Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) process for allocating energy research and development (R&D) funds, focusing on: (1) how DOE prioritized and coordinated funding requests among R&D program areas; (2) how DOE priorities have evolved over the past 10 years; (3) how DOE distributed R&D funding; and (4) the extent to which DOE has invested in major demonstration projects over the past 10 years.

GAO found that: (1) Office of Management and Budget (OMB) budget targets and the DOE budget process determined how DOE allocated R&D funds; (2) DOE used budget guidance and general policy statements to determine its program funding priorities; (3) DOE was planning to complete a national energy strategy by December 1990; (4) OMB budget targets have played an important role in reducing program funds for applied technology; (5) DOE primarily coordinated its R&D agenda through the analysis of energy and program areas; (6) over the past 10 years, DOE R&D priorities have shifted from energy technology program areas and renewable R&D to basic energy program areas; (7) from 1980 to 1990, energy technology program areas decreased 45 percent and basic energy program areas increased over 140 percent; (8) from fiscal year (FY) 1983 to FY 1990, congressional appropriations for the energy technology areas influenced priorities because they were greater than DOE requested; (9) over the past 10 years, basic research and applied research funds have increased, while development funds have decreased; and (10) from FY 1975 through FY 1990, DOE invested over $6 million for 41 demonstration projects, of which 15 were terminated for various reasons, 9 were completed, and 17 were ongoing.