Budget and Spending:

The Tertiary Incentive Program Was Poorly Designed and Administered

EMD-81-147: Published: Sep 29, 1981. Publicly Released: Oct 30, 1981.

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In response to a congressional request, GAO examined the Department of Energy's (DOE) tertiary incentive program to determine: (1) the total number of certifications DOE received for tertiary recovery projects during the 2 months prior to and following the President's January 28, 1981, decontrol order; (2) the amount of expenses producers recouped during this 4 month period; (3) the resources DOE allocated to monitor this program to ensure against abuse; (4) the efforts DOE made to determine the costs and benefits of this program; and (5) the ruling DOE issued concerning the impact of decontrol on the program.

From the start of the program until its termination, the DOE Economic Regulatory Administration (ERA) received 423 certifications for new tertiary oil recovery projects. DOE received 54 certifications during the 2 months prior to decontrol and 100 during the 2 months after decontrol. According to ERA, producers claimed $965 million of allowable expenses and recouped in total about $831 million from August 21, 1979, through March 31, 1981. About 20 percent of the total $965 million allowable expenses reported were attributed to new projects certified in the final 4 months of the program. The incentive program, as designed, made it difficult for ERA to assure compliance with the program's regulations. Additionally, for monitoring the program, ERA has two compliance officers: the Office of Special Counsel and the Office of Enforcement. In July 1979, DOE issued its analysis of the potential costs and benefits of this program. DOE estimated that 40 to 60 projects would start each year; producers would recoup between $400 million and $600 million each year; and the program's benefits would be an additional 8.9 billion to 16.1 billion barrels of crude oil through 1965. Because the DOE ruling concerning the impact of decontrol on the program is currently under litigation, limited information was available.

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