifi-\ncate and price regulation, regulates sales of\nnatural gas from the producers to the interstate\npipeline companies to local distributors. The\nFPC may direct interstate pipeline companies to\nsell gas to local distributors.\nThe FPC authorizes the import and export of\nnatural gas and issues permits for maintaining\nfacilities at international borders for import\nand export.\n2. Status\n(1). The certification activities of the\nCommission under the Natural Gas Act required\n330 people in FY 1975. This number includes all\nstaff such as field auditors, gas supply analysts,\nattorneys, and supporting personnel. The total\ncost of the program in 1975 was $8,851,924.\nFY 1975 on-hand applications were 3,484. 2,453\nwere received during the year, and 1,217 completed,\nleaving 4,720 pending at year end.\nThe cases pending at year end include a mix of\nproblems including incomplete applications,\napplications assigned a low processing priority\ndue to staff limitations, and cases in which it\nbecame necessary to order a hearing.\n-17-\n(2). The regulation of interstate wholesale\ngas rates program required 265 people in FY 1975.\nThis number includes Commission-wise support\nstaff such as field auditors, attorneys, clerical,\netc. The total direct cost of the program in 1975\nwas $6,378,709.\nFY 1975 on-hand applications in this area were\n5,017, 14,722 applications were received during\nthe year, and 15,292 completed leaving 4,447\npending at year end. The cases pending at year\nend include a mix of problems including incomplete\napplications, applications assigned a low proces-\nsing priority due to staff limitations, and cases\nin which it became necessary to order a hearing.\n3. Federal and State Relationships\nThe gas facility certification responsibilities\nof the FPC, like the hydro-electric cases, require\ncoordination with other Federal agencies. Primary\nagencies are Interior, Forest Service, and DOT.\nThose contacts are generally related to siting,\nemissions and effluents, and public safety. As\nthe agency with certification responsibility, the\nFPC may accept or make more stringent the recom-\nmendations of DOT/Pipeline Safety with regard to\na particular natural gas pipeline.\nThe rate regulation portion of the FPC's juris-\ndiction under the Natural Gas Act does not require\ncoordination with Federal or State agencies,\nalthough State ratemaking bodies are notified of\na proposed rate increase affecting their State, and\nthe FPC is a leader in the National Association of\nRegulatory Utility Commissioners.\nV.\nREGULATION BY FEDERAL ENERGY ADMINISTRATION\nFEA was born out of the oil embargo -- energy crisis of 1973,\nand largely involved the exercise of regulatory power on an\nemergency basis, to cope with the sudden curtailment in the\nsupply of crude oil and petroleum products. In effect, FEA\nstarted as a regulatory agency. While regulatory programs\nare still important functions, they have been supplemented by\nnumerous other energy functions assigned by law and aimed\nat longer-term objectives.\n-18-\nThe FEA regulatory programs in the area of petroleum\nwere hastily implemented at the time of the shortage in\norder to (a) assure equitable and priority distribution\nof the limited available supply; (b) control inflation\nand prevent excessive profit, and (c) assure the continued\ncompetitiveness and economic viability of small and\nindependent refiners and suppliers.\nFEA regulatory programs for petroleum price control and\nallocation is sub-divided into the following programs:\n1. Mandatory Petroleum Price Controls\nProducers: The first-sale price of all domestic-\nally produced crude oil (except crude oil from\nstripper wells) is computed in accordance with FEA\nregulations. This sale price cannot exceed the\nmaximum allowable price per barrel of crude, that\nwas established in the authorizing legislation.\nRefiners: FEA regulates the unit prices refiners\ncharge their customers for certain petroleum products\nto assure it does not exceed the lawful May 15, 1973\nunit price levels (except for certain allowable pass-\nthrough cost increases, such as rent, insurance, etc.).\nResellers/Retailers: This program is essentially\nthe same as described above for refiners, except of\ncourse at a different level in the petroleum distri-\nbution chain.\nNatural Gas Liquids (Propane, Butane, and Natural\nGasoline) : This program is designed to reduce the\ndisparity between the controlled prices of natural gas\nliquids derived from petroleum. FEA authorized a price\nincrease for propane, butane, and natural gasoline\nproduced from natural gas thereby encouraging greater\nproduction of these products from non-petroleum sources.\n2. Mandatory Petroleum Allocation\nBuy-Sell: Small and independent refiners, which\nhistorically depended on the large oil companies for\ncrude oil feedstocks, are assured access to a supply\nof crude oil through the requirement that each month\nspecified quantities of crude oil must be made avail-\nable by the major oil companies for sale to non-majors.\n-19-\nDomestic Crude Oil Entitlements: As a direct result\nof the embargo and subsequent price increases for\nimported oil, certain refiners (usually majors) gained\na competitive advantage by having access to large\nquantities of lower cost (price controlled) domestic\ncrude. Rather than the physical redistribution of\ncrude among refiners, the program requires payment of\nmoney from those refiners with the domestic feedstock\nadvantage to the small, independent firms who are\nheavily dependent on imported supplies.\nRefined Products: This program is designed to assure\nequitable distribution of decreasing supplies of\nrefined products between wholesale purchaser resellers.\nwholesale purchaser consumer, and users. The pro rata\ndistribution share is based on the quantity of such\nproducts historically purchased from suppliers.\nCanadian Crude Oil: Domestic refiners heavily or\ntotally dependent on the decreasing quantities of crude\noil being exported to the United States by Canada are\nallocated an amount of such crude oil determined by\nevaluating the refiner's capability to replace the oil\nand the extent of his dependence on this oil as a source\nof supply. (Full phase-out of crude oil exports by\nCanada is expected around 1981.)\nNone of FEA's enabling petroleum regulatory legislation\nrequires on-the-record formal rulemaking or adjudicatory\nproceedings, as such proceedings would be at variance\nwith the emergency nature of FEA's regulatory programs.\nIts regulations are promulgated after informal rulemakings\nare administered.\nA variety of orders can be issued under the petroleum\nregulations, but most of the orders are in response to\napplications for exception to the regulations. The\nexceptions process is FEA's primary instrument for\nadministering the mandatory, self-enforcing petroleum\nprice and allocation regulations. However, none of FEA's\norders are issued through formal adjudicatory proceedings.\nThe petroleum programs, as noted, were instituted to\nhelp the nation and the petroleum industry cope with\nthe oil shortage suddenly imposed in 1973. However we\nno longer have this situation and the Administration has\nattempted to end these controls ahead of the statutory\nFORD\nschedule by which they become non-mandatory in 1979.\nANLO\n-20-\nIn spite of the transition from a condition of product\nshortage to one of surplus, Congress has blocked most\namendments proposed by FEA to decontrol petroleum and\npetroleum products.\nIn addition to the above emergency-oriented regulatory\nprograms dealing with petroleum pricing and\nallocation, FEA now has some other regulatory programs\nwhich are broader in purpose and longer-term.\nThese are:\nMandatory Oil Imports: This program was implemented\nin 1959 by the Department of Interior to promote\ndomestic exploration and refinement of petroleum.\nIt requires that any person importing petroleum or\npetroleum products purchase a license and pay fees of\n21 cents per barrel for crude oil and 63 cents per\nbarrel for finished or unfinished petroleum products\nto the U.S. Treasury.\nStrategic Petroleum Reserve: The purpsoe of this\nprogram, which is not truly a regulatory program at\nthis stage, is to minimize the economic impact of\ncurtailed oil imports, and also to deter the use of\nsuch curtailments as political weapons in the future.\nAn initial reserve of 150 million barrels by December\n1978 is scheduled, with longer range plans for stock-\npiling up to 1 billion barrels. Although the program\npresently is not regulatory, it would become regula-\ntory under an embargo or other shortage situation which\nwould require emergency distribution of the reserve.\nCoal Utilization (Coal Conversion): This program has\nlong term implications, associated with both energy\nresource development and energy resource conservation\nmatters. The program will conserve natural gas and\npetroleum products by prohibiting certain existing\nand proposed powerplants/major fuel burning installa-\ntions from using such products as their primary energy\nsource. Instead, these powerplants and facilities\nwill be modified (existing) or designed (proposed) to\nutilize coal. The resulting increase in the demand for\ndomestic coal supplies will help accelerate development\nof domestic coal reserves.\nFinally, FEA employs regulatory power to a degree in some of\nits energy conservation. These programs are discussed in the\nissue paper dealing with Federal conservation of energy\nprograms.\n-21-\nOrganizational Placement of FEA Regulatory Programs\nFEA's regulatory programs can be seen as means to achieve\nenergy goals much more so than activities aimed at assuring\nequity, due process, and non-partisan objectivity in the\nawarding of rights and privileges or imposing of conditions\non the exercise of those rights. They are tools for the\nachievement of policy objectives, and attempts to move the\nindustry in certain directions (or prevent movement in\nundesired directions) more so than efforts to restrain the\nindustry from producing side effects such as unacceptable\npollution or health and safety hazards. These perceptions\nof the FEA regulatory programs argue for their placement in\na way that enhances their responsiveness to overall energy\ngoals.\nThe informal, non-adjudicatory approach of FEA regulatory\nprograms, as well as their placement in an executive agency\nconcerned with overall energy policy, allows for them to\nbe more readily adjusted (within the omits allowed by law)\nto meet ever changing energy supply and demand shifts.\nWhether these fluctuations are the result of changes in\ntechnology, the general economy, international affairs, new\nstatutes or other causes, the regulatory aspect of Federal\nenergy programs must have the flexibility to adjust accord-\ningly, and to do so in harmony with overall policy assess-\nments.\nVI. OTHER ENERGY REGULATORY PROGRAMS\nMany other Federal programs and agencies exercise a regula-\ntory impact on the energy industry besides FPC and FEA which\nwas dealt with in the preceding chapters. Some of these have\nan explicit and obvious energy relationship such as the NRC.\nOthers are less evident, but may have a considerable influence\non energy matters. Examples of less evident regulatory\nimpacts on energy are those exercised by EPA in pursuing its\nresponsibilities for clean air, or Bureau of Land Management/\nInterior as an incident to administering the public lands.\nNuclear Regulatory Commission\nThe NRC was established by the Energy Reorganization Act\nof 1974. It is responsible for all the regulatory and\nlicensing functions of the former Atomic Energy Commission\nwhich was abolished by the 1974 legislation, and is the\nFederal agency responsible for the regulation of nuclear\npower generation.\n-22-\nMajor NRC Program Functions are as Follows:\nNuclear Reactor Regulation. Assures adequate safety,\nenvironmental protection, and safeguards in the issuance\nof reactor licenses.\nStandards Development. Produces engineering standards\nfor siting, fuel cycle facilities, safeguards, trans-\nportation and product safety standard development.\nInspection and Enforcement. Conducts nuclear powerplant\nsafety inspections including the issuance of construct-\nion permits and operating licenses. Also conducts\nsafety inspections of fuel cycle facilities and nuclear\nmaterials.\nNuclear Material Safety & Safeguards. Performs a safe-\nguard licensing program devoted to waste management and\nthe development of generic environmental impact statements\nfor consumer products which contain nuclear material.\nNuclear Regulatory Research.. Conducts research on\nreactor technology and in nuclear related health,\nenvironment, fuel cycle and safeguard areas.\nThere are some significant reasons to consider incorporating\nthe NRC functions in an executive branch energy agency if\nsuch an entity is formed. Doing so would broaden the basis\nfor nuclear regulatory decisions by permitting them to be\nweighed competitively with fossil fuel, hydro-electric or\nother energy forms. In addition, nuclear export decisions\nwith their strong international implications would be\nappropriately subject to Presidential control.\nOn the other hand, there are very compelling reasons for\nleaving NRC in its present status as an independent commission\nat this time, regardless of any consolidation of energy\nfunctions that may take place. Public concern over nuclear\nsafety is so great that tampering with the independence of\nnuclear regulatory decisions would seriously undermine\npublic acceptance of nuclear power at this time. Transfer\nto an executive agency advocating energy development would\nbe perceived by many as a deliberate attempt to weaken govern-\nmental concern for nuclear health and safety in favor of\nenergy development, thus potentially eroding public confidence\nin nuclear power and further exacerbating anti-nuclear sentiment.\n-23-\nThe critical need to have Presidential control of\nexport decisions for nuclear material and hardware as\npart of his constitutional responsibility need not depend\non organizational merger of NRC. Instead, it can be\nachieved by change in the existing law in any of several\nways such as giving the President ultimate authority to\napprove or disapprove of nuclear export decisions similar\nto his authority over CAB decision on overseas air routes.\nA number of other regulatory programs which have an influence\non energy are inherent parts of other missions. Examples\nare: (1) pipeline safety which is related to the transporta-\ntion safety mission of DOT, (2) worker safety at OCS drilling\nsites which are part of the OSHA mission within Labor Depart-\nment, (3) miner safety as part of MESA, (4) pipeline rates\nset by ICC as part of its rate regulation of interstate\ncommerce and (5) right-of-way permits for electric trans-\nmission lines across public lands as an incident to BLM's\ntrust management responsibility, and (6) environmental review\nof energy facilities by EPA.\nIt is difficult to see how these regulatory tasks which are\naspects of non-energy missions, but which affect energy in\npart, can be excised from their present placement to any\nadvantage. This conclusion is reinforced when the program\nin question has an objective which may operate contrary to\nenergy development, as in the case of programs aimed at\nsafeguarding health, safety and the environment.\nVII. ORGANIZATIONAL GUIDELINES AND CONCLUSIONS\nThis section attempts to respond to the issues in energy\nregulatory organization which were identified in Section II.\nTo do so, it draws on information developed and summarized\nin Sections III, IV, V, and VI.\nA. Can Regulation and Promotion be Placedin the Same Agency?\nYes. If the right circumstances exist, it is not only\nacceptable, but positively desirable to do so.\nUndoubtedly, serious internal conflict existed in the\nassignment of nuclear safety regulation as well as nuclear\ndevelopment and promotion in the old AEC. If that arrange-\nment had not been broken up in 1974, it would be even\n-24-\nmore urgent business today in the light of heightened\npublic concern for nuclear safety.\nHowever, the same combination of ingredients which\nexisted with AEC is by no means present in each current\nor potential combination of regulation and development\nwithin a single agency. The AEC combination or circum-\nstances involved the following features:\nA single agency relating to\na single industry which was and is trying to\nbecome competitive with other energy industries.\nThe single agency for nuclear affairs had no off-\nsetting concern for other subjects or industries\nthus creating an unmitigated advocacy relationship\nbetween the regulator and the regulated industry.\nThe agency in this narrowly focussed advocacy\nrelationship was subject to minimal accountability\nin view of its multi-member, bi-partisan, fixed\nterm format. (Although it is true that AEC was\nless independent than other regulatory commissions\nthen and now.)\nThe aim of the regulatory program, i.e., assurance\nof nuclear safety, tended to conflict with the aim\nof the development program, i.e., make nuclear power\ncompetitive as rapidly as possible.\nWhile the two major purposes of AEC were internally\norganized quite discretely from each other, both\nwere governed by the same decision-makers. In the\ncase of the regulatory program, this applied to both\nrule-making and major adjudications.\nIn contrast to the AEC situation in which naturally conflicting\ninterests were unlikely to receive balanced consideration,\nother potential combinations of regulatory power with develop-\nmental responsibilities can be fully acceptable and, in fact,\nhighly desirable. This would apply when:\nThey are placed in an agency which has responsibilities\nranging over several or all energy sectors thus\nremoving the potential bias over any one, i.e., not\na one-for-one relationship.\n-25-\nThe agency has a range of responsibilities in the\nenergy and perhaps natural resources fields going\nbeyond regulation and development. Data, policy,\nR&D, conservation, etc. In this way, top manage-\nment of the agency has a multiple perspective on\nthe energy subject, can see the interations among\nthese approaches and can provide balance in their\nusage toward achievement of national goals.\nThe regulatory responsibilities themselves are not\ndirectly in conflict with development goals.\nGenerally, as noted earlier, regulatory power aimed\nat health safety and environmental safeguarding con-\nflicts with development and can appear to outside\nobservers to be biased. Other regulatory programs,\nhowever, can involve a use of regulatory power in\nways that are compatible with energy goals. To do\nthis effectively requires coordination not separation.\nThe regulatory program is internally placed within\nthe agency in such a way that the adjudicative\ndecisions are protected from undue influences while\nthe regulators are brought into the overall policy\nformulation and implementation process. How this\ncan best be done is discussed further in the sub-\nsection dealing with FPC.\nB. To What Extent Should the Many Programs that Regulate\nEnergy be Consolidated?\nThe fagmentation of energy regulation and the uneveness\nwith which the various energy sectors are subject to\nregulation suggests the desirability of organizationally\nmerging some or all such programs. Doing SO would\npermit a better opportunity to deal equitably across\nall sectors and remove any tendency for regulators\nover a single sector to favor that sector. Of course,\nthis leveling effect would require changes in the\npresent laws in order to be fully effective, but the\nneed for legislation could be analyzed better and\npresented more convincingly if the various sectors\nwere subject to the same regulatory program. This\nunification of regulation, according to Administration\npolicy, would be in the direction of deregulation so\nthat regulation of oil, gas, hydro, coal, etc. would\nbe subject to an equitable but lower common denominator\nof regulation.\n-26-\nThe potential advantage in bringing together regulatory\nprograms applicable to the various energy sectors does not\ninvolve what were described earlier as mission-related\nregulatory programs. These latter are not set up to\nrelate to a given energy sector, but pursue other\nobjectives such as minor safety, environmental\nprotection, or interstate transportation.\nTaking those regulatory programs which are directly\nrelated to energy industries as such, there is strong\nreason to consider consolidation of oil regulation - FEA,\ngas - FPC, and hydro - FPC. Coal is subject to very\nlittle direct regulation. While there is significant\nreasons to include nuclear regulation, the counter-\nvailing reasons to leave NRC undisturbed at the present\ntime is very compelling as discussed in Section VI.\nC. To the Extent Energy Regulation is Consolidated, How\nShould it Placed Organizationally\nThe prime energy regulatory programs, if they were to\nbe consolidated, could theoretically be organized any\nof several ways. (1) as an independent energy regulatory\ncommission essentially outside the Executive Branch,\n(2) as an Executive Branch, single administrator\nenergy regulatory agency, or (3) as an energy regulatory\nunit within an overall energy department or agency.\nOverall it appears that the last of these has the\ngreatest merit if done properly. The independent\ncommission approach would have all the difficulties\ninherent in the multiple-headed commission format\nwhich are well documented. In addition, the independence\nfeature is a weakness to the extent that regulation of\nenergy needs to be effectively coordinated with other\nfederal approaches to the same subject. This factor\nis discussed in various ways elsewhere in this report.\nThe separate energy regulatory agency within the\nExecutive Branch and with a single administrator would\navoid the major weakenesses of the independent commission\nformat. However, it would appear logical that\ncoordination can be most effectively realized if\nenergy regulation is performed within the same agency\nand subject to common policy review by the same agency\nhead. Appropriate steps should be taken in such an\nevent to protect the objectivity of adjudicative actions\nas discussed in the forthcoming sub-section relating\nto FPC.\n-27-\nD. Relating Energy Regulation to Other Federal Activities\nin the Energy Field\nSection III of this report pointed out some of the many\ninteractions between Federal programs which regulate\nthe energy industry and those which effect energy in\nother ways. Their impacts can be supplementary, or,\nat times, contrary and perhaps counterproductive. e.g.\nprices held to a regulated level which inhibits the\ncommerical introduction of new technology because of\nlack of margin for risk taking.\nThese interrelationships of the regulatory function can\nbe surfaced and consciously dealt with if both functions\nare located in the same agency as in the case of petroleum\nregulation by FEA. However, when regulation is\nseparated in a separate agency, especially where there\nis little accountability as in the case of FPC or NRC,\nthere is little prospect that these interactions will\nbe recognized or dealt with.\nThis analysis, therefore, supports the conclusion that it\nis disadvantageous for energy regulatory functions to\nbe completely disconnected from other functions in the\nenergy field.\nE. Should FPC be Disestablished and its Functions Reassigned\nto a Consolidated Energy Agency such as the Department\nof Energy or Department of Energy and Natural Resources\nConcept?\nThis very important question can be rephrased for analyt-\nical purposes into four questions:\nCan FPC be abolished without giving up too much?\nIs there real gain in doing so?\nAre there any reasonable alternatives that\nwould be better than reorganization?\nHow could functions best be organized if FPC\nwere abolished?\nNote: The discussion of transferring FPC functions\nand abolishing FPC assumes an organization to which they\nwould be sent. While present day FEA could be a\nrecipient agency, a stronger base would be the\nprospective energy agency represented by either the\nDOE or DENR alternative.\n-28-\nCan FPC be Abolished Without Harm?\nNo compelling reason, either legally or operationally,\nwas identified for continuing the FPC as an institution.\nAssignment of functions to FPC, beginning in 1921 with\nthe hydroelectric work, has been more historical than\nrational. The multi-member leadership feature helps\nprovide a degree of stability which, from another\nperspective, might be described as rigidity. It is\nprobably true that the commission form lends something\nto the adjudicative decisions, if not the rule-making,\nof FPC. However, other arrangements can be made for\nadjudications with minimum loss in balancing and with\nsubstantial gain in expediting decisions. Moreover, use\nof the adjudicative method can and probably should be\nreduced through a higher degree of reliance on rule-\nmaking to implement policy (subject to deregulation).\nIn doing this, there would be fewer adjudications and\nthose which occur would deal with narrower issues within\nthe framework of more fully developed rules. In this\nway any validity in the use of the commission form\nwould be diminished.\nIs there Potential for Real Gain?\nIt would be difficult to prove in specific terms any\nharm done to the public interest as a result of the\nFPC's commission form. For one thing, observers would\nnot agree on how to define the public interest, whether\nprior decisions were good or bad or what would have\nensued from another decision. In any case, this\nanalysis has not come up with a documentation of\npositive harm attributable to the present organizational\nform.\nHowever, the answer to this question of net gain is\nmore of a management issue than a case in the Court of\nClaims where one has to show damage. There is a very\ncredible case as to the inability to balance FPC's\nregulatory decisions with overall energy considerations\nunder its present independent status. Cases also are\nslowed down as a result of difficulty in getting prompt\ncomment and assistance from other Federal agencies,\nState governments or even from applicants in some\ninstances. An executive agency would have more means\navailable to it in applying leverage to get timely\nresponses.\nFORD\n-29-\nThe data needs of FPC are not fully integrated with\ncomparable needs of other agencies. While cross-agency\ncoordination can in time perhaps overcome much of\nthe resulting duplication, it is harder to resolve\nthese matters when an independent commission is involved\nsince they are not subject to OMB's clearance function\nunder the Federal Reports Act.\nAre there Non-Organizational Alternatives?\nNo doubt FPC's performance can be improved by some\nprocess changes short of abolishing FPC and reassigning\nits functions. Improved performance might involve more\ntimely actions and greater sensitivity in the substance\nof decisions to the nations total energy needs.\nThey might be within FPC itself or--more usefully--they\nmight involve FPC in relation to others. Improvements\nmight include:\nExpediting of actions in process by establishing a\nproduction management system to assure more timely\nresponse by Federal agencies or others. This may\nrequire legislative backing.\nA stronger intervenor role by FEA or the energy\nagency, if created, in taking a position or\nfurnishing on-the-record information in formal\nproceedings. The purpose would be to help assure\nthat the FPC considers pending actions in the light\nof its impact on national or regional energy\nsituations.\nAbolishing the exemption of FPC (and other regulatory\ncommissions) from the OMB review under the Federal\nReports Act.\nRelatively greater use of rule-making rather than\nadjudications.\nA final judgement is necessary as to whether these\nprocess improvements, fully realized, would preclude the\nneed for major reorganization in the form of abolishing\nFPC. In this connection, it appears that the several\nprocess changes listed above are either unlikely to\noccur or of limited effect. Accordingly, while they\nare worth pursuing on their various merits, they should\nbe viewed as supplementary to any possible reorganization\nrather than in lieu of it. In other words, the\nsoundness of abolishing FPC should be weighed and\n-30-\ndecided up or down without strong reference to the\npropsect for major improvement under the present\narrangement. Any improvement within the existing\nstructure would be marginal and does not strongly\nimpact the decision of seeking to abolish FPC or not.\nIf FPC's Functions are to be Incorporated in an\nEnergy Agency How Should They be Organized and Managed?\nThis question of \"how\" goes to the heart of the dilemma\nin organizing energy regulation between achieving\nresponsiveness to policy goals, where needed, and\navoiding politization where that is important.\nThe resolution to this dilemma gives the ultimate\nmeaning to the earlier questions of \"can FPC be\nabolished\" and \"is there advantage in doing so.\"\nThe key to resolving this issue is to distinguish\ngeneral rule-making from adjudication. The former\ninvolves rules of general application which implement\nbroad policy. They may be developed to the point of\ncomprehensive and quite detailed coverage of the\narea under regulation, or they may be broad expressions\nof policy. The latter, adjudication, involves the\napplication of governing rules to the specifics of\na particular case. There is a dynamic relationship\nbetween the two in which the more detailed and\ncomprehensive the general rules, the more narrowly\nconfined the adjudicative decisions will be.\nConversely, in the event that only broad rules exist,\nthe greater the reliance which must be placed on\nde facto policy-making by case law in which the body\nof precedents set by the aggregate of case decisions\nbecomes the expression of policy.\nGeneral rule-making is very closely parallel to policy.\nIt is, in effect, policy formulation in the regulatory\ncontext. Consequently, it is the rule-making aspect\nof regulation that should be sensitive to overall\nenergy policy and should be mutually related.\nAdjudication, on the other hand, involves determination\nof property rights and equities in specific situations.\nThis aspect of regulation should be insulated from\npolitization and coordination of these decisions with\npolicy objectives is not appropriate or completely\nrelevant usually.\nA problem of conflict develops when a regulatory area\nis characterized by little specificity in its general\nrules and, consequently, by de facto policy-making\nthrough case decisions. In such a case the objective\nof harmonizing regulation with overall policy can only\n-31-\noccur through an effort to coordinate or influence\nspecific case adjudication which are intended to be\njudicially impartial.\nThe solution, in the event of transferring FPC's\nfunctions to an energy agency where they would be\njoined by FEA's regulatory functions, would contain\nthe features listed below in order to obtain policy\ncoordination where necessary and a political\nimpartiality where necessary.\nSeparate Regulatory Administration within the\nDepartment to perform all primary energy\nregulatory responsibilities assigned to the\nDepartment. This Administration to be headed by\na single Regulatory Administrator appointed by\nthe President, subject to Senate confirmation,\nand serving at the pleasure of the President.\nThis Administrator would be clearly and openly a\nmember of the Secretary's team and would\nparticipate fully in policy dialogues and issue\nresolution.\nRule-making by this Administration would be\nconsciously related to national policy and would\nhave the benefit of all information developed by\nthe Department. At the same time, rule-making\nwould be performed with maximum feasible openness\nincluding advance notice, issuance of proposed\nrule for comment, hearings, and publication of the\nbasis for the final decision.\nRule-making would be maximized in order to enlarge\nthe extent to which the direction and thrust of\nthe regulatory programs are compatible with\nenergy policy without risk of compromise in\nindividual case decisions which would be\ncorrespondingly narrowed in scope if not reduced\nin number. (It should be noted that highly\ndeveloped general rules can result in an apparent\nhigher degree of Federal intervention in day-to-day\nbusiness operations. Rules can become voluminous\nand detailed and thereby onerous. A further\nadvantage, however, to rule-making is the greater\ndegree to which regulated firms can predict the\nimpact of regulation on their decisions.)\n-32-\nCases would be adjudicated, within the rules, by\nAdministrative Law Judges (ALJ's) who, by law,\nare not subject to agency direction. The ALJ's\nwould have little or no need to create law in\nany significant way because of the availability\nof sufficiently specific rules for them to apply.\nPossibly, there would be a value in having an\nAppeals Board or panel to hear appeals and\nconsider relief from initial rulings of the ALJ's\nshort of a court appeal. Such an Appeals Board,\nif established, would be appointed and structured\nin a way to assure its impartiality and\ninvulnerability to pressure. This is consistent\nwith its non-policy character and its emphasis\non assurance of procedural due process in property\ndecisions. The need for such a Board should be\nstudied further, if it becomes relevant to do so,\nincluding its composition, appointment, and tenure\nof members, and its operating rules.\nINVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS\nI. Energy Agency\nENERGY\nAGENCY\nPROGRAM\nPURPOSE\nSECTOR AFFECTED\nNRC\nLicense nuclear materials and technology\nHealth and safety\nNuclear power\nexports\nLicense and regulate use and transportation\nHealth and safety\nNuclear power\nof all nuclear materials\nLicensing of construction and operations of\nHealth and safety\nNuclear power\nall facilities using or producing\nradioactive materials\nFPC\nRegulate private hydroelectric power on\nEconomic\nElectricity (hydro)\nnavigable rivers\nRegulate rates for interstate wholesale\nEconomic\nElectricity\nelectric power\nSet rates for interstate sales of natural\nEconomic\nNatural gas\ngas\nRegulate construction and operation of\nEconomic\nNatural gas\ninterstate natural gas pipeline and\nstorage facilities\nRegulate natural gas allocation during\nEmergency preparedness\nNatural gas\nshortages (stand-by)\nDepartment of\nInterior\nBLM\nIssues licenses and permits for exploration\nPublic land management\nAll sectors\nand development of oil, gas, oil shale,\nGERALD R. FORD\ncoal, geothermal and other resources on\nFederal lands\nLIBRARY\nINVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS\nI. ENERGY AGENCIES\nENERGY\nAGENCY\nPROGRAM\nPURPOSE\nSECTOR AFFECTED\nSport\nReviews license or permit for exploration\nEnvironmental protection\nVarious sectors\nFisheries\nfor non-Federal hydroelectric projects\n& Wildlife\nMESA\nMine health and safety promotion and\nHealth and safety\nCoal (other minerals)\nregulation\nFEA\nRegulate price of petroleum\nEconomic\nPetroleum\nRegulate distribution of crude oil and\nEconomic\nPetroleum and\npetroleum products\npetroleum products\nStategic Petroleum Reserve\nEconomic\nPetroleum\nCoal conversion\nConservation\nCoal, petroleum and gas\nIndustrial efficiency standards\nConservation\nAll sectors\nAppliance efficiency standards\nConservation\nAll sectors\nINVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS\nII. NON-ENERGY AGENCIES\nENERGY\nAGENCY\nPROGRAM\nPURPOSE\nSECTOR AFFECTED\nAgriculture\nForest\nPermits or easements for electric transmission\nPublic land management\nAll oil, gas, coal\nService\nlines, oil or gas pipelines or other energy\nand electricity\nfacilities across National Forest lands\nCommerce\nIndustry efficiency standards\nEnergy conservation\nAll sectors\n(DIBA)\nExport controls for energy, energy-related\nNational security\nAll sectors\nExport\nequipment/products/materials\nControl\nOffice\nAppliance efficiency standards\nEnergy conservation\nAll sectors\nNOAA\nReviews license permit requests for floating\nEnvironmental protection\nVarious sectors\npower plants, offshore oil and gas\nfacilities\nDOD\nIssues regulations, permits, enforces\nEconomic\nVarious sectors\nCorps of\nstandards for construction of various\nEngineers\nfacilities on or near navigable waters;\ndischarge of dredged or fill material\nLabor\nDevelops, promulgates and enforces\nHealth and safety\nVarious sectors including\noccupational health and safety standards\noil and gas drilling\n(OSHA)\nand regulations of all energy facilities\nfacilities\nexcept those situations where health and\nsafety vested in all other Federal agencies\nICC\nIssues permits for RR's or abandon service\nEconomic\nCoal and petroleum\nCERALD\nFORD\nINVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS\nII. NON-ENERGY AGENCIES\nENERGY\nAGENCY\nPROGRAM\nPURPOSE\nSECTOR AFFECTED\nHUD\nBuilding conservation standards\nConservation\nAll sectors\nJUSTICE\nEnforces anti-trust laws\nEconomic\nAll sectors\nDOT\nHazardous\nIssues regulations concerned with loading,\nHealth and safety\nAll sectors\nMaterials\nhandling, transportation and storage of\nBoard\nhazardous materials including energy-\nrelated\nAuto fuel company\nConservation\nPetroleum\nNatural gas and liquid pipeline safety\nHealth and safety\nNatural gas and\npetroleum\nCoast\nEstablishes and enforces regulations\nHealth and safety\nVarious sectors\nGuard\npertaining to the safety of vessels and\nport facilities; including design,\nconstruction and maintenance of vessels\ntransporting petroleum and other\npotentially hazardous material\nEPA\nAir quality standards\nHealth and environment\nAll sectors\n-auto emissions\n-performance standards on major fuel\nburning installations\nWater quality standards\nHealth and environment\nVarious sectors\n-Thermal efficiency guidelines\n-treatment requirements for major fuel\nburning sources\nINVENTORY OF FEDERAL ENERGY, AND NON-ENERGY-RELATED REGULATORY PROGRAMS\nII. NON-ENERGY AGENCIES\nENERGY\nAGENCY\nPROGRAM\nPURPOSE\nSECTOR AFFECTED\nFTC\nAppliance efficiency standards\nConservation\nAll sectors\nSEC\nInsures acquisitions or mergers of electric\nEconomic\nGas and electric\nand/or gas companies produce economies and\nare not anti-competitive also regulates\nissuance of securities holding co-systems\nand assures that no single holding\ncompany owns more than one gas or electric\ncompany\nGERALD\nR."
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