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Federal Energy Administration - Energy Resources Finance Corporation
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Federal Energy Administration - Energy Resources Finance Corporation
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Philip W. Buchen Files
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The original documents are located in Box 16, folder "Federal Energy Administration -
Energy Resources Finance Corporation" of the Philip Buchen 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 R. 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States of America his copyrights in all of his unpublished writings in National Archives collections.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 16 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
Energy
THE WHITE HOUSE
Resources
WASHINGTON
Finance Corp.
June 19, 1975
(pkgin
Domestre
conned
MEMORANDUM FOR:
JIM CONNOR
FROM:
PHILIP BUCHEN T.W.B.
SUBJECT:
Energy Resources Finance
Corporation
In response to the information submitted to me with the
attached action memorandum, my comments are as follows:
1. I support proposing such a Corporation.
2. I support a recommendation to the President
that the initiative, if approved, should be
announced by a Presidential address to the
joint session of Congress.
3. The description of the proposed Management in
Tab 2 and the draft legislation at Tab 4 in
Section 4 are not consistent, and the manner
of structuring the Management should be re-
thought before the proposal is made.
4. Section 8 of the draft legislation gives
unrestricted powers to finance State and
municipal projects. This provision in the
legislation could encourage many new Govern-
ment-owned utilities to the detriment of the
expansion of the private sector. Therefore,
I think this section should be eliminated or
the powers given should be carefully circum-
scribed.
NOTE: I assume that if the President gives tentative
approval to the proposal, there will be additional
time and opportunity to refine the proposed legis
lation.
GERALD LIBRARY FORD
HIGH PRIORITY
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date: June 18, 1975
Time:
Phil Buchen
FOR ACTION:
Jim Cannon *
CC (for information):
Jim Lynn
Jack Marsh
Bill Seidman
Frank Zarb**
FROM THE STAFF SECRETARY
DUE: Date:
WEDNESDAY, JUNE 25
Time:
12 NOON
SUBJECT:
ENERGY RESOURCES FINANCE CORPORATION
ACTION REQUESTED:
HIGH PRIORITY
For Necessary Action
X
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
*Jim Cannon: Insure the use of members of the Domestic Council who would
not be on either Energy Resources Council or Economic Policy Board.
**Frank Zarb: Members of the Energy Resources Council
SPECIAL NOTE: Insure there is no duplication of staffing.
INCLUDE IN REPLIES INDIVIDUAL REVIEWS AND ANALYSIS OF EACH
OF THE PEOPLE YOU STAFF IT TO.
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
FORD a QERALD LioRARY
If you have any questions or if you anticipate a
delay in submitting the required material, please
telephone the Staff Secretary immediately.
Jim Connor
For the President
[Ang.1975?]
ERFCO
EXECUTIVE SUMMARY
BACKGROUND
-
At your direction, the ERC has analyzed alternative
financing authorities to spur energy development, including
the Energy Resources Finance Corporation (ERFCO) proposed
by the Domestic Council.
THE PROBLEM
-
Your State of the Union Message proposed a broad range of
administrative and legislative initiatives, which, if
enacted, would reverse our growing dependence.
Generally the Congress has been unresponsive and in
several cases, such as price controls, they are
diametrically opposed to our proposals.
Many of our proposals are unpopular and may never be
enacted.
O
Over the longer term it is likely that some constructive
pieces of legislation will be enacted.
-
In addition to a lack of a national energy policy and enabling
legislation there are also a number of financial, regulatory
and environmental constraints which hinder more rapid
energy development. Often these constraints are interrelated.
-
Uncertainty over world oil prices also delays many critical
investment decisions.
-
The Project Independence Report indicated that $600
billion would be required to achieve energy independence
over the next 10 years.
-
If the economy continues its historical patterns of
capital formation, this $600 billion would require
23% of total fixed business investment, or approximately
energy's historical share since World War II.
GERALE FORD LIBRAR,
- 2 -
-
While there is not an aggregate capital problem for
the energy industries, there are individual problems:
Electric utilities are unable to raise adequate
capital to finance needed new investment due primarily
to inadequate rates of return set by State regulatory
authorities, which you have sought to address
legislatively.
High-cost, emerging energy technologies, such as
synthetic fuels, may represent too great a risk.
Certain very large investments such as uranium
enrichment plants or new Trans Alaskan pipelines may
not be manageable by the private sector.
-
There is also some disagreement concerning aggregate capital
formation problems in the economy, which could in turn
impact on energy investment.
If such problems exist, across-the-board structural
reform may be needed.
If this across-the-board action is not feasible, then
financial assistance to the energy sector may be the
only means to obtain sufficient energy supplies, but
this assistance will worsen the financial problems in
other sectors of the economy.
THE MAJOR ISSUES
-
There are already several cases where financial incentives
for commercial operation are used or planned.
O
Uranium enrichment.
Synthetic fuels.
-
The major issue is the extent to which new financial
incentives are needed, if at all. There are two arguments
for such initiatives:
Because of possible financial problems.
Because there are non-financial problems, such as
licensing uncertainties or environmental restrictions,
which will be difficult to overcome themselves and may
be helped by new financing incentives.
-
Beyond this issue are the questions of consolidation of
these authorities organizationaly, which financial FORD
mechanisms to use, and need to provide new energy authorities
to deal with existing regulatory constraints.
- 3 -
ISSUE: THE SCOPE OF FEDERAL INVOLVEMENT
-
No new coordinated Federal initiative.
Under this option, actions would be dealt with under
existing agencies and programs.
No major budget impacts would result, nor would new
legislation be needed, hence normal budget and management
controls would be continued.
While new and needed programs could still be initiated,
disparate initiatives could be time consuming and would
lack any political appeal.
Some feel that the needed increase in domestic
energy supplies is not very likely without Government
action and that the current effort would largely be dominated
by an R&D orientation. Others argue that the private
sector can and will provide the needed capital.
-
A limited emerging technologies initiative.
This option would implement your synthetic fuels goal
and could be expanded to other specified emerging
technologies, such as plutonium recycle, geothermal
or solar.
Its advantages are that its limited focus is justified
in terms of energy development that probably will not
occur if left to the private sector. As a result it
limits budget impact, impact on capital markets and
is easiest to keep from being "Christmas-treed."
On the negative side, it may not be viewed as a new
"Manhattan-type" Federal initiative and its focus is on
technologies which are the least justifiable economically.
Finally, its impact on achievement of energy
self-sufficiency through the next decade is marginal at
best, although probably significant thereafter.
-
A broader initiative which includes selected conventional
technologies which are not expected to be financed by the
private sector.
O
This alternative would include emerging technologies and
a very limited (and specified) list of conventional
technologies which may need financial assistance
(uranium enrichment, Alaskan natural gas pipeline,
floating nuclear power plants, etc.).
FORD
LIBRARY
- 4 -
Once into commercial technologies, this financing
authority will require significant funds ($30-50
billion) with obvious effects on the budget, energy
industries and the capital markets.
It will require much more Federal intervention, may
supplant private investment which would have occurred
anyway, and could easily be "Christman-treed" into
an all pervasive authority.
On the positive side, it will be viewed as a major new
"Manhattan-type" initiative.
It could have a more significant energy impact,
although also not in the next decade.
Broad initiative without major limitations.
This would be the most extensive proposal and would
allow broad flexibility to finance new or existing
technologies.
As such it would be seen as a major new initiative
which could have significant political appeal and
substantive energy impact.
On the negative side, it would require substantial
central planning and its impact on the budget deficit
and capital markets would be pervasive.
It could also develop a life of its own which would be
difficult to terminate. It could delay many projects
which would await review by ERFCO rather than seek
private financing. In any event, it would finance
many projects which would have been undertaken anyway.
ISSUE: ORGANIZATIONAL STRUCTURE
-
To what extent should decisions on energy priorities
be independently determined by a free-standing entity
or subject to existing OMB review and ERC coordination?
The setting of priorities solely within the new
entity could allow rapid decisions and new approaches.
On the negative side, it would make the unit
unresponsive to Presidential or Executive Branch
policy and budget guidance.
LIBRARY
- 5 -
-
To what degree should the implementation, i.e. financing,
of specific projects be undertaken by existing agencies;
a single new unit within an existing agency, such as
ERDA or FEA; or by a free-standing new agency?
Use of existing agencies minimizes the need to change
existing authorities, but does not provide economies
of scale, organizational focus, and is less likely to
attract new people.
A single "commercialization/financing" unit within
ERDA or FEA would provide organizational focus, new
management and the perception of a new initiative, but
would be under the control of the host agency.
A free-standing unit would provide organizational
focus and new management, but is likely to acquire
a life of its own independent of Administration direction.
ISSUE: FINANCIAL MECHANISMS
-
There are only two alternative financing options:
-
Loan, price guarantee, grant, and royalty participation
authorities.
O
Provides flexibility and also some upside
potential to offset costs of poor risk loans or
guarantees.
-
Equity participation by Federal Government.
Might allow financing of very risky but desirable projects
and allow greater returns to' Government where successful.
Might be an excessive Government role and lead to Federal
management of currently private sector projects.
ISSUE: NEW REGULATORY AUTHORITIES
-
Regulatory delays and uncertainties are at least as
important as financial problems and need to be addressed.
There are three basic options:
-
No new regulatory authorities.
O
Regulatory problems are not the central focus of ERFCO
and avoiding this issue will make the proposal
easiest to sell on the Hill and not alienate environ-
mental, safety, or other constituencies.
- 6 -
Regulatory barriers are a major problem.
-
Limited regulatory intervention authorities.
This option would allow intervention by ERFCO,
perhaps one-stop permit processing and time limits
on regulatory agency review of projects.
It could help the problem, but not considerably.
Such authorities have been proposed in the absence
of ERFCO.
-
Federal override authorities.
In theory, this would be the strongest and most simple
way to assure energy development.
It would be violently opposed and might jeopardize
chances of enactment of the whole proposal.
It probably does not strike the proper balance between
legitimate competing goals.
It could lead to all financing being channelled to
ERFCO.