Title: Department of Energy Author: Vice President Al Gore's National Perfromance Review Date: September, 1994 ******************** Department of Energy ******************** Accompanying Report of the National Performance Review Office of the Vice President Washington, DC September 1993 This accompanying report, prepared by the staff of the National Performance Review (NPR), laid the groundwork for the recommendations in the NPR report "From Red Tape to Results: Creating a Government that Works Better and Costs Less," released on September 7, 1993. This report is based on the best information available at that time. The specific recommendations within these reports have been and will continue to be given priority as part of the FY95 budget, legislative proposals, or other administration initiatives, as appropriate. ******** Contents ******** Executive Summary 1 Recommendations and Actions ^^^^^^^^^^^^^^^^^^^^^^^^^^^ DOE01: Improve Environmental Contract Management 5 DOE02: Incorporate Land Use Planning in Cleanup 15 DOE03: Make Field Facility Contracts Outcome-Oriented 19 DOE04: Increase Electrical Power Revenues and Study Rates 25 DOE05: Strengthen the Federal Energy Management Program 29 DOE06: Redirect Energy Laboratories to Post-Cold War Priorities 33 DOE07: Save Costs Through Private Power Cogeneration 37 DOE08: Support the Sale of the Alaska Power Administration 41 Agency Reinvention Activities 45 Summary of Fiscal Impact 53 Appendix ^^^^^^^^ Accompanying Reports of the National Performance Review 57 Abbreviations ^^^^^^^^^^^^^ AEC Atomic Energy Commission APA Alaska Power Administration ARAR Applicable or relevant and appropriate requirement CERCLA Comprehensive Environmental Response, Compensation and Liability Act Corps U.S. Army Corps of Engineers CRADA Cooperative Research and Development Agreement DAS Deputy Assistant Secretary DCAA Defense Contract Audit Agency DOC Department of Commerce DOE Department of Energy DSM Demand Side Management EE Office of Energy Efficiency and Renewable Energy EIA Energy Information Administration EM Environmental Restoration and Waste Management Program EPA Environmental Protection Agency EPACT National Energy Policy Act of 1992 ERDA Energy Research and Development Administration ERMC Environmental Restoration Management Contractor ESP Energy Savings Performance FEA Federal Energy Administration FEMP Federal Energy Management Program FPC Federal Power Commission FTE Full-time equivalent GAO General Accounting Office GOCO Government-owned, contractor-operated IAG Interagency Group M&O Management and Operating Contractor MW Megawatt NCP National Contingency Plan NECPA National Energy Conservation Policy Act NPR National Performance Review NPV Net present value NRC Nuclear Regulatory Commission OBT Office of Building Technologies OMB Office of Management and Budget OSHA Occupational Safety and Health Administration OSTP Office of Science and Technology Policy P&I Principal and interest PMA Power Marketing Administration PURPA Public Utilities Regulatory Policy Act of 1878 R&D Research and development RCRA Resource Conservation and Recovery Act SRS Savannah River Site TVA Tennessee Valley Authority Executive Summary ***************** DOE was established by the Department of Energy Organization Act on October 1, 1977. The act consolidated the major federal energy functions into one cabinet-level department. The agencies incorporated into the new department were the Federal Energy Administration (FEA), the Energy Research and Development Administration (ERDA), the Federal Power Commission (FPC), and units of several other agencies. Today, the department provides the framework for a compre-hensive national energy plan by coordinating and administering the energy functions of the federal government. DOE also is responsible for long-term, high-risk research and development of energy technologies, marketing federal power, promoting energy conservation, a greatly reduced nuclear weapons program and an increased nuclear clean-up program, energy regulatory programs, and a central energy data collection and analysis program. The NPR has identified eight issues for discussion in this report and made recommendations for further action. These issues and recommendations highlight key reinvention principles as well as fundamental areas of critical importance to agency management. NPR has helped identify a number of ways to ensure that environmental cleanup activities at DOE weapons production sites can be accomplished with better value for the substantial costs and increased responsiveness to local stakeholders. These recommendations include improvements in environmental contract management and incorporation of sitewide future land use planning into the cleanup process. The first of these recommendations encourages DOE to promote true competition among environmental restoration contractors and to improve management at cleanup sites. DOE should improve cost estimates, reduce costs, and use outcome-oriented performance measures. The second recommendation is designed to ensure a reasonable level of cleanup and to encourage cooperation with local partners to identify future uses of sites. NPR has also worked with DOE to develop policies to make the laboratory contracting process more accountable to customers and to make contracts for DOE field facilities more outcome-oriented. NPR encourages DOE to upgrade the status of the office responsible for directing a governmentwide energy efficiency and water conservation program by strengthening the Federal Energy Management Program. This recommendation will empower and encourage employees to accomplish their mission. In addition, this program takes advantage of private sector incentives that save federal dollars and stimulate business. As federal agencies plan and prioritize their activities to make the best use of limited resources, NPR has identified ways to adjust the mission and operations of its national laboratories and former weapons production facilities to meet the challenges of the post-Cold War era. The end result is that the laboratory assets will be more effectively shared with other agencies, industry, and universities. NPR recommends that restrictive legislation be amended to provide incentives for private sector involvement in constructing and operating new cogeneration power plants at government facilities. This program can greatly reduce costs to the government, increase business opportunities, and encourage growth. Finally, market mechanisms can also help improve decisions about price and usage of hydroelectricity. Implementing energy conservation programs, recovering full costs of hydroelectric power by the Power Marketing Administrations, and allowing market rate studies will all help make decisions more objective and equitable. NPR recommendations are estimated to provide net benefits to the federal government of nearly $3 billion in savings and $3.5 billion in additional revenues between 1994 and 1999. Some increase in federal employment to ensure stronger management of the field facilities is expected, but this should be offset by reductions in contractor costs at these sites. Secretary O'Leary established 15 Priorities Teams to take a hard look at the critical management and technical issues that are important to the future of DOE. In March, she announced a new organizational structure for DOE geared to achieve the administration's energy, environmental, and economic objectives. Six reinvention laboratories have been initiated to improve DOE's services. *************************** Recommendations and Actions *************************** ************************************************* DOE01: Improve Environmental Contract Management ************************************************* Background ********** The Environmental Restoration and Waste Management Program (EM) at the Department of Energy (DOE) was created in 1989 and has grown to comprise one-third of the total DOE budget. The EM program is responsible for two primary tasks: (1) managing the safe storage and disposal of radioactive, hazardous, and solid waste at DOE sites; and (2) cleaning up the environmental pollution at these same sites. EM's fiscal year 1993 budget is $5.5 billion, much of which is spent on contracts (in fiscal year 1992, 67 percent of the total budget was expended on contracts). A former Assistant Secretary estimated that, due to wasteful and inefficient expenditures of funds, the program was operating at 60 to 65 percent efficiency.(1) If this is the case, the program could waste $2 billion this year. Given that the program is estimated to cost $200 billion over 30 years, as much as $70 billion could be saved if the current course is changed. Many of these inefficiencies could be eliminated through improved contract structures and management of contractors. DOE is sensitive to the need for change in contract management and has begun a wholesale review of DOE contracting practices.(2) DOE generally executes its environmental programs using management and operating contractors (M&Os) and environmental restoration management contractors (ERMCs). M&Os are general contractors who have traditionally been hired to manage DOE's defense production mission. M&Os are unique to DOE; they are issued a letter of credit that allows them to draw funds directly from the Treasury, and they are granted considerable latitude in deciding how to manage a DOE facility. Part of their management responsibility includes the provision of environmental restoration services at DOE weapons, research, and laboratory facilities that are still in operation. The ERMC is a new contracting concept that was put into place in late 1992. ERMCs are general contractors with specific environmental expertise; they exclusively manage environmental restoration at DOE weapons production facilities that have been closed (Hanford Reservation near Richland, Washington, and the former Feed Materials Production Center in Fernald, Ohio).(3) Only the ERMC at Fernald is currently in place and operating. The ERMC contracting mechanism is still very new. It was devised to bring contractors with cleanup expertise into the DOE system, reduce potential conflict of interest, improve management control of the environmental restoration program, reduce cleanup costs, enhance technology exchange throughout the environmental restoration program, and facilitate a more timely restoration of DOE facilities.(4) Under both of these contract mechanisms (the M&Os and the ERMCs), contractors are paid on a cost-plus-award fee basis, whereby DOE covers all the contractors' costs and, in addition, pays them an award fee (a percentage of the total cost) based on their performance in meeting DOE requirements.(5) The award fee is not only based on the total cost incurred by the prime or management contractor, but also on total costs incurred by every subcontractor. The more layering of subcontractors, therefore, the more advantageous it is to the management contractor. Although the M&O contracting mechanism has been generally successful at promoting preeminent research and development, the contracts have been criticized by DOE program officials, the Office of Management and Budget (OMB), the General Accounting Office (GAO), and Congress. The contracts have been excessively expensive and difficult to control because of their lack of accountability and DOE's traditionally lenient approach to M & O management. M&Os have been found to be minimally accountable because performance measures and criteria in the contracts are vague and subjective. Additional weaknesses in M&O contracting include the use of sole-source, cost- plus-award-fee subcontracts, non-standard contract clauses that hamper DOE's ability to correct contractor abuses, and inadequate auditing, cost accounting, and cost estimating mechanisms to oversee the M&Os. Furthermore, DOE lacks sufficient personnel to properly oversee the M&Os. The lack of oversight personnel is especially acute in EM, as the program has fewer total staff per program dollar than any other DOE program, including defense production and nuclear energy.(6) Specifically with regard to environmental management, M&O contractors are perceived as not having adequate incentives to ensure rapid cleanups. There is also some concern that DOE should not be using the very contractors who created the pollution, and that many M&Os have insufficient cleanup expertise to address the problem. Further, because DOE has had such a close relationship with its M&Os, it has been quite difficult to seek expertise beyond the M&O community. For example, DOE is involved in approving salary levels, benefit packages, and, in some cases, retirement plans for M&O personnel. In terminating a contract with an M&O, DOE not only has to close out the contract but has to make provisions for terminating its involvement in the M&O's operating processes as well. Even when an M&O contract is terminated, it is replaced by another M&O, thereby preserving the staff and operating procedures. There is, therefore, great administrative difficulty and little incentive to seek expertise beyond the M&O community. DOE should ultimately be able to access the growing environmental expertise available outside the DOE weapons production complex and introduce more competition among contractors for environmental restoration work. The ERMC was developed to correct some of the problems associated with the M&Os. Primarily, the ERMC was supposed to reduce contracting costs 15 to 20 percent by using more fixed-price subcontracts and by reducing labor costs. Program management and contractor performance were to be improved by using a single contractor responsible for cleanup and by setting up clear delineations of responsibility and authority. The ERMC was also intended to speed site restoration by using contractors who could focus exclusively on cleanup, were provided with incentives for rapid cleanup, and could apply their Resource Conservation and Recovery Act (RCRA) and Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) experience. Although several concerns have been raised about the ERMCs, this contract mechanism has been in place at Fernald for only nine months. It is too early to know whether the ERMC concept will remedy the weaknesses that it was intended to address.(7) Contracting for environmental services under both the M&Os and the ERMCs is hampered by a number of general conditions. Many of the concerns regarding contracting at DOE are related to oversight and management of the contractors. EM has difficulty performing requisite management and oversight functions as it has too few staff with, in some cases, insufficient technical capability to ensure contractor performance. EM has far fewer federal employees overseeing program dollars, contracts, and contract employees than other programs in DOE and other programs doing comparable work. For example, in fiscal year 1993, EM will have 1,780 employees overseeing 37,000 contract employees, a ratio of one federal employee to 21 contract employees. By contrast, the Environmental Protection Agency (EPA), as a whole, employs 17,500 federal employees who oversee 9,000 to 10,000 contract employees, a ratio of approximately two federal employees for one contract employee.(8) EM also has significantly less staff per program dollar than any other DOE program or comparable program in other agencies. For example, in EM there is $3 million in program funding for every federal employee versus approximately $2.35 million dollars per federal employee in the DOE defense production program and $300,000 per federal employee at EPA.(9) An interagency review by OMB and the U.S. Army Corps of Engineers (Corps) cited the lack of EM personnel with the appropriate skills as a primary reason for high contract costs.(10) Secretary of Energy Hazel O'Leary states, "These disparities [in federal-to-contractor employee ratios] are, I believe, a significant factor in the department's weaknesses in program and contract manage-ment. Most fundamentally, they impede our ability to give adequate direction to our contractors and ensure that this direction is followed."(11) The current DOE cost-plus-award-fee contracts are expensive and may be inappropriate for the purchase of all environmental services. Because there is little financial exposure for the contractor and few penalties for poor performance, these contracts also provide little incentive to control costs. Other agencies, such as the Corps, the Navy, the Air Force, and EPA, use a mix of fixed price and cost-plus- award-fee contracts to pay for their environmental services. Furthermore, the award fee is intended to reflect the relative risk associated with a service and provide an incentive for the private sector to perform a task. The new Assistant Secretary for EM questioned the applicability of the current award fee system by saying that the weights for judging contractor performance seem arbitrary, and that the subjectivity of the process is problematic.(12) GAO was similarly critical of the award fee incentive system in a 1992 report.(13) With regard to ensuring contractor performance, DOE contracts for environmental services contain general work statements that do not adequately define the terms and conditions of the work to be done, do not lay out strong performance objectives, and do not shift the risk of poor performance to the contractor.(14) The new Assistant Secretary for the EM program has already voiced concerns about DOE's ability to measure contractor performance and the level of information that DOE is given with which to make decisions about millions of dollars in awards. The Assistant Secretary also described the decisionmaking process for evaluating contractor performance as deeply troubled.(15) DOE's contracting practices have also been criticized for their lack of incentives to safeguard worker safety and health. Under the DOE cost-plus-award-fee system, 51 percent of the variable fee is to be awarded on the basis of contractor performance in environment, safety, and health, yet studies show that the award fee contracting provisions are not functioning as they should be. A report by the Occupational Safety and Health Administration (OSHA) stated that M&Os have avoided being penalized for not meeting health and safety standards by negotiating higher base fees.(16) In 1990, at the Nevada Test Site, the contractor was rated average in its environment, safety, and health performance. Theoretically, this rating should have resulted in a lower award fee. The DOE Inspector General found, however, that DOE field personnel adjusted the maximum fees so that the contractor could receive fees similar to those previously received even with a lower performance rating.(17) DOE has some difficulty defining a scope of work and providing accurate cost estimates for environmental restoration contracts. This is due in part to the lack of agreement on future site uses and acceptable cleanup standards. It is exacerbated by the fact the DOE lacks sufficient numbers of trained cost engineers and estimators. EM relies on the contractors to do their own cost estimates but does not have enough staff or expertise to review the contractors' estimates.(18) For example, a joint study by EPA Region 10 and the State of Washington Department of Ecology found that one DOE employee at the DOE Richland Operations Office had to review contractor cost estimates for 325 projects within a two- week period.(19) In those cases where DOE was able to review a contractor's cost estimates with a "check estimate," the department found unnecessarily high estimates. For example, for the Oak Ridge/K-25 site solar pond cleanup, the contractor's cost estimate to DOE was $157 million, while the DOE program office estimate was $50 million to $70 million.(20) DOE's inability to review contractor cost estimates with its own "check estimates" means missed opportunities for cost savings. Furthermore, DOE cost estimators in some cases do not have sufficient training or expertise to perform reliable cost estimates. In 1992, an audit by the Corps of Engineers found that: . . . DOE's estimated costs were higher than the Corps estimates for comparable environmental restoration and waste management projects. Specifically, after a detailed evaluation of nearly $1 billion (18 percent of the EM program), costs were found to be higher than the amounts the Corps would expect to pay for the same work by 42 percent. The primary difference in the estimates can be attributed to overhead and administrative costs that may be saved through changes in management and contracting procedures.(21) DOE has a cost estimation mechanism in place that is currently underused. Each field office is equipped with a local cost estimating guide designed to standardize cost estimating in the region. The guides are not consistently used, and often the contractors develop and rely upon their own cost estimating handbooks. The Corps, which has experience performing hazardous waste remediation work (although no experience performing radioactive waste cleanup), is generally recognized for its proficient cost estimating capabilities.(22) All cost estimates at the Corps are prepared in-house by a multi-talented technical team, which includes cost estimators and environmental engineers. The Corps also uses an automated cost estimating software package that allows for consistency in the collection of baseline data. DOE officials originally intended to control overall costs by reducing labor costs under the ERMC system. However, both ERMC requests for proposals contain provisions that salary levels at the sites will not change. Furthermore, both ERMCs will be required to hire as much of the old M&O's workforces as they can effectively employ at current salary and benefit levels. This has occurred despite the fact that the ERMCs will require a work force with different skills.(23) It appears that DOE has yet to achieve the optimum balance in the allocation of responsibilities between its headquarters and field operations. This problem was recog-nized early by Secretary O'Leary and is being addressed at headquarters by a recent realignment of functions and responsibil-ities. Many decisions regarding contracts and environmental policy must travel up and down the chain of command for headquarters input.(24) The ratio of headquarters versus field employees needs to be reexamined to implement the Secretary's operating philosophies. Actions ******* 1. DOE should introduce competition and innovation in contracting for environmental cleanup services. DOE should allow for true competition among environmental cleanup contractors and the M&Os in bidding for DOE environmental remediation and management work. In ensuring that it exercises fair, open, and competitive contracting, DOE will be able to attract the most qualified companies (whether they are M&Os, ERMCs, or others) in the field of environmental restoration and management to perform the work in the most effective and efficient manner possible. Furthermore, all environmental restoration work should be awarded on a cost reimbursement basis rather than with a letter of credit. To ensure the above-mentioned conditions at the sites that EM does not control, environmental restoration and management work should be separated out from the M&Os. 2. DOE should enhance the management of its waste management and environmental restoration contracts by providing qualified on-site DOE personnel to assume greater environmental project management and project design responsibilities. For DOE to adequately manage its contractors and ensure competitive and innovative contracting, the EM program at DOE should build capable, technically trained teams of DOE personnel who work at DOE cleanup sites. Adequate authority to manage and oversee the site coupled with clear accountability should be delegated to these teams from DOE headquarters. As the federal presence is increased in EM tasks, care needs to be taken to clearly delineate federal and contractor responsibilities for decisionmaking and accountability. Consistent with priorities cited by the new DOE leadership, the EM program should reexamine the distribution of responsibilities and personnel between headquarters and the field.(25) 3. DOE should adopt measures to reduce costs. To maintain management convenience and minimize transition time between the various phases of a cleanup at very large sites, as well as achieve economies of scope and scale, it appears that it would be prudent to remain with a single management contractor. At smaller sites, however, it might be appropriate to have several special- purpose contractors working under federal management. Whatever the arrangement might be, in order to manage costs, it will be important to distinguish the methods of contracting for various services. For example, site characterization and site assessment services should be purchased on a cost-plus-award-fee basis due to the relative uncertainty of this kind of work. Other relatively finite and discrete services such as landlord functions (grass-cutting, janitorial services) and actual remediation services (moving earth, pouring concrete, digging wells) should be purchased on a firm, fixed-price basis. To guard against excessive overhead charges (which accumulate when they are applied to each subcontractor), DOE should devise a policy clearly stating when to emphasize subcontracting and when to emphasize direct services from the contractor. 4. DOE should build tangible, outcome-oriented performance measures into its environmental restoration contracts to ensure objective, measurable assessments of contractor performance. Positive and negative incentive fee criteria should be built into environmental management contracts. DOE could furnish the contractor with interim payments that are contingent upon the outcome of the contractor's work. Fees would reward contractors who exceeded contract specifications, but contractors would have to reimburse the department if the work did not meet specifications. 5. For the award of such environmental restoration contracts and the disbursement of fees, DOE should put more emphasis upon the contractors' record for ensuring worker safety and health. Management systems and oversight controls in contracts should include accountability, monitoring, feedback reporting, and oversight of performance to ensure that safety and health requirements are implemented and adhered to. 6. To control costs, DOE's waste management and the environmental restoration programs should build a reliable methodology for estimating costs that is applied uniformly at all EM sites. Although DOE has gone to considerable lengths to build its cost estimating capabilities, it needs to continue efforts to develop and implement effective cost estimating methodologies. The programs should issue a directive (followed up with prompt promulgation of a formal order) requiring that the local cost estimating guide be used by all DOE contractors in the region. Where necessary, DOE should work with the Corps and EPA to revise the cost estimating guides so that they provide a consistent system for measuring the thoroughness of project definition, the degree of technological complexity, the variety and type of contaminated media and contaminants present, and contingencies and escalation rates.(26) To build contract management capability throughout the EM program, environmental program managers, in addition to contract officers, should receive contract training. 7. DOE should build capable cost estimating and cost engineering teams at each DOE site who will be able to proficiently determine the contractors' scope of work and review cost estimates. One possible means of building such capability might be through the Corps of Engineers. Currently, the Corps has extensive experience in estimating contract costs for hazardous waste remediation and construction and, furthermore, is attempting to "downsize." Experienced senior Corps cost estimators could be loaned or transferred to DOE and given the task of building cost-estimating teams at individual DOE sites. 8. For those environmental services that are paid for on a cost-plus- award or a cost-plus-fixed fee award basis, DOE should perform systematic and timely audits on costs incurred by every contractor to verify that costs charged are legitimate and reimbursable. DOE signed a Memorandum of Understanding with the Defense Contract Audit Agency (DCAA), whereby DCAA performs the majority of cost- incurred audits for DOE on non-M&O contracts and M&O subcontractors. If environmental restoration and management contracts are separated from the M&Os and awarded on a cost-plus-award fee or other basis, responsibility for auditing will fall to DCAA.(27) 9. DOE should reevaluate the merits of requiring environmental restoration contractors to hire as many of the former M&O's staff, at current salary and benefit levels, as they can effectively employ. DOE should use the existing contractor work force for those positions that are similar in nature and retrain employees to the maximum extent possible. DOE should, however, verify that its contractor work force strategy maximizes the effective application of worker skills to skill requirements in order to ensure successful environmental restoration. 10. DOE should examine options to increase the ratio of federal workers to contract employees to improve management and oversight and control costs. DOE should determine whether its current personnel ceiling can be raised in exchange for reductions in contractor funding, or if contractor positions can simply be converted into federal positions. On the whole, it is cheaper to perform certain functions using federal employees than it is through contract employees. For example, on average, a DOE contract employee costs $120,000 a year versus $90,000 per DOE employee, including salary and benefits. Equalizing the ratio between federal employees and contractors, especially out in the field, could improve contractor management and ensure that DOE activities are being administered by the appropriate people, and will save money in the process. Implications ************ These actions move DOE toward a more active role in planning and managing environmental restoration at a DOE site. The speed of cleanup should increase by delegating authority to the field, the quality of decisions and oversight should improve by building technically capable oversight teams, and rising costs should be mitigated with accurate cost estimating procedures and credible DOE oversight. Fiscal Impact ************* The environmental cleanup program at DOE is estimated to cost $200 billion over 30 years. This number, however, is subject to change given that DOE still has not ascertained the full extent of the contamination at its sites. Beginning in 1989, the program's budget allocation increased at a rate of 30 percent a year or more. The President's 1994 budget plan calls for a 3 percent real growth in EM's budget authority beginning in 1995. The EM program will have to make considerable adjustments and achieve significant efficiencies to accomplish its mission within this budget scenario. The NPR recommenda-tions on sitewide future land use planning and on contract management elsewhere in this report should help the department achieve these efficiencies. Recommendations DOE01 and DOE02, "Incorporate Land Use Planning in Cleanup, should be implemented together," and it is difficult to estimate savings for each recommendation individually. Taken as a whole, however, these recommendations should achieve collective savings through: --- competition among environmental contractors; --- a reduction of fees and overhead in environmental contracting; --- increases in productivity; --- enhanced management and oversight of contractors; --- cost control and cost reduction through better cost estimation of environmental services; --- increased use of federal employees in place of contractors; and --- a remedial decisionmaking process based on reasoned land use assumptions. Viewed as a reform package, contracting reform and sitewide future land use planning could achieve a 15 to 25 percent cost savings over five years. In other words, within the limits of their resources, the EM program at DOE should become 15 to 25 percent more efficient in administering the cleanup program over five years. In essence, the above changes should enable DOE to perform more cleanup more effectively for each dollar spent and potentially mitigate the escalation of costs for the whole environmental restoration and waste management program. Endnotes ******** 1. Pasternak, Douglas, and Peter Cary, "A $200 Billion Scandal," U.S. News and World Report (December 14, 1992), p. 34; "Frustrated Duffy Reviews DOE Cleanup," Inside Energy (November 18, 1992); and U.S. Congress, House Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, "Contracting at the Department of Energy," opening statement of the Honorable John D. Dingell, May 26, 1993. 2. U.S. Congress, House, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, "Contract Management and Administration at the Department of Energy," statement by Hazel O'Leary, Secretary of Energy, May 26, 1993. 3. The ERMC at Fernald, Ohio, has been in place for about a year. The ERMC at the Hanford Reservation is currently under protest and is therefore not yet in place. Furthermore, the Hanford ERMC will do remediation work only, while the M&O will continue to manage the site. At Fernald, the ERMC is responsible for both environmental remediation and site management. 4. Federal Register, Vol. 55, No. 211 (October 31, 1990), p. 45, 845. 5. ERMCs are paid on a reimbursement basis rather than through a letter of credit. 6. Dingell, "Contracting at the Department of Energy," opening statement; Pasternak and Cary, pp. 34-46; U.S. Department of Energy (DOE), Analysis of Findings from the First Sixteen Tiger Team Assessments, DOE/EH-0191 (Washington, D.C., May 1991); U.S. General Accounting Office (GAO), Energy Management: Vulnerability of DOE's Contracting to Waste, Fraud, Abuse, and Mismanagement, GAO/RCED-92- 101 (Washington, D.C.: U.S. General Accounting Office [GAO], April 1992); U.S. General Accounting Office, Energy Management: Types of Allowable and Unallowable Costs Incurred Under Two DOE Contracts, GAO/RCED-93-76FS (Washington, D.C.: GAO, January 1993); and U.S. General Accounting Office, Nuclear Health and Safety: Corrective Actions on Tiger Teams' Findings Progressing Slower Than Planned, GAO/RCED-93-66 (Washington, D.C.: GAO, March 1993). 7. U.S. General Accounting Office, DOE Management: Impediments to Environmental Restoration Management Contracting, GAO/RCED-92-244 (Washington, D.C.: GAO, August 1992); and U.S. Congress, House Committee on Armed Services, "Managing the Environmental Cleanup of DOE's Nuclear Weapons Complex," testimony by Victor S. Rezendes, Department of Energy Defense Nuclear Facilities Panel, Washington, D.C., April 1991, pp. 7-11. 8. These figures do not include contractors working under EPA Construction Grants Program (water works construction) or personnel working on EPA initiatives funded through cooperative agreements. 9. Data provided by the Office of Management and Budget. 10. Interagency Review Group (Army Corps of Engineers, Department of Defense, Department of Energy, Environmental Protection Agency, Department of Justice, Office of Management and Budget), Interagency Review of the Department of Energy Environmental Restoration and Waste Management Program, Final Report (Washington, D.C., April 29, 1992), p. iv. 11. U.S. Congress, House, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, statement by Hazel O'Leary, p. 18. 12. Lobsenz, George, "Grumbly Takes Stock, Sees Need for Changes," The Energy Daily (Washington, D.C., July 19, 1993), p. 3. 13. GAO, DOE Management, p. 8. 14. GAO, Energy Management (1992), pp. 15-18, 21. 15. Lobsenz, p. 3. 16. U.S. Department of Labor, Occupational Safety and Health Administration, Evaluation of the U.S. Department of Energy's Occupational Safety and Health Program for Its Government-Owned Contractor-Operated Facilities (Washington, D.C., December 1990). For example, the M&O contractor at Oak Ridge, Tennessee, increased the amount of the award fee that it received in 1992 compared to 1991, even though its performance in the environmental safety and health fields had declined. It did so by increasing its base fee. See also, "IG Report Criticizes Field Office Management," Weapons Complex Monitor (Washington, D.C., June 22, 1992); and U.S. Congress, Office of Technology Assessment (OTA), Hazards Ahead: Managing Cleanup Worker Health and Safety at the Nuclear Weapons Complex (Washington, D.C., February 1993), p. 64. 17. OTA, Hazards Ahead, p. 64. 18. Interagency Review Group, p. iv. 19. U.S. General Accounting Office, Nuclear Health and Safety: More Can Be Done to Better Control Environmental Restoration Costs, GAO/RCED-92-71 (Washington, D.C.: GAO, April 1992), p. 37. 20. Ibid., p. 36. 21. U.S. Department of the Army, Army Corps of Engineers, Supplemental Report on Cost Estimates (Washington, D.C., April 29, 1992), p. i; see also, U.S. Congress, Office of Technology Assessment, Complex Cleanup: The Environmental Legacy of Nuclear Weapons (Washington, D.C., February 1991) pp. 55-59. 22. Due to its experience in estimating costs for environmental remediation work, the Corps was given the responsibility by an Interagency Group (IAG) of senior administration officials concerned with environmental cleanup issues to do a detailed cost analysis of the DOE's 1993 budget request for environmental restoration and waste management. 23. GAO, DOE Management, p. 8. 24. Some of these management problems have been documented by DOE's Tiger Team Assessments performed on the Environment, Safety and Health programs at DOE's plants and facilities; see also DOE, Analysis of Findings from the First Sixteen Tiger Team Assessments, Appendix F, p. 3. See also, GAO, Nuclear Health and Safety: Corrective Actions on Tiger Teams' Findings Progressing Slower Than Planned. 25. U.S. Congress, House, Committee on Science, Space, and Technology, statement by Thomas P. Grumbly, Assistant Secretary for Subcommittee on Energy Environmental Restoration and Waste Management, U.S. Department of Energy, July 15, 1993, pp. 9-10. 26. See Interagency Review Group, p. v; and GAO, Nuclear Health and Safety: More Can Be Done to Better Control Environmental Restoration Costs, p. 35. 27. Interviews with DOE personnel have indicated that DCAA is generally prompt and accurate in its audits. In addition, a congressional subcommittee report shows that DCAA auditors can unearth substantial cost savings, as they return approximately $25 for every dollar spent on their salaries. U.S. Congress, House, Committee on Energy and Commerce, Subcommittee on Oversight and Investigation, Government Contract Mismanagement (Washington, D.C., December 3, 1992), p. 102-166. The ERMC at Fernald is an exception to this arrangement. The DOE Inspector General's office has staff on- site at Fernald; therefore, the DCAA will perform cost-incurred audits on corporate and home office expenses only. The Office of the Inspector General will be responsible for performing a traditional cost-incurred audit. ************************************************ DOE02: Incorporate Land Use Planning in Cleanup ************************************************ Background ********** Cleanup at federal sites is guided primarily by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The National Contingency Plan (NCP), which is the blueprint for implementing CERCLA, specifies that cleanup remedies must protect human health and the environment and comply with all applicable or relevant and appropriate requirements (ARARs), which are federal and state environmental standards.(1) The NCP also identifies cost as a criterion for consideration when cleanup remedies are evaluated.(2) To determine what cleanup remedies will protect public health and the environment, satisfy applicable requirements, and be cost-effective, an understanding of existing and anticipated exposure of individuals to contamination is necessary. Because future land use decisions often are not an explicit part of the CERCLA cleanup process, there is no effective approach either for establishing cleanup objectives based on anticipated future use of the site and level of exposure to the population, or for measuring and comparing the benefits of alternative cleanup strategies. In assessing the risks posed by contamination, unrestricted residential land use is virtually always assumed, whether such an assumption is reasonable or not. As a result, the assessment and remedy selection process may lead to unnecessary or inappropriate cleanup decisions. Often the scope of the assessment and remedy selection process is expanded greatly to account for all possible outcomes associated with residential use, even when such future use at large, federally owned sites is unrealistic. In addition, technologies may be selected that result in excessive expense for little demonstrable benefit to human health or the environment. This situation is complicated by the fact that there are no national standards for radioactive waste and mixed waste cleanup. CERCLA defers to state and federal standards for waste, water, and air contamination; neither state law nor federal law, however, comprehensively addresses the issue of how to mitigate the risk of exposure to radioactive waste or to radioactive waste mixed with hazardous waste. Furthermore, public expectations that a site or facility will be cleaned up to allow unrestricted use may be disappointed if this level of cleanup cannot be achieved because of technology or resource limitations. Without reasonable assumptions about future land use being determined early in the cleanup process, remedy selection tends to focus on which technologies could be employed at the site. Without a clear objective as to the future use of the land or facility after cleanup, the cost-effectiveness of a particular technology cannot be evaluated. In addition, emerging technologies may be ignored in favor of known technologies, even when such technologies may be cost- prohibitive or have been shown, by sound science or through actual application, to be ineffective. In the past, DOE's decisionmaking processes have been largely isolated from the public, although DOE is currently working aggressively to remedy this situation. As a result, DOE's credibility with the general public and state and local stakeholders needs further improvement.(3) Stakeholders affected by DOE's cleanup decisions have voiced concern over everything from slow cleanup to creating "national sacrifice zones."(4) In addition, local stakeholders are not always fully informed about the resource, technical, and statutory constraints within which cleanup decisions are made. The stakeholders' inability to get information and their level of distrust can result in opposition to DOE's cleanup decisions which, in turn, brings delays and increased costs. DOE has successfully implemented an important first step in a land use planning process at the Hanford Reservation, which was formerly devoted to producing plutonium for nuclear warheads. This 560-square- mile site houses large plutonium production facilities and constitutes DOE's most difficult cleanup problem. Although it is too early to gauge its full impact on the cleanup process, it is possible to identify some benefits of the Hanford future use planning process. At Hanford, a broad-based group of stakeholders worked together and developed an array of land use options for various portions of the Hanford Reservation. One outcome of the process was the identifica- tion of an option to restrict use of part of the site, known as the "200 Area," for waste management. The 200 Area is severely contaminated and therefore will be used temporarily as a waste management site for the rest of the Hanford Reservation. As a result, two other plots of land totaling 260 square miles can be turned over for recreational use beginning next year because the small amounts of waste on that land will be transferred to the 200 Area.(5) Furthermore, public participation provided data to DOE and regulatory agencies about public needs and preferences for land use. For instance, through the Hanford future use planning process, representatives of the agricultural sector stated that they did not see agricultural value in much of Hanford land because public perceptions of radioactive contamination might give Washington State produce an unmarketable image. Such important information might not come to government's attention without such public forums. Finally, early and effective public participation, as evidenced at Hanford (while a benefit in its own right), may help to build support for subsequent remedy selection decisions. Actions ******* 1. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) should be amended to provide more explicit encouragement of and direction for a cleanup process that incorporates early future use planning (i.e., the identification of a reasonable set of future land and facility use assumptions based on a number of criteria including current and expected future site use). The intent is that reasonable land use assumptions would guide the cleanup process, from development of risk scenarios to remedy selection. This suggested clarification of the statute would help to ensure that such planning would occur as cleanup progresses across federal sites. In anticipation of an eventual reauthorization of CERCLA, the administration should also issue an explicit policy encouraging the implementation of future site use planning early in the remediation process regardless of what statute governs cleanup. 2. DOE, federal and state regulators, and other stakeholders should work together to address land use planning at DOE sites while CERCLA is being reauthorized. While it is true that CERCLA and the NCP do not expressly support future site use planning, it is also true that such planning is not prohibited. In addition, identification of possible future site uses has many potential benefits. The future use of land and natural resources is the clearest means of defining cleanup objectives. Establishing baseline risk assessments and identifying methods of attaining regulatory and statutory requirements can more effectively be done once such cleanup objectives are established. For future land use planning to achieve the greatest benefits, it should: --- be done early in the site remediation planning process; --- be a collaborative process involving all stakeholders; --- guide risk assessment and remedy selection to ensure that scenarios identified and evaluated are realistic and that cleanup standards that are identified are based on the best available science, protect human health and the environment, and achieve land use objectives; and --- be carried out from a sitewide perspective, unless impossible or impracticable, so that remedial action alternatives include the range of future site use assumptions applicable to the site and can then be considered in light of their impacts on sitewide restoration strategies. 3. The cleanup of contaminated land should achieve specific standards based upon the future intended use of the site. Cleanup should ensure protection of human health and the environment in conjunction with such future site uses. Health assessment criteria developed by the Environmental Protection Agency, the Nuclear Regulatory Commission, the National Institutes of Health, and the Agency for Toxic Substances and Disease Registry should also be used. Furthermore, DOE should work collaboratively with these agencies to gather and analyze data on exposure rates, risk, and related issues as a basis for the regulatory agencies to develop standards for cleanup of both radioactive and mixed waste (containing both radioactive and hazardous materials). As national cleanup standards are developed, they should be designed to accommodate future land use planning, although health-based considerations should remain the primary basis for cleanup standard setting.6 Finally, EPA should work with DOE and other federal agencies responsible for cleanup to define various land categories broadly and clearly. This will help to ensure that various land use categories can be understood and applied consistently. Implications ************ Early incorporation of future site use planning, identifying a reasonable set of future land and facility use assumptions and clarification of cleanup objectives, can help to streamline the cleanup process, making it more effective and efficient, while still maintaining the protection of human health and the environment as the highest priority. Clear cleanup objectives can guide the development of risk assessments to be tailored to specific alternatives for future use, potentially saving considerable time and resources, as well as aid in the selection and implementation of cleanup remedies. Furthermore, agreement about the appropriate remedy could potentially be achieved more easily, and expectations concerning the results of the remedial action would be clearer. Statutory changes and development of administrative policy would help ensure that, as the law and policy are implemented, land and facility use planning would be incorporated into the cleanup process. This would be particularly helpful for agencies like DOE that are responsible for cleanup and regulated by CERCLA. DOE has several advisory boards in place and is currently reviewing them and establishing others based on the recommendations of the Federal Facility Environmental Restoration Dialogue Committee. With these boards, DOE has or will have the institutional mechanisms in place to ensure a collaborative land use planning process. Within this context, land use and facility use planning could take place. In the absence of national cleanup standards, future land and facility use could be instrumental in determining cleanup levels that would protect of human health and the environment. These cleanup levels would be tied to specific land and facility use objectives. Targeting cleanup objectives based on future land and facility use will help identify emerging technologies that may be appro-priate at a particular site. In addition, the development of new technologies can be focused clearly on meeting cleanup objectives. The funding allocated for research and development of new and emerging technologies can be targeted more effectively at meeting needs clearly defined by early future use planning. Fiscal Impact ************* See Fiscal Impact statement in DOE01 "Improve Environmental Contract Management." The discussion of the benefits from DOE01 envisioned that the recommendations would be implemented together. Endnotes ******** 1. "Remedies" are particular methods chosen to clean up a site. "Applicable or relevant and appropriate requirements" (ARARs) are still primarily federal standards promulgated under other laws such as the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, etc. Over the last few years, however, states have begun to promulgate their own state regulations under these statutes, and CERCLA has had to increasingly defer to state regulations. In some cases, state regulations are more stringent than federal regulations, which means that DOE will have to meet different standards depending on the state in which the facility is located. 2. The nine criteria applicable to the remedy selection decisions, as specified by ¤300.430(e)(9)(iii) of the National Oil and Hazardous Substances Pollution Contingency Plan (NCP), are: (1) overall protection of human health and the environment; (2) compliance with ARARs; (3) long-term effectiveness and permanence; (4) reduction of toxicity, mobility, or volume through treatment; (5) short-term effectiveness; (6) implementability; (7) cost; (8) state acceptance; and (9) community acceptance. Protection of human health and compliance with ARARs are "threshold criteria" that all alternatives must satisfy (unless an ARAR waiver is granted). The next five criteria, including cost, are "primary balancing criteria," less important than threshold criteria but of equal weight among themselves. State and community acceptance are "modifying criteria" and are given less weight than threshold or "balancing criteria." 3. The proposed final report of the Secretary of Energy's Advisory Board Task Force on Radioactive Waste Management described public trust and confidence in the EM program in this way: "The institutional context within which the Office of Environmental Restoration and Waste Management (EM) operates presents opportunities for developing institutional trustworthiness. EM has a broader conception of what is needed to build trustworthiness and has set in place an elaborate structure doing so. It has not demonstrated, however, that it can sustain trustworthiness as it grapples with highly contentious issues nor has it developed a strategy for managing constraints that might create vicious cycles for it as well." U.S. Department of Energy, Secretary of Energy Advisory Board, Earning Public Trust and Confidence: Requisites for Managing Radioactive Waste (Washington, D.C., June 1993), executive summary and pp. 46-48. 4. "National sacrifice zones" refers to areas that might be deemed so contaminated that they would not be cleaned up. 5. Lippman, Thomas W. "Nuclear Arms Center Heads Slowly to Oblivion," The Washington Post (May 15, 1993), p. A4. 6. Future use considerations should be an important component of setting cleanup standards; however, future uses cannot be guaranteed indefinitely, nor can it be assumed that active institutional controls (e.g., security guards, on-site management, etc.) will remain in place over the long term. In fact, EPA Standards for the Disposal of Spent Nuclear Fuel, High Level and Transuranic Nuclear Waste (40 CFR Part 191 b) authorized under the Atomic Energy Act and the Nuclear Waste Policy Act, specifically states that, for the purposes of radioactive waste disposal, active institutional controls cannot be assumed to be in place for any longer than 100 years. Standards, therefore, must be primarily driven by health-risk considerations. ****************************************************** DOE03: Make Field Facility Contracts Outcome-Oriented ****************************************************** Background ********** The Department of Energy's (DOE's) national laboratories, including weapons laboratories and production plants, were established by the federal government to attract the best minds in the country to conduct scientific research and development (R&D) projects of national significance. DOE operates 16 major R&D laboratories and several production installations through management and operating (M&O) contracts with large private sector companies, universities, and nonprofit organizations (for example, Westinghouse, Martin Marietta, the Universities of California and Chicago, and Princeton University). At the national laboratories and nuclear weapons production centers, the govern-ment owns all the land, facilities, and equipment, while the contractor manages the facility and employs research, development, and production personnel. The contractor also employs various support and maintenance personnel needed to operate the installation. The national laboratories represent a partnership between government and private industry to develop and maintain worldwide leadership and competitiveness in various scientific disciplines (nuclear research, highenergy physics, mathematics, high-speed computing, engineering, and others). DOE laboratories have played an integral part in developing the nation's defense capability and in carrying out basic research in all major fields, including energy. M&O contracts at DOE amount to $16 billion annually and currently employ 140,000 people.(1) Contracts were initiated in the 1940s and 1950s, primarily for nuclear weapons and other nuclear research, design, and production. The projects developed into programs of extraordinary scale, challenge, and uncertainty. For example, the contractor for Argonne National Laboratory, located near Chicago, is the University of Chicago. The installation employs 4,840 employees and operates 26 major research facilities. R&D includes experimental and theoretical research in the physical, life, and environmental sciences to support development of energy technologies and to advance scientific understanding. The 1993 operating budget was $527 million. Lawrence Livermore National Laboratory, outside San Francisco, is run by the University of California. The Laboratory employs 8,000 employees and conducts national security, energy, environmental, and biological R&D. Its 1993 annual operating budget is $1.2 billion. Each site is unique because of its location, physical arrangement, size, and mission. The mission at a site can involve theoretical research, applied research, weapons research, nuclear weapons production, non-nuclear production, environmental restoration, or a combination of these missions. Because the government wanted to take advantage of private sector capabilities to carry out research of critical national importance, government-owned, contractor-operated (GOCO) R&D facilities were constructed using M&O contracts for the national laboratories. The contracts have traditionally contained broad oversight and performance requirements and special provisions for the contractor. The contractor requires no capital investment. The government sets up a special bank account to cover operating expenses; this covers all costs except costs for deliberate waste, fraud, and abuse. These provisions were necessary during the early, uncertain, and urgent stages of nuclear weapons development. The M&O contract approach has come under increasing criticism from DOE program officials, the Office of Management and Budget, the General Accounting Office (GAO), and Congress. Criticism includes poor business management practices and inadequate cost accounting procedures. An M&O contract typically includes: --- long-term, core scientific and technological research or production missions; --- special one-time R&D projects; and --- support functions and daily operations and maintenance activities at the installation.(2) The M&O contract for each GOCO laboratory and weapons center has typically been awarded on a cost reimbursement-type contract basis that covers five-year periods with options for contractor renewal. While such contracts may be appropriate for complex and high-risk scientific projects, they may not be the most cost-effective management arrangement for routine support functions. For that reason, some of those functions are subcontracted by the prime contractor. A close association has developed between DOE program managers at headquarters and contractor laboratory managers. Congress appropriates funds for R&D by program (laboratories get no appropriation). Program managers direct major research funding to the specific laboratories they believe are best able to carry out the work, based on proposals from those laboratories. Within program areas, laboratory managers compete with others in their scientific field for this R&D funding. The complexity of the projects, the close association between the contractor and the government at a GOCO facility, and special provisions in M&O contracts have resulted both in R&D success and in a number of administrative complications that have been documented in GAO and DOE Inspector General reports. In 1990, GAO designated DOE's contract management as one of 16 high- risk areas governmentwide because of its extensiveness and history of inadequate contractor oversight. For example, DOE's nuclear weapons labs have routinely reported quantities of nuclear materials as "in use" or "needed" when they were actually excess. Sandia National Laboratory reported $500,000 worth of excess uranium as "needed." Lawrence Livermore, Los Alamos, and Savannah River also reported incorrectly. These inaccuracies affect DOE's ability to forecast nuclear materials requirements and result in purchasing and storage costs that are larger than necessary, as well as added safety and environmental risks.(3) Many other documented incidents involving complications in security and contracting have been serious and costly. For example, tens of thousands of documents relating to secret nuclear weapons and laser technology could not be located. Also, since 1986, Lawrence Livermore Laboratory has leased 58 vehicles from the University of California (the M&O contractor) using a sole-source contract and at a cost of $987,000 when the vehicles could have been obtained through the General Services Administration at a cost of $396,000. In addition, in 1989, Los Alamos Laboratory, when performing work for non-federal parties, exceeded sponsor advances by $460,000 and its approved budget authority by $719,000, putting DOE at-risk for financing the sponsors' work.(4) Subcontracting by DOE's M&O contractors amounts to roughly $5 billion per year and has also been subject to criticism. DOE reviews have disclosed excessive use of sole-source subcontracts, inadequate separation of duties, and initial prices below review thresholds that are subsequently raised by contract modifications.(5) They have also revealed significant deficiencies in record keeping and analysis needed to ensure that prices were fair and reasonable. When M&O contractors do not take full advantage of competition and fixed-price mechanisms in their subcontracts, they pay more than they should for the goods and services that they buy on behalf of the government. Oversight of M&O contracts is performed by government officials in program offices and operations offices. Program managers oversee the science, technology, research, and development aspects of laboratory and weapons production activity. Operations office managers oversee contractual and cost accounting matters and provide day-to-day oversight and an on-site field presence. Relative to the size of the contracts being managed and the complexity of the work being performed, the government oversight staff is considered to be small and inadequately trained. Oversight is also hampered by a lack of specificity in the descriptions of products of M&O contracts and performance requirements, expectations, and measurement criteria. In many cases, DOE officials are limited in their ability to specify objective measures in contracts because entities outside DOE that sponsor or regulate DOE activities have failed to provide adequate performance criteria to DOE. This is particularly true for work done in defense programs and environmental restoration. Moreover, in areas involving basic science, where outcomes cannot be specified, performance criteria based on peer review are needed to promote the best basic science without discouraging creative research. Alternative management and contracting arrangements exist that might improve both the control and cost of operations and support at laboratories and weapons production plants. One option is to separate large M&O contracts into their major components and replace them with more traditional contracts. Another is to assume direct government management for selected activities of existing M&O contracts as those contracts expire. Under this option, government operations office officials would manage, rather than oversee, certain carefully chosen contractor and subcontractor functions that are now managed by the M&O contractor. The Secretary of Energy is well aware of the weaknesses in the contracting system she has inherited. In testimony before the House Committee on Energy and Commerce on May 26, 1993, she summarized her concerns and announced a series of initiatives to improve DOE contract management.(6) Included was the formation of a contract reform team to perform a top-to-bottom review of DOE's contracting mechanisms and practices. The team is tasked to present a report to the Secretary by December 31, 1993, containing recommendations to improve accountability, stimulate competition, and simplify administration. The Secretary is also applying quality management to the Department and its contractors. In an effort to do more, do it better, and use fewer resources, the Secretary is developing a comprehensive strategy that deals with all aspects of science and technology. Current management practices are being improved to enhance accountability and reponsiveness to national needs. As part of a strategic planning process, a new and effective system is being developed with specific performance criteria, objectives, and performance metrics to make results-oriented evaluation and budgeting a reality. In the National Performance Review Accompanying Report on budget issues, it is recommended that managers should have the flexibility to spend their available dollars in a manner that will most effectively achieve the agency's mission. Managers should consider both government employees and contractor personnel within their personnel ceilings and should select the most appropriate and cost- effective combination. Long-range financial plans and sound accounting systems must first be in place before the government makes the transition to this approach. Assuming support for this approach, DOE program managers and operations officials should consider the mix of contractor and government personnel at laboratories and weapons production centers and recommend changes to optimize the use of available funding. Actions ******* 1. DOE program managers should increase the use of performance objectives and goal-based budgeting when establishing funding levels for programs and projects. DOE should provide contractors with performance-based contracts containing clear, specific directions, incentives, and measures to test performance and compliance. Performance criteria should be crafted for each mission area to capture its unique features. DOE program managers and Department of Defense officials should jointly define tests for performance of defense activities. Environmental cleanup activities should be measured against predetermined definitions of acceptable outcomes. 2. DOE program managers should promote better coordination and more active competition at and among facilities. Program officials should be encouraged to rely less on sole-source arrangements with DOE labs and to solicit bids on projects from all government facilities and the private sector. This should be done in conjunction with a thorough scientific evaluation of proposals using the best elements of peer review. 3. DOE should strengthen the authority of government field managers and hold them accountable. Federal field managers should be more active in cost estimating, cost accounting and oversight of core contracts, and the management of support functions and non-core activities. 4. DOE should test and assess alternatives to the cost reimbursement contract model traditionally used by the agency at laboratories and weapons production plants. Since DOE's facilities and their missions are varied, a number of different contracting mechanisms is likely to be more appropriate than a single mechanism for all sites. Tests should be conducted at individual sites before adopting them more broadly at national laboratories and weapons centers. When significant cost savings can be achieved, serious consideration should be given to a structure in which on-site federal managers play a more direct role in managing a facility-- for example, managing one-time projects and such support functions as security and maintenance of buildings, grounds, and roads. Where savings are anticipated from the substitution of government personnel for contractor personnel, DOE's appropriation should be reduced by the amount of the savings. DOE should also increase the use of competitive, fixed-price contracts, subcontracts, and grants for non-core activities including discrete environmental cleanup projects, one-time R&D projects, and routine installation M&O services. 5. DOE should improve the capability of the financial management systems used to accumulate data from laboratories and weapons centers to measure, analyze, report, and control spending so that it is uniform, accurate, and received rapidly for programs and facilities. All contractors and all facilities should be required to report to DOE using a standard financial reporting system, except in cases where the cost to implement the system would exceed the benefits. Federal program managers should be more active in the management of funds, obligating them for clearly defined activities with specified outcomes. Implications ************ The operation of national labs including the advancement of science, research, and development as well as normal maintenance and support of buildings, roads, and grounds would be conducted in a more open, fair, and objective environment. Enhanced competition among labs and cooperation with industry and universities will improve performance while lowering costs. Fiscal Impact ************* Under present conditions, government employees at DOE operations offices oversee contractors who manage and operate government-owned laboratories and nuclear weapons production sites. As proposed, at selected locations, government employees would become actively involved in, and responsible for, the management and operations of the site and for the contracts in effect there. Reconsideration of the mix of government and contractor personnel is expected to result in net reductions in personnel, overhead, and prime contractor fees for subcontractor activities. Savings will begin to materialize in fiscal 1995. Budget Authority (BA) and Outlays (Dollars in Millions) Fiscal Year 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BA n/a -60.0 -90.0 -120.0 -150.0 -150.0 -570.0 Outlays n/a -36.0 -78.0 -108.0 -138.0 -138.0 -498.0 Change in FTEs n/a 400 600 800 1,000 1,000 1,000 Endnotes ******** 1. U.S. Congress, House, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, "Contract Management and Administration at the Department of Energy," statement by Hazel R. O'Leary, May 26, 1993, p. 3. 2. "Core missions" are missions at specific laboratories or weapons production sites designated by the Secretary of Energy based on established expertise and demonstrated capabilities. 3. U.S. General Accounting Office (GAO), Energy Management: Vulnerability of DOE's Contracting to Waste, Fraud, Abuse, and Mismanagement, GAO/RCED-92-101 (Washington, D.C.: U.S. General Accounting Office [GAO], April 1992), p. 20. 4. Ibid., p. 19. 5. U.S. General Accounting Office, Energy Mangement: DOE Actions to Improve Oversight of Contractors' Subcontracting Practices, GAO/RCED- 92-28 (Washington, D.C.: GAO, October 1991), pp. 1, 3. 6. Statement by Hazel R. O'Leary. ********************************************************** DOE04: Increase Electrical Power Revenues and Study Rates ********************************************************** Background ********** The federal government owns and operates major water resource management systems comprising nearly 130 dams. The systems control river flows, create navigable waterways, provide recreational areas, and generate hydroelectric power. The hydroelectric power is sold by the Department of Energy (DOE) through organizations known as Power Marketing Administrations (PMAs) at below-market rates to public, cooperative, and private utility customers. In most cases, PMA power supplements the electricity those utilities sell to their customers. Utilities in 34 states in the Southeast, Southwest, West, and Northwest receive PMA power. The Flood Control Act of 1944 provides that PMA electricity should be sold "at the lowest possible rates to consumers, consis-tent with sound business principles."(1) PMA electricity rates are established on an at-cost basis to cover the costs of construction, operation, and maintenance of the hydroelectric facilities. However, assigned interest rates for repayment of the federal monies used to build these dams and facilities are generally well below the Treasury's cost of money. Also, the PMAs' hydroelectric power is cheaper because it is renewable energy that does not require the purchase of fuel to generate electricity. Even though most PMAs' power is provided to utilities at below-market rates, the U.S. Treasury receives nearly $3.4 billion annually from the sale of PMA electricity. There are two opportunities for the federal government to increase its revenues through the sale of PMA hydroelectric power. The first opportunity for increasing revenues would not increase PMA charges to their utility customers. Currently, a number of power utilities offer their consumers energy conservation and efficiency programs called Demand Side Management (DSM). Considerable energy savings can be obtained if the utilities' DSM programs are promoted well and offer strong incentives to consumers to participate. The programs can be win-win situations because they reduce consumers' electricity bills, reduce fuel consumption, minimize environmental degradation, stimulate growth in industries that produce energy- efficient technologies, and lessen the demand for electricity that might otherwise force utilities to build costly new power generators. Utilities that purchase and distribute PMA power can be given incentives to expand their current energy conservation programs or develop new ones. If a utility increases or initiates a new conservation program, the energy savings could be shared between the utility and the PMA. For example, if PMAs agreed to permit their utility customers to sell the energy saved to other utilities at market rates, the proceeds from such sales could then be shared between the utility and the U.S. Treasury. The increase in revenue could be substantial. A second opportunity for increasing government revenues may entail slight increases in rates PMAs charge their customers. In recent years, these rates have not kept pace with the government's costs of financing the construction of the dam systems. Since the first federal hydroelectric projects were built, the Treasury's cost (its long-term interest rates) has increased, while interest rates on PMA hydroelectric projects and many project improvements have been kept artificially low at 1930 and 1940 levels. As Treasury long-term interest rates increased in the 1960s, 1970s, and 1980s, they exceeded the interest rates that PMAs elected to pay on project debts. The resulting differential created federal subsidies for these projects. Since the 1950s, PMAs have been allowed to pay interest rates on new debts that are considerably below the govern-ment's cost of borrowing money. According to an Office of Management and Budget (OMB) study on PMA debt repayment, the Treasury has made a practice of borrowing money for the PMAs at 6 to 12 percent and accepting repayments on that debt at 2 to 4 percent.(2) This process, which continues today, results in an estimated revenue loss of over $360 million annually and an estimated $12.5 billion loss over the life of the PMA loans. This is inconsistent with the application of sound business principles required by the Flood Control Act. The revenue loss amounts to a taxpayer subsidy for those fortunate enough to live in PMA regions and receive PMA power through their local utility. According to OMB, if the PMA rates were increased to cover the total cost of financing, the one-time rate increase to retail consumers would vary between 1 and 7 percent, depending primarily on the amount of power each utility purchases from a PMA in relation to the utility's total power output.(3) Utilities that receive only a small portion of their power from their regional PMA would pass on only a slight increase in rates. Utilities that receive a significant portion of their power from a PMA would pass on a more noticeable increase in monthly electricity bills. It is estimated that the average consumer receiving PMA power would experience a rate increase of about 5 percent--or an additional estimated $3.13 per month for a typical bill.(4) Even after this increase, utilities receiving PMA power would still be providing the cheapest electricity in the country. While the interest rates for a few loans are determined by legislation, the interest rates on the debt for most PMAs is established by DOE. Thus, the decision to recover the full costs of government financing is a policy decision that can be made administratively by the Secretary. Restructuring of debt may be examined as an alternative to rate revision and represents another opportunity for increasing federal revenues by allowing PMAs to refinance, for additional consideration, the present value of the current expected debt payments. Public and private sources of funds, terms and conditions of loans including interest rates and duration, and the remaining useful life of the assets subject to refinancing should be carefully considered. Options that minimize customer rate increases should be given priority. In assessing rate reform and debt restructuring alternatives, both the short- and long-term macroeconomic impacts on the region should be carefully analyzed. F inally, the federal government is hampered by legislation that restricts its ability to oversee electrical power issues. Currently, the government cannot study the effect of applying market rates to the sale of PMA power. Some contend that studying market-based rates of electrical power would automatically lead to raising PMA rates to market levels. Congress has included a provision in either the Energy and Water Development Appropriations Acts or continuing appropriations each year since 1982 to prohibit the use of government funds for the study of electricity market rates. This prohibition from studying market rates could deter DOE from developing and implementing programs that can be beneficial. For instance, in the energy conservation program discussed above, a DOE study of electricity market rates would help deter-mine appropriate levels of revenue sharing between PMAs and utilities. There may be future instances when programs of potential benefit cannot be promulgated because of DOE's inability to collect and analyze needed information. This prohibition prevents DOE from carrying out its mission and acting in the best interests of the nation as a whole. Actions ******* 1. The Secretary should encourage Power Marketing Administrations (PMAs) in the Southeast, Southwest, western areas, and Bonneville to be more aggressive in promoting energy conservation programs with their subscriber utilities. These utilities should be permitted to sell PMAs' electric power saved under conservation programs to other customers. Sale of the saved PMA power should be at market rates. The preferred utilities and the Treasury should share in the proceeds from the sale of saved PMA power. The opportunity to sell PMA power at market rates should be an incentive for utilities to expand or start up new energy conservation programs with their customers. 2. The Secretary should establish a new rate policy for PMAs in the Southeast, Southwest, western areas, and Bonneville. The new policy should require that PMAs recover full operating costs, including differentials in interest rate financing, of each PMA hydroelectric facility. Annual repayment rate studies are conducted by PMAs and can be used as a basis for analysis by DOE. By establishing PMA electrical power rates that cover all operating costs, the federal government will eliminate direct taxpayer subsidy of PMAs and also take responsible steps toward reducing the federal deficit. Debt restructuring may be considered as an alternative to rate reform. 3. Congress should remove the Energy & Water Development Appropriations Act prohibition against expending federal funds to conduct studies of market rates or other non-cost-based methods for the pricing of hydroelectric power by federal PMAs. Any market-based electrical rate studies conducted by DOE should be made available to the public. Any market rate studies should apply to the southeastern, southwestern, western, and Bonneville PMAs. While the Tennessee Valley Authority (TVA) is not a PMA, it is also protected under the restrictive legislation. In fairness, TVA should not be excluded from the study. The government needs to be able to collect and analyze market information that is necessary to carry out its mission and act in the best interest of the country as a whole. Any such studies should be con-ducted by DOE using available resources. Implications ************ The action to implement energy conser-vation programs would be beneficial to a broad range of stakeholders. Consumers of PMA power would take advantage of energy conservation rebates and incentives that would save money on their electrical bills. Utilities purchasing the saved energy would obtain additional power to help meet market demands. The utilities and the U.S. Treasury would receive additional income from the sale of the saved power. The action to recover the full cost of PMA power would simply allow the federal government to meet all of its expenses while providing this service. Electricity bills for some consumers in parts of more than 34 states may slightly increase. However, these consumers currently pay substantially less for the electricity they consume than others who are not fortunate enough to live in areas receiving PMA subsidized power. The action to allow market rate studies provides DOE with the authority it needs to carry out its mission. Fiscal Impact ************* OMB has projected that the sale of saved electrical power at market rates could provide, in the first year of the program, a modest $31 million in additional federal revenues. OMB expects that the program would pick up momentum in succeeding years and accrue an estimated $75 million, $95 million, $163 million, and $163 million in fiscal 1996 through 1999 respectively. These are conservative estimates. OMB also projected that increasing PMA electrical rates to cover the cost differential between Treasury costs when the projects went into service and the interest rates the PMAs are applying to their debt would increase federal government annual revenues by $60 million, $117 million, $117 million, $119 million, $119 million and $119 million in fiscal 1994 through 1999. The debt restructuring alternative may result in the reduction of some of the subsidy and recovery of some revenues. Depending on financial assumptions used, the increase in annual debt service could range from zero to $2.4 billion. The effect on consumers' electricity rates may be adjusted by obtaining favorable issuance terms and repayment periods for new debt sold on the open market. The increase in revenues from these actions is shown in the following table. Budget Authority (BA), Outlays, and Revenues (Dollars in Millions) ****************************************************************** Fiscal Year 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Outlays 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Revenues 60.0 148.0 792.0 814.0 882.0 905.0 3,601.0 Change in FTEs 0 0 0 0 0 0 0 Endnotes ******** 1. Flood Control Act of 1944, ch. 665, sec. 5 (December 22, 1944). 2. U.S. Office of Management and Budget, "Fact Sheet on Reform of Federal Power Marketing Administration Debt Repayment Practices," Washington, D.C., 1990, p. 3. 3. Ibid., p. 4. 4. Ibid. ******************************************************** DOE05: Strengthen the Federal Energy Management Program ******************************************************** Background ********** The federal government is the largest single energy consumer in the United States. In fiscal year 1991, the government's total energy expenditures were $11.3 billion.(1) Of this amount, $4 billion was spent on energy consumption in more than 500,000 federal government- owned or leased buildings. Executive Order 12759 in 1991 and the National Energy Policy Act of 1992 (EPACT) combine to establish a requirement to reduce energy consumption in federal buildings by 20 percent over 1985 consumption levels by the year 2000. This requirement can be met by implementing energy efficiency measures in all federal buildings. The Federal Energy Management Program (FEMP) was initiated in 1974 to coordinate, direct, and assist all federal agencies in implementing energy efficiency programs in their agencies. Currently, it provides information and consulting services to federal agencies and reports federal energy use to the President and Congress. In addition, FEMP provides similar assistance to state and local governments and the private sector. In 1993, FEMP began a series of training programs to provide federal building engineers and procurement officers technical training in energy-efficient technologies and cost-saving Energy Savings Performance (ESP) contracts. This type of contract can save a portion of the funds needed to install energy-efficient equipment in federal buildings. This is important because increasingly tight constraints on the federal budget may prevent full funding of energy efficiency programs in the future. More than 100 engineers and procurement specialists have been trained, and 1,000 are budgeted to be trained annually through 1998. As part of its training effort, FEMP is developing technical guides on energy-efficient technologies and manuals on how to implement the ESP contracts. As extensive as this multiyear training program is, it will not reach all personnel who oversee and contract for maintenance of federal sites. EPACT mandated 31 new or additional responsibilities for FEMP, including: --- implementing programs in the Federal Energy Efficiency Fund, water conservation, and renewable and solar energy; --- increasing capabilities in energy data analysis and verification; --- developing on-site audits, baseline methodologies, and measurement protocols for ESP contracting; --- expanding current training opportunities through such new methods as teleconferencing, videos, and computerization; --- initiating new technology demonstrations and design assistance for new building design; --- sponsoring product expositions for industry to show federal facility managers new energy, water, and renewable savings products and technologies; and --- forming rapid response technical assistance teams. FEMP can incorporate some new responsibilities in its current work. For instance, water conservation efforts can be included in the energy efficiency training package already being provided by FEMP staff. FEMP is currently one of three offices in the Office of Building Technologies (OBT) that are under the Office for Energy Efficiency and Renewable Energy. While the bulk of FEMP's activities affect federal buildings, it also has some program responsibilities in the transportation and the industrial sectors, which are outside OBT responsibilities. Because of these cross-sector responsibilities, it is important that FEMP be authorized to work effectively with all elements of the Office for Energy Efficiency and Renewable Energy. FEMP's operating budget was $4 million in fiscal year 1992 and $4.6 million in fiscal year 1993--a nearly four-fold increase from its 1990 appropriation. FEMP's fiscal year 1994 budget request was $19.6 million, including $8 million to start up the Federal Energy Efficiency Fund. Minus that fund, FEMP program budget will increase more than 250 percent in fiscal year 1994. FEMP currently has nine professional and two support full-time employees. Eight additional employees are to be added in fiscal year 1994 to meet the increased EPACT mandates. These findings indicate that FEMP is in a position to make some progress in carrying out its new responsibilities. However, that progress must be sustained and FEMP's role enhanced to meet its governmentwide leadership role mandated by EPACT. Actions ******* 1. The Secretary of Energy should upgrade FEMP to Deputy Assistant Secretary (DAS) status. This action should provide the FEMP office with the increased stature needed to carry out its various new program functions. The increased status will allow FEMP to work more directly with other DAS offices within DOE. Also, it will enable FEMP to interact more directly with senior administrators of other federal agencies in conducting its governmentwide coordination, assistance, and training responsibilities. The new status at the DAS level will enable FEMP to negotiate more directly in the normal intra-agency adjustments in funding dispersement. 2. The Secretary of Energy should support a priority status for funding FEMP's budget requests for fiscal years 1994 and 1995. Because FEMP's budget is projected to increase exponentially from 1990 levels, there may be a tendency to cut appropri-ations or reduce those funds after the budget is approved. In order to meet EPACT mandates, FEMP should receive as close to full funding of its requested budget as possible. Full funding will enable FEMP to successfully carry out its responsibilities in current and new program areas. 3. The Secretary of Energy should act promptly to fill the eight new positions scheduled for fiscal year 1994. Many of the additional responsibilities mandated to FEMP have time- sensitive deadlines that cannot be met with existing resources. A priority status should be designated to FEMP to ensure that the needed staff are quickly hired. It is important that FEMP be able to attract the most technically qualified candidates and those with fresh insights into FEMP program issues. Because the recommended new DAS-level office would be considerably smaller than other DAS offices, consideration should be given to continuing FEMP's administrative support functions within OBT for at least a transition period. This would reduce the need, at least initially, for hiring redundant support staff. It would help ensure that the projected new positions remain program-related. Implications ************ The program can help stimulate growth in private sector energy efficiency companies. Economic analyses estimate 40 jobs are created for every $1 million invested in conservation efforts.2 Because energy, water consumption and environmental issues are closely linked, a successful energy efficiency program can be used as an example of the federal government's commitment to environmental issues. Fiscal Impact ************* Increases in fiscal year 1994 budget mentioned in this report are already requested, as are the increases in staff. No additional funding or employees will be needed beyond what is planned. Energy consumption in federal buildings cost approximately $4 billion in fiscal year 1991. A 20 percent reduction in energy use, were the technology in place today, would have amounted to $800 million in savings. As a result of past efforts and new programs, the federal sector is making energy and dollar savings now. The savings can be expected to increase with effective programs such as FEMP. An annual $1 billion savings for the federal government is possible by the year 2000. Endnotes ******** 1. U.S. Department of Energy, Federal Government Energy Management and Conservation Programs, Fiscal Year 1991, Annual Report to Congress, DOE/CE-0343P (Washington, D.C., October 1992), p. 10. 2. Laitner, Skip, Using Input-Output Analysis in Energy Policy Review--A Brief Methodology Working Paper for the Department of Energy (Eugene, Oregon: Economic Research Association, January 1993). **************************************************************** DOE06: Redirect Energy Laboratories to Post-Cold War Priorities **************************************************************** Background ********** For the first time in 50 years, the United States is not engaged in producing or testing nuclear weapons. Significant reductions in funding ($1.25 billion in fiscal year 1994) for nuclear weapons- related activities have already occurred.(1) Further reductions have recently been made possible by the President's decision not to resume testing of nuclear weapons. Department of Energy (DOE) officials must shift their facilities to the post-Cold War environment. This means that it will be necessary to take a hard look at the DOE weapons complex, including production facilities, testing sites, and laboratories, to determine what is needed in the post-Cold War era and to plan for closure or consolidation of excess facilities. They must also take care that a lower level of nuclear weapons research, production, and testing activities is used effectively to meet our defense requirements. At the same time, DOE's weapons laboratories and production plants represent an investment in world-class intellectual, research and development (R&D), and computing capability that was cultivated for five decades and would be difficult to redevelop. With adequate planning, the laboratories can redirect some of their worldclass talents and equipment to partnerships with industry and to meeting non-defense government requirements. New post-Cold War era projects of national scope and importance that combine public benefits with the potential to advance technology, further the growth of knowledge, promote industrial develop-ment, and stimulate the creation of productive, high-quality jobs are being discussed. DOE laboratories may be able to contribute to these projects because they have special capabilities that are not available elsewhere. These include basic and applied research involving large-scale and multidisciplinary problems that would be difficult for others to tackle because of their size, complexity, and long-term nature. These same capabilities could be put to use to meet the needs of government agencies other than DOE. In some cases, DOE laboratories may be able to meet those needs better than the other agencies' own R&D institutions-- perhaps better than any government or private R&D institution. There might be room for DOE laboratories to do more work for other government agencies on a competitive basis, in which the lab best suited would be awarded the work based on merit. Similarly, within DOE there could be more flexibility in the competition among DOE laboratories for DOE research programs. Activities to transfer technological knowledge and promote closer partnerships among government agencies and between government and industry have received new interest and attention in recent months. The national laboratories can help industry use science and technology to become more competitive, and technology transfer has been established as a mission at all of them. A number of initiatives totaling more than $250 million have been proposed in DOE's fiscal year 1994 budget.(2) Most of these funds are for cooperative research and development agreements, which require matching funds from private industry and universities. To promote a user-friendly, customer-oriented environment in the laboratories, and to achieve successful government-industry partnerships, a distinct cultural change will be necessary in headquarters program offices and at field facilities by both government officials and the contractors who operate the laboratories. Institutional barriers will need to be removed, and some legislative and regulatory actions may be necessary. Altogether, the redirection of DOE laboratories and other facilities will be an extensive undertaking that requires both the establishment of a uniform review of all facilities and actions tailored specifically to each site. Actions ******* 1. DOE should continue to support the reduction of funding for nuclear weapons production, research, testing programs, and infrastructure that are not needed to meet current defense requirements. 2. The Secretary should develop a vision and mission for the total DOE laboratory complex. The Secretary should then review the mission and facilities of DOE laboratories, weapons production facilities, and testing sites and recommend the phased consolidation or closure of obsolete or redundant facilities. The recommendations should be developed in consultation with the Office of Science and Technology Policy, the National Science Technology Council (proposed by NPR), the Secretary of Defense, and other appropriate federal offices. Facilities to be retained should be targeted for refurbishment as may be necessary. Functional facilities and equipment no longer needed by DOE or other federal agencies should be sold or leased, with the proceeds used to offset capital improvements within the DOE complex. 3. The Secretary should convene a group to design and implement mechanisms for identifying intellectual assets, test facilities, and research capabilities at national labs that can be useful to other government agencies. These mechanisms would promote development of joint R&D projects within government and improve efficiency, consistency, and responsiveness. 4. Once DOE has established a fair "pricing" process, it should encourage laboratory managers to bid on federal contracts and to apply for government grants that could utilize their unique technical capabilities without competing directly with the existing capabilities of private industry. They should be encouraged to seek appropriate projects from program offices throughout government to optimize the use of local people and facilities. 5. Laboratory managers should also be encouraged to work more closely with the private sector on high-priority R&D needs and to bid for contract or cooperative work on such projects. The laboratories should be able to work on the projects either alone or in consortia with other laboratories, the private sector, and universities where such cooperative arrangements foster unique blends of talent and resources. In bids for contract work for others, overhead costs of these laboratory activities must be fully recovered to ensure that DOE laboratories do not have an unfair competitive advantage. However, managers should have discretion concerning cost allocation and pricing comparable to that available to managers in private businesses in transition. Unnecessary legislative and regulatory impediments that inhibit collabora-tion between the national labs and industry and universities should be identified and removed. 6. DOE, the contractors who manage the laboratories, and laboratory managers should work to make access to the laboratories' resources more accessible to the private sector, removing unnecessary layers of approval for cooperative R&D agreements and contract work-for-others, and taking other steps to simplify and speed up the process. Implications ************ Cost savings would result from program reductions as well as the closure of obsolete or redundant facilities and the sale or lease of excess functional equipment and facilities. DOE is not currently allowed to use the proceeds from the sale or lease of excess facilities and equipment to offset its continuing capital improvement needs. Authorizing legislation is required. Taxpayer return on investment in DOE's scientific and technical facilities would be improved by making effective, efficient use of national laboratory facilities to meet evolving national needs in areas such as fundamental science, industrial technology, and environmental protection, as well as the changing requirements for national security. The nation's ability to address its most critical technological challenges would benefit substantially. Increased use of cooperative partnerships and transactions with industry and universities would improve the connections between laboratory research, education, and the marketplace. Disruption to DOE laboratory work forces and local communities due to defense program cutbacks would be minimized. Fiscal Impact ************* Significant reductions in funding for research, development, testing, and production of nuclear weapons are already included in current baseline budgets. Additional reductions should be considered for the years after fiscal 1994 based on these recommendations. The sale or lease of excess facilities and equipment could average $20 million per year from 1995 through 1998. Budget Authority (BA) and Outlays (Dollars in Millions) ******************************************************* Fiscal Year 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^ BA n/a -445.0 -445.0 -420.0 -420.0 -420.0 - 2,150.0 Outlays n/a -311.5 -431.7 -427.5 -420.7 -420.0 - 2,011.4 Change in FTEs n/a 0 0 0 0 0 0 Endnotes ******** 1. U.S. Department of Energy, Budget Highlights FY 1994 (Washington, D.C., April, 1993), p. 3. 2. Ibid., p. 54. ***************************************************** DOE07: Save Costs Through Private Power Cogeneration ***************************************************** Background ********** Private sector construction of needed new power plants at government installations represents a cost savings opportunity to the federal government. The Department of Energy (DOE) owns and operates under contract approximately 100 steam plants at production centers and national laboratory sites around the country. Most of the plants have been in operation for 40 years or more and are at or beyond the limits of their design lives. Many need either refurbishing or complete rebuilding. New state-of-the-art gas fired cogeneration generators can operate at up to 80 percent energy efficiency (producing both steam and electricity in the same operation) while the average, electricity-only generators operate at about 33 percent efficiency.(1) Refur- bishing older electricity generators to improve performance or capacity or to burn alternative fuels can improve energy efficiency from 5 to 10 percent.(2) Older plants use less efficient technologies, which are more harmful to the environment and more expensive to operate than new state-of-the-art facilities. In the near term, DOE must either expend considerable funds to refurbish or rebuild these steam plants or provide incentives to utilities and independent power producers in the electrical power industry (power providers) to build and operate new plants for DOE. Many power providers are eager to construct and operate new cogeneration plants (producing both electricity and steam) at government installations at no cost to the government. Such projects offer profit-making opportunities for the power providers while providing both short-term and long-term savings for the government. Under this arrangement, DOE would avoid the costs of refurbishing or rebuilding the existing facility. In addition, DOE would receive a cost savings of 10 to 25 percent on future steam and electricity bills, depending on fuel and other factors at each installation. In return for these services, the power provider would: --- own and operate the facility for up to 25 years; --- contract with the government facility to supply power and steam at lower rates than currently paid by the facility; and --- sell any excess power to local utilities. The incentives of a long-term govern-ment contract and the opportunity to sell excess power off-site make such cogeneration projects potential profit-making ventures for the power providers. Power providers seek these opportunities because they are guaranteed a steady government customer for a long period of time and because the permit process to replace an old plant is less cumbersome than the permit process to build a new stand-alone facility elsewhere. The obstacle to securing such private sector initiatives is a provision in the 1986 Shared Energy Savings amendment to the National Energy Conservation Policy Act (NECPA).(3) While the amendment provides the only government long-term contract authority (up to 25 years) at non-military government installations, one provision restricts power plants at those installations from selling excess electrical power off-site. However, it is the sale of excess capacity off-site that, in many cases, makes the venture economically viable for power providers. The restrictive legislation effectively prevents the private sector and the government from entering into such ventures. No new power plants using private sector investment have been built at non-military government installations since this restrictive legislation was enacted. If NECPA is amended to remove the restriction, the government would have the potential opportunity to obtain new power plants at no cost and pay reduced utility bills. A DOE initial analysis of six aging government steam plants reveals the following potential savings in avoided construction costs: (1) if all six plants were refurbished-- at the lowest expenditure level--the minimum estimated obligation for DOE would be $183 million; and (2) if all six were rebuilt--the maximum expenditure--the total estimated obligation would be $735 million. Because of the age of the existing facilities, an expenditure somewhere between these two figures must be obligated within the next 10 years by the federal government. If the plants were built by power providers, that cost could be avoided. Because the new power and steam is produced with high-efficient generators, the utility costs for the new power, spread out over 25 or 30 years, represents a consider-able savings in electricity and steam costs. DOE estimates the long-term utility savings at the six sites would be approximately $1 billion. DOE believes that similar savings potential is available at 11 other government installations that can be considered as potential sites for private sector investment in cogenerated power. The window of opportunity for one site may have passed. DOE's Savannah River Site (SRS) production facility is powered by a 37- megawatt electrical and steam power plant. The plant has high operating and maintenance costs and is operating beyond its 50-year design life. Refurbishment or rebuilding is needed now. In 1991, the local regulated utility proposed construction of a larger power plant at the site at no cost to the government. The utility would also have provided substantial discounts in electricity and steam costs for 20 years. However, because DOE could not allow the utility to sell excess power off-site, the utility withdrew its offer and has constructed a new plant elsewhere to meet its demand. It is estimated that the SRS project would have saved $72 million in refurbishment costs (which are now included in the fiscal 1995 budget) and utility costs totaling more than $200 million over 20 years. While another power provider may want to pursue such a cogeneration facility at SRS, such an opportunity may be lost because the demand for off-site power should be met by the utility's new power plant. In a similar situation, DOE's Richland Field Office received an unsolicited proposal from a private developer to build a power plant at the government's Hanford Reservation in Washington State. The proposal has the potential for saving as much as $50 million in refurbishment costs in the short term (including $11 million expended on partial refurbishment in fiscal year 1992) and at least $360 million in energy bills over a proposed 30-year contract period. At present, the Richland Field Office has issued a request for proposals to construct a facility that would power only the Hanford Reservation and not sell excess power off-site. If bidding is unsuccessful, the $50 million refurbishment will have to be obligated at least by fiscal year 1998. If the restrictive legislation is removed, a contract more beneficial to both the government and the private sector could be negotiated. The restrictive language in the shared energy savings provisions does not apply to military bases. Consequently, power providers are generating electrical power on at least nine military bases and selling that power to those installations and to their local utilities. The arrangement at the China Lake Naval Base in California is lucrative (i.e., the contract generates approximately $3.5 million annual savings for the Navy). The savings will increase steadily to approximately $10 million annually after 10 years. Although specific savings will depend on site-specific negotiations, the China Lake facility represents an example of further cost savings that might be negotiated through the shared energy savings program. There is no logical reason to preclude the federal government from pursuing shared energy savings opportunities with the private sector. When the restriction was implemented, there was a general surplus of electrical power in the United States. However, there is now a shortage of electrical power in several sections of the country, and local and regional utilities are purchasing increasing quantities of power from privately constructed power plants. Action ****** Legislation should be enacted to amend section 804(2)(B) of Title VIII, the Shared Energy Savings amendment of NECPA, to remove the restriction that limits the sale or use of cogenerated electricity to federally owned facilities. If this restriction is removed, power providers would have an incentive to build and operate cogeneration power plants at no expense to the government at DOE and other non-military government installations. DOE would have the option of refurbishing or rebuilding with government funds or avoiding such construction costs by contracting with power providers. Removal of the restriction would not require that such work be undertaken through private sector initiatives. Rather, it would provide the government and the electrical power industry with the alternative to work together for the benefit of the government, the industry, and the taxpayer. Implications ************ On a case-by-case basis, the government would have the option of avoiding the cost of renovating old and constructing new steam plants. The government would receive new plants at no cost. In addition, the government's costs for power and steam generated by new, energy-efficient cogeneration technologies would be substantially less than the amount currently paid for steam and electricity used by the facilities. Cogenerated power would help meet the demand for electrical power in many utility service areas. Finally, new state-of-the-art cogeneration plants are also less damaging to the environment because they use new generating technologies. Shared energy savings contracts include provisional commitments from the government to purchase designated amounts of steam and electricity over the 25-year life of the contract. Because government policy could change the use of installations (expand, reduce, or close), there may be instances when the power needs of the installation might change. Thus, a contingency clause should be negotiated in shared energy savings contracts to account for possible changes in power needs and reduce taxpayer liabilities. Within the U.S. electrical power industry, utilities generally supported the restrictive legislation in 1986 when there was little or no demand for additional electrical power. However, many utilities now need additional power generated by independent power producers and would support removal of the restriction because it provides them with increased market opportunities and stimulates industry growth. Fiscal Impact ************* The cost to refurbish a facility can be as much as $50 million. New plant construction, depending on the size, is estimated at over $100 million. Whether and when a refurbishment or replacement is conducted depends on the condition of each existing steam plant and the power demand situation for the local utilities surrounding each installation. The generator at Savannah River is scheduled to be refurbished at a cost of $72 million. If it can be replaced by 1996 with a privately funded facility, the costs of refurbishment can be avoided and its annual costs of power will be reduced. Refurbish-ment of the Hanford Reservation generator is not totally obligated at present but must be upgraded before fiscal 1998. These represent over $120 million in direct costs to the federal government that could be saved through shared energy savings contracts for cogeneration facilities. Indirect savings from reduced electricity and steam utility bills at these two facilities (over 25- to 30-year contract periods) can be roughly estimated at $550 million. Budget Authority (BA) and Outlays (Dollars in Millions) ******************************************************* Fiscal Year 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BA n/a -72.0 -10.0 -10.0 -10.0 -10.0 -112.0 Outlays n/a -37.0 -10.0 -10.0 -10.0 -10.0 -77.0 Change in FTEs n/a 0 0 0 0 0 0 Endnotes ******** 1. Pestle, J.N., "Is Self-Generation for You," 1990 Cogeneration Project Handbook (Fairfield, CT: Perquot Publishing, 1990), pp. 6- 14. 2. U.S. Congress, Office of Technology Assessment, New Electric Power Technologies: Problems and Prospect for the 1990s, OTA-E-246 (Washington, D.C., July 1985), p. 26. 3. U.S. Congress, Title VIII, Shared Energy Savings amendment to National Energy Conservation Policy Act 42 U.S.C. 8201, P.L. 96-294, Sec. 804. For purposes of this subchapter, the following definitions apply: the term energy savings means a reduction in the cost of energy from a base cost established through a methodology set forth in the contract and utilized in an existing federally owned building or buildings or other federally owned facilities as a result of the increased efficient use of existing energy sources by cogeneration or heat recovery, excluding any cogeneration process for other than a federally owned building or buildings or other federally owned facilities. *********************************************************** DOE08: Support the Sale of the Alaska Power Administration *********************************************************** Background ********** The federal government markets power from its 129 hydroelectric projects throughout the United States through five Power Marketing Administrations (PMAs). These multipurpose projects are constructed and owned by the Department of the Interior's Bureau of Reclamation and the U.S. Army Corps of Engineers. They operate the projects for flood control, navigation, irrigation, and more recently, for recreational purposes. They also generate 45 percent of the nation's hydroelectric power as a by-product. This power is sold by the PMAs to local public, private, and cooperative utilities at cost. Supplemental power from these projects is provided to all but 16 states. Unique among PMAs, the Alaska Power Administration (APA) owns, operates, and maintains two hydroelectric projects, Eklutna and Snettisham. Not only are these two projects confined to local Alaska markets, but, unlike the other PMAs, the APA's single-purpose projects are not the result of a water resource management plan, nor are they intended to remain indefinitely under federal government control.(1) Instead, they were created to encourage and promote economic development and to foster the establishment of essential industries in Alaska. To carry out their mission, they provide and encourage widespread use of hydroelectric power at the lowest possible rates, consistent with sound business principles.(2) It was for these purposes, rather than flood control, navigation, irrigation, and recreation, that the 30 megawatt (MW) Eklutna project was built in 1955 to serve the Anchorage and Matanuska Valley areas, and the 78 MW Snettisham project was constructed in 1975 to serve Juneau. To date, the two projects have served their original purposes well.(3) Findings indicate that not only have they provided widespread, relatively low-cost, long-term supplies of renewable energy to the areas served and recovered the federal costs as intended in the authorizing legislation, but economic and industrial development has occurred to the point where their role in Alaska as major providers of electric power has greatly diminished. Together, these projects provide only about 8 percent of the total energy requirements of Alaska's electric utilities. Individually, the Eklutna project provides about 5 percent of the power needs in its market area, and Snettisham provides 80 percent of Juneau's power requirements.(4) These findings indicate that the time has come for the federal government's divestiture of these projects, since the goals, as originally intended, have been met. It is no longer necessary for the federal government to operate a small separate power program in Alaska because: --- the projects fill a small market niche; --- economic and industrial development of the regions served has evolved as planned; --- other providers have emerged that can serve the region's needs; and --- the state and local electric utilities are poised to manage the projects in a manner consistent with Alaska's future energy and development needs. It is against this backdrop that divestiture of APA projects must be reviewed.(5) Although informal discussions of divestiture date back many years, it was not until 1986 that the formal proposal first appeared in the budget. Subsequent to this, a public comment process resulted in invitations of proposals to purchase the projects being extended in the spring of 1987 to electric utilities served by APA projects. In response to solicitations requests, the Alaska Energy Authority proposed to purchase the Snettisham Project, while three utilities, the City of Anchorage, the Matanuska Electric Association, and the Chugach Electric Association, submitted a joint proposal to purchase Eklutna. Finding both prospective purchasers well-qualified to own, operate, and maintain the projects, APA moved forward to draft purchase agreements. APA and the proposing parties negotiated the purchase agreements, which set forth the terms, conditions, and responsibilities of each party for the orderly sale and transfer of the projects. The final agreements, signed in 1989, have been amended twice to extend the purchase deadline to February 1995. They reflect great care and deliberation to incorporate and address, to the extent possible, all views and concerns of interested parties to ensure a balance between federal taxpayers, federal agencies affected, state and local utilities, and retail customers. As a result, the divestiture proposal has widespread support. Since the initiation of the proposal, the Alaska congressional delegation, three governors, local officials, the utilities, DOE, OMB, and the House Appropriations Committee have supported the divestiture proposal.(6) The only matter pending for the purchase agreements to take effect is for authorizing legislation to be enacted similar to H.R. 5516, which was introduced but not considered by the 102nd Congress. Current plans call for a similar bill to be presented to Congress this summer. Failure to pass the bill will result in the status quo and perpetuate the current administratively inefficient federal operation of these two projects. Action ****** Legislation should be enacted that is the same as, or similar to, H.R. 5516 from the 102nd Congress authorizing the sale of the two Alaska Power Administration projects in accordance with the previously negotiated purchase agreements. The sale of the APA assets will result in the transfer of approximately $80 million to the U.S. Treasury. This amount represents about 95 percent of the present value of the interest and principal payments the government would receive under continued federal ownership. The government would no longer be responsible for staffing and for funding the operation, maintenance, repair, and replacement costs of the two projects and would avoid potential future claims and liabilities, such as the 1964 earthquake damage to Eklutna.(7) Implications ************ The public process leading to the purchase agreements has been conducted in a manner that ensured that the views of all interested parties were heard and, to the extent possible, accommodated and reflected in the current purchase agreements. Nevertheless, the General Accounting Office (GAO), some members of Congress, and public power interests may raise concerns once the legislation is re- introduced. GAO's objections center around the fact that the sale price is negotiated rather than market-based. While a market-based price would certainly result in an increase in the asking price, it would do so at the expense of Alaska ratepayers and stakeholders and raise objections from members of Congress who consistently argue that the government should not make a profit from the sale of such government property.(8) In objecting to market rate studies of PMA electrical power, Congress has indicated that these public facilities should provide services at the lowest possible cost to consumers consistent with sound business principles; selling at market price would defeat this purpose. Rates charged to consumers would increase substantially to enable the buyers to recover the market-based selling price.(9) ome public power interests are concerned that the APA sale will establish a precedent and lead to the sale of other PMA assets. This concern is unfounded since APA's unique situation cannot be considered as setting a precedent for other PMAs. Instead, divestiture of APA should be viewed as a unique situation that supports the concept of identifying unique circumstances where divestiture is beneficial to both the federal and state governments and affected local sectors. Another concern of the public power interests is that public utilities and cooperatives be given preference in any such sale of PMA assets. In the case of APA, the purchasers are either public power utilities or rural electric cooperatives, all of which have a history of effectively serving the regions of APA projects. While mild opposition to the sale has been voiced by different stakeholders, the current terms and conditions are expected to be approved by Congress. On the whole, there should be minimal opposition to the sale and transfer of these projects. By all measures, it is time to divest. Studies indicate that state and local power utilities can operate and maintain the projects and align their management in a manner consistent with Alaska's energy needs and future growth requirements. Fiscal Impact ************* The federal government will be relieved of the responsibility of owning and operating two small isolated hydroelectric projects in Alaska and of any liabilities for future maintenance, equipment replacement, and claims. Equally important, proceeds from the sale will recover nearly 95 percent of the present value of the original federal investment in APA projects and prescribed interest (estimated between $73.5 and $80.3 million, depending on certain conditions when the sale is approved), and forgone annual revenues of approximately $10 million will be nearly offset by the avoidance of annual expenditures averaging $4 million for management and operations and $6 million in principal and interest on the outstanding debt on these two projects. In designing a break-even or cost-recovery sale of these two projects, the federal government meets two goals: first, it furthers the taxpayers' interests by recovering nearly all of the original investment, and second, it addresses the consumers' concerns that hydroelectric power continue to be provided without a significant increase in rates. The fiscal impact of the sale of these two projects will be as shown in the following table. Revenue and Expenses from the Sale of the Alaska Power Administration (Dollars in Millions) ************************************************* Fiscal Year 1994 1995 1996 1997 1998 1999 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Revenue(10) 10.2 -10.5 -10.6 -10.4 -10.5 -10.5 Proceeds from Sale11 80.3 Total Revenues 90.5 -10.5 -10.6 -10.4 -10.5 -10.5 Expenses: O & M(12) 4.0 - 4.0 - 4.0 - 4.0 - 4.0 - 4.0 Transfer Cost(13) 1.9 Principal(14)- 1.8 - 1.9 - 1.7 - 2.0 -1.9 Interest - 4.8 - 4.8 - 4.8 -4.7 - 4.7 NPV P&I(15) 81.4 Total Expenses 87.3 - 10.6 -10.7 -10.5 -10.7 -10.6 Revenue- Expenses 3.2 0.1 0.1 0.1 0.2 0.1 Budget Authority (BA), Outlays, and Revenues (Dollars in Millions) ****************************************************************** Fiscal Year 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ BA n/a -3.9 -4.0 -4.1 -4.2 -4.3 -20.5 Outlays n/a -3.8 -3.9 -4.1 -4.2 -4.2 -20.2 Revenues n/a -10.5 -10.6 -10.4 -10.5 -10.5 -52.5 Change in FTEs n/a -35 -35 -35 -35 -35 -35 Note: The figures presented do not include future maintenance or repairs to the hydroelectric equipment, dams, or the infrastructure of transmission facilities and power lines, which is estimated to be approximately $5 million between fiscal 1994 through 1998.16 Endnotes ******** 1. Eklutna Project Act of July 31, 1950, P.L. 81-628, 64 Stat. 382 (1950). 2. Ibid. 3. Letter from Secretary Hazel O'Leary, Department of Energy, to Chairman George Miller, House Committee on Natural Resources, July 2, 1993. 4. U.S. Department of Energy, Alaska Power Administration, Sale of Eklutna and Snettisham Hydroelectric Project, Divestiture Summary Report (Juneau, Alaska, April 1992), p. 1. 5. Letter from Secretary Hazel O'Leary, July 2, 1993. 6. Letter from Secretary Hazel O'Leary, Department of Energy, to Alaska congressional delegation, March 4, 1993; Letter from Governor Walter J. Hickel to Secretary Hazel O'Leary, Department of Energy, March 15, 1993; Letter from Governor Steve Cowper to Secretary James Watkins, Department of Energy, April 20, 1990; and House, Committee on Appropriations, Report 103-105 to accompany H.R. 2445, Report 102- 105 to accompany H.R. 2445, Energy and Water Development Appropriations Bill, June 17, 1993, p. 129. 7. Eklutna Project, Alaska-Rehabilitation, P.L. 90-523, 82 stat. 875. 8. Letter from Executive Director Ronald A. Garzini, Alaska Energy Authority, to Secretary Hazel O'Leary, Department of Energy, May 19, 1993. 9. Joint Resolution Making Continuing Appropriations for Fiscal Year 1983, Section 166, P.L. 97-276, 96 Stat. 120 (1983). 10. Four-year revenue estimates used in fiscal year 1995 budget preparation based on 1992 repayment studies. 11. Eklutna sales price is fixed at $8,818,000 and Snettisham is estimated between $64,741,000 and $71,456,000, depending on the current revenue bond rate, estimated between 6.5 and 7.5 percent. Estimate is made for sales transaction date of October 1, 1993. 12. 1994 operating and maintenance budget is $4,010,000. For the purpose of this analysis, it is kept constant throughout the five years. 13. DOE, p. 35. 14. Data from fiscal year 1992 Alaska Power Administration power repayment study for Eklutna and Snettisham projects. 15. Net present values for principal and interest is derived by adding the remaining principal and interest payments on both projects and discounting them by 7.9 percent. 16. Replacement costs based on Alaska Power Administration investment replacement estimates, July 16, 1993. ***************************** Agency Reinvention Activities ***************************** Secretary Hazel O'Leary came to office January 22, 1993, bringing to the Department of Energy (DOE) extensive private-sector experience in market dynamics and quality management. She has placed strong emphasis on results, strategic planning, work force empowerment, and customer satisfaction. In response to the administration's commitment to change, Secretary O'Leary leads as an active participant in the reinvention activities of the National Performance Review (NPR). Getting Started and Motivating Participation ******************************************** In a Town Hall meeting at DOE headquarters, broadcast live via satellite to 40 DOE sites nationwide, Vice President Gore stated that DOE "has been leading the way" in efforts to make the federal government more efficient and effective in the way it does business. In February, as part of her emphasis on improving the department, Secretary O'Leary established 15 teams, called Priorities Teams, to take a hard look at the critical issues that are important to the future of the department. The teams, which include members from across the department, are addressing management, process, and technical policy issues. These teams will report their progress to the Secretary in September. On March 4, 1993, Secretary O'Leary announced a new organizational structure for DOE geared to achieve the administra-tion's energy, environmental, and economic objectives for a changing world. The new focus is on developing clean energy sources to meet the needs of the economy while protecting the environment, transferring technologies from laboratories to the private sector to enhance U.S. competitiveness, and cleaning up former weapons production facilities to protect public health and safety. "Our goal," the Secretary said, "is to carry out our piece of the promise President Clinton brought with him into office: to reinvent government to make it responsible, accountable, and cost-effective and to put the public's interest first." On May 10, in a departmentwide Town Hall meeting, Secretary O'Leary shared her vision on how quality management and a quality culture would be used throughout the department to achieve DOE's new priorities. Secretary O'Leary headed a class of 60 department executives, including laboratory directors, all field operations managers, and key program managers at a July 8-10 training session. The objective of the training program was to begin the process of building a DOE management and leadership team dedicated to meeting the expectations of their stakeholders and customers by providing quality products and services in a timely manner and at a reasonable cost. The overall goal was to develop a plan for reinventing DOE enterprise by applying key quality management principles. Evolving from teamwork and town meetings, the elements of a strategic planning process for the Department that addresses long-term as well as short-term needs were formulated. The long-term strategy includes two key groups that will lead the depart-ment into the future: the Leadership Group and the Quality Council. The Secretary chairs the Leadership Group. Senior managers from throughout DOE are members of the group. The Leadership Group was formed to promote implementation of quality management in the department. Specific responsibilities include: --- promoting the department's strategic direction; --- committing required resources to the process of quality improvement, customer satisfaction, and work force empowerment; --- establishing policy to support quality and process improvement initiatives; --- overseeing the activities of the Quality Council by evaluating, recommending, approving, and implementing proposals; --- supporting the development of departmentwide performance measures; --- modeling the department's core values in all aspects of work; and --- coordinating implementation of the NPR and DOE team activities. The Quality Council is a diverse group of 27 employees selected from all levels and organizations in the department. Its objective is to design and develop the department's quality implementation plan. In this capacity, the Quality Council will provide advisory support and coordination for all quality activities in the department. A direct result of this introspective evaluation and strategic planning is a substantial change to the department's organizational structure. The new structure, adopted June 10, 1993, is designed to emphasize the new focus of the department. The organization will meet the new challenges set forth by President Clinton by stressing energy security, sustaining the environment, and boosting economic growth. The department is now organized in functional clusters that include energy programs, science and technology programs, and weapons and waste cleanup programs. Reinvention Laboratories ************************ Secretary O'Leary's request for candidate reinvention laboratories received enthusiastic response. Among many candidates, the six programs described below are at the fore-front. Others are planned for development after September 7, 1993. The labs are ongoing projects to improve program and management operations using reinventing government principles. Reinventing the Federal, State, and Local Partnerships. The Office of Energy Efficiency and Renewable Energy (EE) is sponsoring this DOE reinvention lab. The mission of this pilot project is to broaden DOE's network of external stakeholders, to increase understanding of EE's capabilities and goals, and to invent better partnerships. Three specific activities are the focus of this reinvention lab: --- involve stakeholders earlier and more completely in strategic, multiyear, annual operating and budget planning; --- invent more effective and flexible ways to implement state and local provisions of the Energy Policy Act of 1992; and --- build stronger public and private collaborations to deploy new energy efficiency and renewable energy technologies in the marketplace. The lab will employ a two-step strategy to open dialogue with its customers on how partnerships should be reinvented. The first step was the creation of an ad hoc Core Stakeholders Committee to serve as a gateway to a larger universe of customers. The committee includes representatives of DOE, plus senior managers representing 16 stakeholders organizations. The committee first met July 27-28, 1993, at the National Renewable Energy Laboratory in Golden, Colorado, to develop three products: --- a list of changes that EE and the stakeholder group must make to improve their partnerships; --- ideas and mechanisms that stakeholders and EE should pursue for future partnerships; and --- performance measures that EE and its customers will use to determine whether the reinvention lab has succeeded. The Reinvention Lab on Federal, State, and Local Partnership is designed to foster a frank and open dialogue between EE and its stakeholders. It also should broaden EE's list of stakeholders in order to explore new partnerships for technology deployment. EE anticipates that the outcome of the two-step process will be a candid and thoughtful list of recommendations on the cultural and procedural changes needed in the department to deal with state and local governments, industry, and private organizations more effectively, and, in partnership with them, to more effectively execute DOE's programs. National Clean Industry Initiative. U.S. industry generates nearly 11 billion metric tons of waste each year -- roughly one ton of waste each week for every U.S. citizen. One estimate indicates that U.S. industries produce approximately five times more waste per dollar of goods sold than Japanese companies and more than twice as much as German companies. Not only does this waste pose a significant environmental threat, it also represents a costly drain on our economy and our natural resources. It signals the inefficient use of energy and materials and inefficiencies that contribute to our rapidly eroding ability to compete internationally. In addition, it signals inefficiencies that may eventually shut out some international markets: the European Commission recently identified green product standards as one of the fastest-growing kinds of non- tariff trade barriers. As the world's population and output continue to grow, so will the economic opportunities associated with developing clean, efficient technologies and industries. Against this backdrop, the United States is in the process of increasing the general productivity and competitiveness of its industrial base. The administration has recently announced an aggressive technology policy to accomplish this. Several bills have been introduced that are designed to increase the competitiveness of U.S. industry, expanding on the core capabilities and assets of various federal agencies, including DOE. Environmental considerations and environmentally conscious manufacturing are integral to the administration's plan and the proposed legislation. Realizing the specific goal of clean industry will require leadership that stresses integrated policies, strategies, and plans that recognize the crosscutting, multidimensional nature of this objective. The core capabilities exist in many agencies, most notably DOE, the Environmental Protection Agency, and the Department of Commerce. These resources must be pooled and directed in a way that provides seamless, transparent services and support to U.S. industry, the ultimate end users. Additionally, the problem is not just one of technology; it is one of market incentives, regulations, the business environment, public attitudes and values, corporate mind set, international markets, trade barriers, educational and skill levels in the work force, technical assistance, finance, and communication. These are all areas where the federal government can and must exert major positive influence. This influence must be coordinated and managed as a single system under guiding national environmental and economic principles and policies. The need for a National Clean Technology Initiative is compelling. It pulls together the pieces under a guiding framework and synthesizes the combined efforts of the major stakeholders. One of the three major goals of the current administration's technology policy is to promote long-term economic growth that creates jobs and protects the environment. A National Clean Industry Initiative that integrates and expands existing federal and state efforts would provide this kind of stimulus. By accelerating the development of innovative clean manufacturing technologies and processes, DOE can make U.S. industry more competitive, encourage U.S. leadership in a new generation of green commercial products, and reduce the impact of economic growth and human consumption on environment. Reinventing Government at Hanford Reservation. The end of the Cold War has allowed the Hanford Reservation (near Richland, Washington) to move from a defense weapons production site to an environmental cleanup site. In addition, it is changing from a closed and secretive government organization to an open and interactive partnership between government, industry, and community, focused initially on cleanup and ultimately on economic viability. The Hanford reinvention lab has concentrated initially on two key activities. One is the peeling back of the multiple layers of defense security built up during 45 years of weapons production. The second is the creation of an economic trade environment at Hanford, encouraging entrepreneurs and the private sector to use the laboratories and site operations to develop new technologies. The reinvention approach to economic transition at Hanford is community-based, not government-based. Hanford has joined the existing local and regional economic development entities and sets policies jointly with outside partnerships. A Northwest Economic Cabinet was formed among DOE's Richland Operations Office and the directors of trade and commerce from Washington, Oregon, and Idaho state governments. The cabinet will develop broad economic issues and coordinate specific business opportunities as the site changes from a government to a private facility. To date, the economic transition activities have saved over $22 million and created new private sector jobs in the local community. Cleanup milestones have been accelerated and inactive DOE facilities have been put back into economic use. The government has been proactively supporting local economic diversification while conducting its own cleanup business. Real-Time Access to Oil and Gas Information. The Energy Information Administration's (EIA's) Office of Oil and Gas is seeking new avenues to make oil and gas data and information more readily available to a broader constituency. Early efforts will concentrate on developing an interagency cooperative program with the Department of Commerce (DOC) to use its Economic Bulletin Board and Internet link. (This approach will enable DOE to use an existing network at minimal cost. It represents a synergistic link between energy information being provided by EIA and economic data provided by DOC.) The real-time access to oil and gas information system will provide weekly, monthly, and annual oil and gas information and will be updated as appropriate. It will be available to the 10 million members of the worldwide Internet community as well as the 35,000 monthly users of the bulletin board. Currently, the data are not integrated into a single information system. The information system comprises approximately 100 documents that detail the domestic petroleum and natural gas industries, including reserves and extraction from the ground, importation, ultimate consumption, and exportation. The reinvention experiment is scheduled to start in September. Two important advances reflected in this system are: (1) it presents an integrated representation of domestic oil and gas; and (2) it is available electronically, in machine- readable form, rather than on paper. As part of the reinvention lab experiment, the Office of Oil and Gas plans to carry out user response and marketing surveys to determine the extent of use, characteristics of the user community, and success of the information system in meeting the user's needs and requirements. The customer base includes state and local governments, congressional offices, other federal agencies, industry and economic planners, consultants, academics, and other members of the public who need rapid access to information in electronic format. Declassification of Information. DOE and its predecessor agencies have a long history of classifying nuclear weapons-related information for valid national security reasons such as minimizing nuclear proliferation. Withholding classified information from potential nuclear proliferants inevitably withheld it from the public. Beginning in World War II and throughout the Cold War period that followed, tens of millions of documents were classified in support of the U.S. nuclear weapons program. Today, as a result of the dramatic changes over the last few years in the international arena, much information in classified documents no longer warrants classification and could be released to the public. Additionally, unclassified information is often intermin-gled with nuclear weapon technology that is still very sensitive. For example, a document may contain unclassified information relevant to environmental, safety, and health concerns yet still contain legitimately classified technology that should not fall into the hands of a proliferant group or country. As a result of new domestic objectives, the classification culture of DOE must be expanded beyond its traditional national security focus to include sensitivity to information needs in new areas such as environmental restoration, worker radiation dose reconstruction, and technology transfer. DOE's customers, broadly defined as the "public"--a large constituency ranging from off-site neighbors, environmental researchers, historians, and science and industry workers, to state and other federal personnel--must have access to the information they need in these areas. To meet these new mission objectives, DOE must take radical steps away from its old way of doing business. The document declassification review process itself must be made more effective and efficient to get the needed information into the customers' hands as soon as possible. In addition, the policies that restrict vast amounts of information must be reviewed. Bonneville Power Administration: Implementing a Business Model for Power Marketing Operations in the Pacific Northwest. For the entire 55 years of its existence, the Bonneville Power Administration has taken a one-size-fits-all approach to meeting the needs of its customers in the Pacific Northwest. Increasingly, these customers-- all 130 electric utilities and a number of large industries in the region--have asked Bonneville to be more customer-focused, market- driven, cost-conscious, and results-oriented. Bonneville supplies half the electricity and 80 percent of the high voltage transmission capacity in the region. Bonneville's management volunteered as a DOE reinvention lab and launched "The Competitiveness Project." The aim of the project is four-fold: --- develop a new marketing strategy that would offer a wide array of power and transmission products tailored to the different desires and business plans of Bonneville's customers; --- streamline, realign, and downsize Bonneville's internal systems to reduce costs and increase responsiveness to support the new marketing approach; --- change the organization from government to a business-oriented management style; and --- change to a government corporation. Looking Ahead ************* DOE has found strong, early enthusiasm among its customers plus a need to demonstrate to them that the current administration and the department are committed to reinvention, even when reinvention demands fundamental cultural and procedural changes. The strategic planning process at DOE has accomplished much to set the direction for the future. The department has agreed on a mission statement and a set of core values to guide the department's future service to the nation. External trends have been identified that are most likely to shape the environment in which the department operates a decade from now. The next steps in the strategic planning process will be to develop strategies and action plans to respond to those externally driven trends. The Federal, State, and Local Partnership Lab anticipates that this partnership will lead to a better understanding between DOE and its stakeholders about the forces that influence their behavior. Also, the lab will help identify new stakeholders who are crucial to successfully commercializing new energy technologies. The National Clean Industry initiative, led by the Cabinet Cluster on Energy, Environment, and Natural Resources, would effectively respond to the administration's new criteria for U.S. investments in advanced technology by: --- strengthening America's industrial competitiveness and creating jobs; --- creating a business environment where technical innovation can flourish and where investment is attracted to new ideas; --- ensuring coordinated management of technology all across government; --- forging a closer partnership among industry, federal and state government workers, and universities; and --- redirecting the focus of our national efforts toward technologies crucial to today's business and a growing economy, such as information and communication, flexible manufacturing, and environmental technologies. Private sector involvement at Hanford will save hundreds of millions of dollars while establishing a business and job base that will flourish in a post-cleanup era. Cooperative efforts between the community, organized labor, industry, and DOE will create thousands of new private sector jobs to clean up the base. By 1995, this example of rethinking government is expected to reduce the Hanford security budget by at least one-third of the fiscal year 1992 level. Savings will be returned to programs and will be used in the environmental cleanup of the Hanford site. The security transition team is attempting to ensure that the process of change becomes part of the Hanford culture. To the extent that the security transition succeeds, it holds out hope for additional changes to the ongoing programs and projects at the site that will complement the privatization efforts of the economic transition. Bonneville managers see their efforts as a first-of-its-kind attempt to establish strategic business objectives in the Pacific Northwest. Its industrial customers, which include one-third of the nation's aluminum smelting capacity, see this as a radical turn in its management. Needs have changed. In response, DOE must make domestic oil and gas information available electronically to a wide base of customers. Today, less information merits the protection of classification and, therefore, classification itself at DOE needs to be reinvented. Bureaucratic obstacles to efficiency must be overcome (for example, improving government coordination and streamlining the information declassification process). State-of-the-art information processing technology must be developed and utilized to increase productivity and better serve DOE external and internal customers. In view of the above, and in response to the opportunities afforded by the Vice President's and the Secretary's initiatives, a multifaceted plan has been initiated in order to move DOE from the past to a new era-- an era that recognizes the importance of serving customers, increasing productivity, and providing the tools and incentives to focus on results. DOE has begun a reinvention process that will continue far beyond delivery of the NPR report to the President. With enthusiastic leadership from the Secretary and an energized, empowered work force, DOE is on its way to becoming an agency that sets the trend for enthusiastic and effective service to the nation. ************************ Summary of Fiscal Impact ************************ Change in Budget Authority by Fiscal Year (Dollars in Millions) Recommendation 1994 1995 1996 1997 1998 1999 Total Change in FTEs ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ DOE01*: cbe cbe cbe cbe cbe cbe cbe 0 DOE02*: cbe cbe cbe cbe cbe cbe cbe 0 DOE03: 0.0 -60.0 -90.0 -120.0 -150.0 -150.0 -570.0 1,000 DOE04: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 DOE05: n/a n/a n/a n/a n/a n/a n/a 0 DOE06: 0.0 -445.0 -445.0 -420.0 -420.0 -420.0 -2,150.0 0 DOE07: 0.0 -72.0 -10.0 -10.0 -10.0 -10.0 -112.0 0 DOE08: 0.0 -3.9 -4.0 -4.1 -4.2 -4.3 -20 -35 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Total 0.0 -580.9 -549.0 -554.1 -584.2 -584.3 -2,852 965 Change in Outlays by Fiscal Year (Dollars in Millions) ****************************************************** Recommendation 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ DOE01*: cbe cbe cbe cbe cbe cbe cbe DOE02*: cbe cbe cbe cbe cbe cbe cbe DOE03: 0.0 -36.0 -78.0 -108.0 -138.0 -138.0 -498.0 DOE04: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE05*: n/a n/a n/a n/a n/a n/a n/a DOE06: 0.0 -311.5 -431.7 -427.5 -420.7 -420.0 -2,011.4 DOE07: 0.0 -37.0 -10.0 -10.0 -10.0 -10.0 -77.0 DOE08: 0.0 -3.8 -3.9 -4.1 -4.2 -4.2 -20.2 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Total 0.0 -388.3 -523.6 -549.6 -572.9 -572.2 -2,606.6 * NPR expects that there will be substantial fiscal benefits, some being indirect. Nevertheless, no specific estimates are presently available. cbe - cannot be estimated n/a - not appliable Change in Revenues by Fiscal Year (Dollars in Millions) ******************************************************* Recommendation 1994 1995 1996 1997 1998 1999 Total ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ DOE01: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE02: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE03: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE04: 60.0 148.0 792.0 814.0 882.0 905.0 3,601.0 DOE05*: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE06: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE07: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DOE08: 0.0 -10.5 -10.6 -10.4 -10.5 -10.5 -52.5 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Total 60.0 137.5 781.4 803.6 871.5 894.5 3,548.5 Appendix ******** Accompanying Reports of the National Performance Review ***************************************************** Governmental Systems Changing Internal Culture Abbr. ************************* **** Creating Quality Leadership and Management QUAL Streamlining Management Control SMC Transforming Organizational Structures ORG Improving Customer Service ICS Reinventing Processes and Systems ********************************* Mission-Driven, Results-Oriented Budgeting BGT Improving Financial Management FM Reinventing Human Resource Management HRM Reinventing Federal Procurement PROC Reinventing Support Services SUP Reengineering Through Information Technology IT Rethinking Program Design DES Restructuring the Federal Role ****************************** Strengthening the Partnership in Intergovernmental Service Delivery FSL Reinventing Environmental Management ENV Improving Regulatory Systems REG Agencies and Departments Abbr. ************************ ***** Agency for International Development AID Department of Agriculture USDA Department of Commerce DOC Department of Defense DOD Department of Education ED Department of Energy DOE Environmental Protection Agency EPA Executive Office of the President EOP Federal Emergency Management Agency FEMA General Services Administration GSA Department of Health and Human Services HHS Department of Housing and Urban Development HUD Intelligence Community INTEL Department of the Interior DOI Department of Justice DOJ Department of Labor DOL National Aeronautics and Space Administration NASA National Science Foundation/Office of Science and Technology Policy NSF Office of Personnel Management OPM Small Business Administration SBA Department of State/ U.S. Information Agency DOS Department of Transportation DOT Department of the Treasury/ Resolution Trust Corporation TRE Department of Veterans Affairs DVA