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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

October 2007: 

Federal Electricity Subsidies: 

Information on Research Funding, Tax Expenditures, and Other Activities 
That Support Electricity Production: 

Federal Electricity Subsidies: 

GAO-08-102: 

Contents: 

Letter: 

Results in Brief: 

Scope and Methodology: 

Agency Comments and Our Evaluation: 

Appendix I: Briefing to the Senate Committee on Environment and Public 
Works: 

Appendix II: Comments from the Department of Energy's Power Marketing 
Liaison Office: 

GAO Comments: 

Abbreviations: 

BPA: Bonneville Power Administration: 

CBO: Congressional Budget Office: 

CREBs: Clean Renewable Energy Bonds: 

CRS: Congressional Research Service: 

DOE: Department of Energy: 

EIA: Energy Information Administration: 

FERC: Federal Energy Regulatory Commission: 

NRC: Nuclear Regulatory Commission: 

OMB: Office of Management and Budget: 

PMA: power marketing administration: 

R&D: research and development: 

RUS: Rural Utilities Service: 

SEPA: Southeastern Power Administration: 

SWPA: Southwestern Power Administration: 

Treasury: Department of the Treasury: 

TVA: Tennessee Valley Authority: 

USDA: Department of Agriculture: 

WAPA: Western Area Power Administration: 

United States Government Accountability Office: 

Washington, DC 20548: 

October 26, 2007: 

The Honorable Thomas Carper: 
Chairman: 
Subcommittee on Clean Air and Nuclear Safety: 
Committee on Environment and Public Works: 
United States Senate: 

The Honorable Lamar Alexander: 
Ranking Member: 
Subcommittee on Public Sector Solutions to Global Warming, Oversight, 
and Children's Health Protection: 
Committee on Environment and Public Works: 
United States Senate: 

Electricity is vital to our daily lives, powering homes, businesses, 
and industries. Presently, electricity is generated largely by coal and 
other fossil fuels and nuclear power, with hydropower, and, to a lesser 
extent, renewable energy sources, such as wind. Because of 
electricity's importance to producers, consumers, and businesses, the 
federal government has undertaken a wide range of programs to develop 
the electricity sector, which includes fuel suppliers, electric 
utilities, and others in the electricity industry. These programs have 
sought to, among other things, develop the nation's electrical 
infrastructure, influence the types of fuels used to produce 
electricity, increase the use of renewable energy, and limit the 
harmful effects of electricity production. 

These programs are financed through federal subsidies, broadly defined 
as payments made or benefits provided by the federal government to 
encourage certain desired activities or behaviors. For example, the 
federal government has, for many years, funded research and development 
(R&D) on fossil fuels, nuclear energy, renewable energy, other energy 
technologies, and related efforts through the Department of Energy 
(DOE). In addition, the federal government has provided favorable tax 
treatment, such as tax credits to companies that make certain types of 
energy investments. These tax preferences--which are legally known as 
tax expenditures--result in forgone revenue for the federal government. 
The revenue losses can be viewed as spending channeled through the tax 
system. 

As requested, we are providing information on (1) federal funding DOE 
receives for electricity-related R&D, including funding by type of 
fuel; (2) tax expenditures the federal government provides to subsidize 
electricity production, including expenditures by type of fuel; and (3) 
other ways the federal government subsidizes electricity. As discussed 
with your offices, we examined federal electricity-related subsidies 
over a 6-year period, from fiscal year 2002 through fiscal year 2007. 

On September 6, 2007, we provided your offices with a briefing on the 
results of this review, including our scope and methodology. This 
report transmits the briefing slides, which are reprinted as appendix 
I.[Footnote 1] 

Results in Brief: 

We estimate that DOE's appropriations for electricity-related R&D, 
adjusted for inflation, totaled $11.5 billion from fiscal year 2002 
through fiscal year 2007.[Footnote 2] These appropriations grew by 35 
percent during the 6-year period we examined, increasing from $1.6 
billion in fiscal year 2002 to $2.2 billion in fiscal year 2007. 
Funding for DOE's electricity-related R&D by fuel type (nuclear, fossil 
fuel, and renewables) include the following programs: 

* Nuclear programs. Nuclear programs received the largest share of 
electricity-related R&D funding, with appropriations totaling $6.2 
billion from fiscal year 2002 through fiscal year 2007. Appropriations 
for nuclear programs grew by 59 percent, increasing from $775 million 
in fiscal year 2002 to $1.2 billion in fiscal year 2007. The greatest 
variation in funding within these programs occurred in the 
environmental cleanup program, which funds the cleanup of sites 
contaminated by nuclear research. Funding for this program increased 
from $168 million in fiscal year 2002 to $462 million in fiscal year 
2005, before declining to $350 million in fiscal year 2007. Other 
nuclear energy programs include research on fusion energy and the 
Advanced Fuel Cycle Initiative, which seeks to reduce nuclear fuel 
waste requiring geologic disposal. 

* Fossil fuel programs. Fossil fuel programs were appropriated $3.1 
billion in electricity-related R&D funding from fiscal year 2002 
through fiscal year 2007. Appropriations for these programs were 
relatively constant during the 6-year period we examined. 
Appropriations totaled $531 million in fiscal year 2002, peaked at $574 
million in fiscal year 2004, and then returned to $531 million in 
fiscal year 2007. Most of the funding variation within these programs 
was due to the Clean Coal Power Initiative, which is aimed at 
accelerating the deployment of advanced technologies to reduce air 
emissions and other pollutants from coal-burning power plants. Funding 
for the Clean Coal Power Initiative decreased from $210 million in 
fiscal year 2004 to $62 million in fiscal year 2005, before increasing 
to $75 million in fiscal year 2007. Other significant fossil fuel 
energy programs include the fuels and power systems program, which 
provides research funding aimed at reducing coal-burning power plant 
carbon emissions, and the FutureGen program, which focuses on the 
technical capability of coproducing electricity and hydrogen with near- 
zero emissions. 

* Renewable programs. Renewable programs were appropriated $1.4 billion 
in electricity-related R&D funding from fiscal year 2002 through fiscal 
year 2007. During this period, appropriations for these programs grew 
by 23 percent, increasing from $248 million in fiscal year 2002 to $305 
million in fiscal year 2007. Variations in funding were primarily 
attributable to funding for the Solar program, which makes up the 
largest share of renewable program funding. Here, funding more than 
doubled between fiscal year 2006 and 2007, rising from $99 million to 
$203 million. Other renewable energy programs include wind, biomass, 
and geothermal programs. The hydrogen R&D program was not included in 
our analysis as hydrogen primarily is used as an alternative fuel for 
transportation. 

Based on our review of the Department of the Treasury (Treasury) 
estimates, the sum of revenue loss estimates associated with tax 
expenditures specifically related to electricity totaled $18.2 billion 
from fiscal year 2002 to fiscal year 2007.[Footnote 3] Over this 
period, revenue loss estimates associated with these tax expenditures 
increased by 88 percent, growing from $2.2 billion to $4.1 billion 
annually. Electricity-related tax expenditures by type of fuel include 
the following: 

* Fossil fuels. Fossil fuels received the largest share of electricity- 
related tax expenditures. We estimate that tax expenditures to support 
electricity production from fossil fuels totaled $13.7 billion from 
fiscal year 2002 through fiscal year 2007. Revenue loss estimates 
associated with these tax expenditures grew by 43 percent during the 6- 
year period we reviewed, increasing from $1.9 billion in fiscal year 
2002 to $2.7 billion in fiscal year 2007. These revenue loss estimates 
stemmed from 12 different tax expenditures. The largest tax expenditure 
supporting electricity production from fossil fuels was the alternative 
fuel production credit, which Treasury estimated at $2.1 billion for 
fiscal year 2007.[Footnote 4] 

* Renewables. We estimate that tax expenditures to support electricity 
production from renewable sources totaled $2.8 billion from fiscal year 
2002 through fiscal year 2007. Revenue loss estimates associated with 
these tax expenditures grew by 232 percent during the 6-year period we 
reviewed, increasing from $238 million in fiscal year 2002 to $790 
million in fiscal year 2007. These revenue loss estimates stemmed from 
three tax expenditures--Clean Renewable Energy Bond tax credits, 
exclusion of interest on energy facility bonds, and the new technology 
tax credit for renewable electricity production and renewable energy 
investment. The new technology credit, which reduces the cost of 
electricity generation from wind, geothermal, and solar energy, is the 
largest tax expenditure directed at renewable electricity production. 
Revenue loss estimates for this tax credit totaled $690 million in 
fiscal year 2007. 

* Nuclear. We did not identify tax expenditures directed at nuclear 
power production during the 6-year period we examined. A key tax 
expenditure directed at nuclear power production, the advanced nuclear 
power facilities production tax credit, was enacted in the 2005 Energy 
Policy Act. However, this tax credit has not been used because no 
nuclear power plant has been built recently. 

As requested, we also identified a number of other potential federal 
government subsidies of electricity production. However, as discussed 
with your staff during our briefing, additional work would be required 
in order to determine the extent to which these activities are 
subsidies and to develop reasonable estimates. Among these: 

* The federal government provides low-cost financing to federal power 
entities. For example, the power marketing administrations 
(PMA)[Footnote 5] other than the Bonneville Power Administration (BPA) 
finance capital expenditures through federally appropriated debt. While 
PMAs repay appropriated debt to Treasury with interest, financing 
subsidies may exist if Treasury's cost of funds is greater than the 
interest rates on PMA-appropriated debt. Critics also have noted the 
rates, terms, and conditions of PMA debt may be preferential when 
compared to market rates, terms, and conditions. 

* The Department of Agriculture's (USDA) Rural Utilities 
Service[Footnote 6] provides loans and loan guarantees to rural 
electric cooperatives at low rates. Authorized amounts of these 
electricity loans and loan guarantees totaled $21.9 billion from fiscal 
year 2002 to fiscal year 2006. 

* The federal government, through the Price-Anderson Act, limits 
nuclear plant operator liability for accidents. This may be considered 
a subsidy because it could reduce insurance coverage needs and related 
insurance costs for nuclear plant operators. 

Scope and Methodology: 

To estimate the federal funding DOE has received for electricity- 
related R&D, we conducted detailed reviews of DOE's R&D budget 
documents and included prior year balances and transfers from other 
agencies in our analysis, as well as funding for nuclear fusion energy, 
considered basic research by some. We also used Energy Information 
Administration (EIA) data on the types, amounts, and percentage of 
fuels used to produce electricity to estimate DOE's electricity-related 
R&D spending by fuel type. We discussed our allocation methodology with 
EIA officials. 

To estimate the amount of tax expenditures the federal government 
provides to subsidize electricity production, we reviewed Treasury's 
tax expenditure data and identified specific electricity-related tax 
expenditures. We excluded broad tax expenditures available to most 
businesses. We used Treasury revenue loss estimates to determine the 
costs of these tax expenditures from fiscal year 2002 through fiscal 
year 2007. We also used EIA data on the types, amounts and percentage 
of fuels used to produce electricity to assign the electricity-related 
portion of these tax expenditure estimates by fuel type. We also 
reviewed our allocation methodology with EIA officials and staff in 
Treasury's Office of Tax Analysis. 

To identify other ways the federal government subsidizes electricity, 
we reviewed relevant reports and studies prepared by GAO and other 
federal agencies including the Congressional Budget Office, the 
Congressional Research Service, and EIA. We reviewed studies by trade 
associations and nongovernmental groups. We interviewed relevant 
federal agency staff and other experts at trade associations and non- 
governmental groups. We conducted limited reviews of activities at the 
PMAs, the Tennessee Valley Authority, and USDA. In addition, we 
identified measures to calculate net federal financing support for loan 
and loan guarantee programs. 

Several limitations apply to our review, including: 

* We did not analyze subsidies related to electricity end use or 
consumption, such as those designed to promote energy efficiency and 
conservation or to provide low-income energy assistance. 

* We did not gather data on possible electricity-related R&D funding by 
federal agencies other than DOE. 

* We did not audit or verify data provided by agencies. We determined 
that DOE budget data were sufficiently reliable to provide useful 
information about the agency's electricity-related R&D funding. 

* Although we present the tax expenditure estimates in aggregate and 
the sums are reliable as a gauge of general magnitude, they do not take 
into account interactions between individual provisions. We determined 
that Treasury's list of tax expenditures and revenue loss estimates 
were sufficiently reliable to provide perspective on electricity- 
related tax programs. 

* We did not attempt to determine the market value of electricity- 
related subsidies. 

We conducted this performance audit from April 2007 through September 
2007 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Department of Agriculture, 
the Department of Energy, the Department of the Treasury, the Nuclear 
Regulatory Commission, and the Tennessee Valley Authority for review 
and comment. We received technical comments from the Department of 
Agriculture, the Department of Energy, the Department of the Treasury 
and the Nuclear Regulatory Commission, which we incorporated as 
appropriate. We received written comments from the Department of 
Energy's Power Marketing Liaison Office, which represents the 
Southeastern Power Administration, Southwestern Power Administration, 
and Western Area Power Administration. These comments generally address 
methodologies used in previous GAO reports and technical comments on 
the briefing slides. These comments and our evaluation are in appendix 
II. 

We will send copies of this report to the appropriate congressional 
committees; interested Members of Congress; the Secretaries of 
Agriculture, Energy, and the Treasury; the Chairman of the Nuclear 
Regulatory Commission; the Tennessee Valley Authority's board of 
directors; and other interested parties. We also will make copies 
available to others on request. In addition, the report will be 
available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

Should you or your staffs have any questions on the matters discussed 
in this report, please contact Mark Gaffigan at (202) 512-3841 or 
gaffiganm@gao.gov, or Jeanette Franzel at (202) 512-9406 or 
franzelj@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs can be found on the last page of this 
report. 

Key contributors to this report were Marcia Carlsen, Daniel Egan, 
Philip Farah, Brenna Guarneros, Carol Henn, Steve Lowrey, Jon 
Ludwigson, Tim Minelli, Mehrzad Nadji, Alison O'Neill, Glenn Slocum, 
MaryLynn Sergent, Anne Stevens, and Barbara Timmerman. 

Signed by: 

Mark Gaffigan: 

Acting Director, Natural Resources and Environment: 

and: 

Jeanette Franzel: 

Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Briefing to the Senate Committee on Environment and Public 
Works: 

Federal Electricity Subsidies: 

Briefing to the Senate Committee on Environment and Public Works: 

September 6, 2007: 

Note: Slides updated to reflect technical comments received by DOE, 
USDA and NRC in October 2007. 

Background: 

Subsidies Represent the Provision of Benefits to a Group: 

Subsidies are broadly defined as payments or benefits provided to 
encourage certain desired activities or behaviors. 

In budget terms, subsidies are a payment or benefit made by the federal 
government where the benefit exceeds the cost to the beneficiary. 

Types of subsidies can include: 

Preferential provisions in the tax code (e.g., tax credits, deductions, 
special tax rates, or deferrals) referred to as tax expenditures. 

Provision of loans, goods, and services to the public at prices lower 
than market value. These include interest subsidies.[Footnote 7] 
Subsidies are often provided to implement federal policy, such as to 
encourage development or use of specific technologies. 

In some cases, such as research and development (R&D), subsidies may be 
provided well in advance of desired activities or behaviors. 

Background: 

Table: 

Phase: Fuel exploration and extraction; 
Examples of federal subsidies: 
* Tax treatment of geological and geophysical expenditures; 
* Capital gains treatment of royalties on coal.

Phase: Power generation; 
Examples of federal subsidies: 
* Tax credits for renewable electricity production; 
* Department of Energy (DOE) R&D funding on advanced generation 
technologies. 

Phase: Power transmission and distribution; 
Examples of federal subsidies: 
* USDA Rural Development loans and loan guarantees for capital 
expenses. 

Phase: End use; 
Examples of federal subsidies: 
* Tax credits for the purchase of energy efficient appliances; 
* DOE Weatherization Assistance Program. 

Phase: Environmental, health, and safety; 
Examples of federal subsidies: 
* Partial expensing for advanced mine safety equipment; 
* Liability limits for nuclear power plant accidents. 

Background: 

Figure: 2005 Generation Mix Dominated by Fossil Fuels and Nuclear: 

This figure is a pie chart. 

Coal: 50%; 
Natural Gas: 19%; 
Oil: 3%; 
Nuclear: 19%; 
Hydroelectric: 6%; 
Other Renewable: 2%; 
Other: 1%. 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by the Energy Information 
Administration.

Note:  Total individual slices may not total 100% due to individual 
rounding. 

[End of figure] 

Figure: Electricity Generation Continues to Rise: 

This figure is a bar chart showing electricity generation rising. The X 
axis represents the years 1994 through 2005. The Y axis represents Net 
Generation (1,000 Megawatt-hours). 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by the Energy Information 
Administration. 

[End of figure] 

Objectives: 

1. How much federal funding has DOE received for electricity- related 
R&D, including funding by type of fuel? 

2. How much does the federal government provide in the form of tax 
expenditures to subsidize electricity, including tax expenditures by 
type of fuel? 

3. In what other ways does the federal government subsidize electricity?

Scope and Methodology: 

Reviewed relevant reports and studies: 
Prior GAO reports, 
Federal agency reports (CBO, CRS, EIA), 
Studies by trade associations and nongovernmental groups; 

Interviewed key experts, 
Federal agency staff (EIA, CBO, CRS, BPA, Treasury, TVA, USDA, NRC), 
Experts at key trade associations and nongovernmental groups, 

Conducted detailed reviews of: 
DOE R&D budgets,
Treasury tax expenditure data, 

Developed estimates of how much of the subsidies were electricity-
related based on EIA data. Conducted limited reviews of activities at 
PMAs, TVA, and USDA. Identified measures to calculate net federal 
financing support for: 
Loan and loan guarantee programs and federal power programs, 
Subsidies stemming from programs and laws related to nuclear power, 
Consulted with EIA on related ongoing work (expected November 2007). 

All amounts reported are adjusted for inflation utilizing 2007 as the 
base year. 

Our work was completed from April 2007 through September 2007 according 
to generally accepted government auditing standards. 

Limitations: 

We analyzed federal electricity subsidies from fiscal year 2002 to 
fiscal year 2007, and our analysis does not include subsidies before 
fiscal year 2002 or projected to occur after fiscal year 2007. 

We did not analyze subsidies related to electricity end use or 
consumption such as energy efficiency, conservation, and low-income 
energy assistance in the scope of our work. 

Due to limited time frame, we did not gather data on possible 
electricity- related R&D funding by federal agencies other than DOE. 

Department of Defense, the National Aeronautics and Space 
Administration, and the Department of Commerce, 

Our R&D funding analysis included prior year balances and transfers 
from other agencies noted in DOE appropriation documents. 

We also included DOE R&D funding for fusion energy, considered basic 
research by some, under nuclear power. 

Where data were available, we analyzed federal electricity subsidies 
based on the cost to the federal government to provide them. We did not 
attempt to determine the market value of subsidies. 

We did not audit or verify data provided by the agencies. We determined 
that DOE budget data were sufficiently reliable to provide useful 
information about the agency’s electricity-related R&D funding. 

Although we present tax expenditure estimates in the aggregate and the 
sums are reliable as a gauge of general magnitude, they do not take 
into account interactions between individual provisions. As a rule, we 
excluded broad tax expenditures available to most businesses. 

We did not evaluate whether subsidies occur in federal policies such as 
the royalty treatment of resource extraction on federal land, charges 
for the use of federally- owned resources (such as land that is used 
for hydropower generation), and differential treatment of electric 
power generation plants with respect to pollution control. We also did 
not review possible subsidies related to trust fund liabilities of 
several funds, such as the Abandoned Mine Reclamation Fund and the 
Black Lung Liability Fund. (See GAO, Renewable Energy: Wind Power’s 
Contribution to Electric Power Generation and Impact on Farms and 
Communities, GAO-04-756 (Washington, D.C.: Sept. 3, 2004) for a fuller 
discussion of the potential hidden subsidies stemming from 
environmental and health costs.) 

Results in Brief: 

For electricity-related R&D, we estimate, 

DOE received $11.5 billion (2007 dollars) in funding from FY2002 to 
FY2007. 
Funding grew by 35 percent from FY2002 to FY2007. 
Funding spread across several fuels: about $6.2 billion was provided to 
nuclear, $3.1 billion to fossil fuels, and $1.4 billion to renewables. 

For electricity-related tax expenditures, we estimate, 
Tax expenditures totaled $18.2 billion (2007 dollars) from FY2002 to 
FY2007. 
Grew by 88 percent from FY2002 to FY2007. 
Tax expenditures largely go to fossil fuels: about $13.7 billion was 
provided to fossil fuels and $2.8 billion to renewables. 
We did not include the credit for production from advanced nuclear 
power facilities because there is no current revenue loss from the 
credit as advanced nuclear facilities have yet to be constructed. 

Federal loan and loan guarantees, preferred borrowing, and other 
activities may also subsidize electricity. 

Research and Development: 

DOE Electricity-Related R&D Funding Totals $11.5 Billion (2007 dollars) 
from FY2002 to FY2007 and Increased by About 35% over this Period: 

We estimate that DOE electricity-related R&D funding totaled $11.5 
billion from FY2002 to FY2007. 
Nuclear: $6.2 billion, 
Fossil Fuels: $3.1 billion, 
Renewables: $1.4 billion, 
Transmission: $0.7 billion, 
(Amounts for nuclear, fossil fuels, renewables and transmission do not 
add up to $11.5 billion due to rounding.)

R&D funding across all fuel types increased by 35% from FY2002 through 
FY2007, from $1.6 billion to $2.2 billion, respectively. 
Nuclear: $775 million to $1,235 million (59% increase), 
Fossil Fuel: $531 million in 2002 and 2007 (0% increase), 
Renewable: $248 million to $305 million (23% increase)[Footnote 8] 
* Solar: increased from $126 million to $203 million (60% increase), 
* Geothermal: decreased from $36 million to $6 million (84% decrease), 

Research and Development: 

DOE Funding for Electricity-Related R&D Increased 35% from FY2002 to 
FY2007 (in 2007 dollars): 

Figure: DOE Funding for Electricity-Related R&D Increased 35% from 
FY2002 to FY2007 (in 2007 dollars): 

This figure is a bar chart showing DOW funding for electricity-related 
R&D increased 35% from FY2002 to FY2007. The X axis represents the 
years 2002 through 2007. The Y axis represents DOE Appropriations ($ 
Millions). 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by DOE. 

[End of figure] 

Table: Research and Development: DOE Electricity-Related Funding Varied 
Widely across Fuels in FY2007: 

Fuel Sources and Transmission: Fossil; 
Types of Fuels: Coal; 
Total Energy Subsidies ($ Millions)[A]: $572.8; 
Percent Used for Electricity: 91.9%; 
Net Electricity Subsidies ($ Millions): $526.5; 
Electricity Generation- Megawatt- Hours: 1,955.7. 

Fuel Sources and Transmission: Fossil; 
Types of Fuels: Oil; 
Total Energy Subsidies ($ Millions)[A]: $3.6; 
Percent Used for Electricity: 2.3%; 
Net Electricity Subsidies ($ Millions): $0.1; 
Electricity Generation- Megawatt- Hours: 98.7. 

Fuel Sources and Transmission: Fossil; 
Types of Fuels: Natural Gas; 
Total Energy Subsidies ($ Millions)[A]: $16.1; 
Percent Used for Electricity: 25.4%; 
Net Electricity Subsidies ($ Millions): $4.1; 
Electricity Generation- Megawatt- Hours: 643.6. 

Fuel Sources and Transmission: Nuclear; 
Types of Fuels: Nuclear; 
Total Energy Subsidies ($ Millions)[A]: $1,235.3; 
Percent Used for Electricity: 100.0%; 
Net Electricity Subsidies ($ Millions): $1,235.3; 
Electricity Generation- Megawatt- Hours: 780.3. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Hydrogen; 
Total Energy Subsidies ($ Millions)[A]: $246.1; 
Percent Used for Electricity: 0.0%; 
Net Electricity Subsidies ($ Millions): $0.0; 
Electricity Generation- Megawatt- Hours: 0.0. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Biomass; 
Total Energy Subsidies ($ Millions)[A]: $253.9; 
Percent Used for Electricity: 13.3%; 
Net Electricity Subsidies ($ Millions): $33.9; 
Electricity Generation- Megawatt- Hours: 23.3. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Solar; 
Total Energy Subsidies ($ Millions)[A]: $202.6; 
Percent Used for Electricity: 100.0%; 
Net Electricity Subsidies ($ Millions): $202.6; 
Electricity Generation- Megawatt- Hours: 0.6. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Wind; 
Total Energy Subsidies ($ Millions)[A]: $62.7; 
Percent Used for Electricity: 100.0%; 
Net Electricity Subsidies ($ Millions): $62.7; 
Electricity Generation- Megawatt- Hours: 15.9. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Geothermal; 
Total Energy Subsidies ($ Millions)[A]: $6.4; 
Percent Used for Electricity: 91.0%; 
Net Electricity Subsidies ($ Millions): $5.8; 
Electricity Generation- Megawatt- Hours: 14.6. 

Fuel Sources and Transmission: Renewable; 
Types of Fuels: Hydropower; 
Total Energy Subsidies ($ Millions)[A]: $0.0; 
Percent Used for Electricity: 98.7%; 
Net Electricity Subsidies ($ Millions): $0.0; 
Electricity Generation- Megawatt- Hours: 269.9. 

Fuel Sources and Transmission: Transmission; 
Types of Fuels: All Above; 
Total Energy Subsidies ($ Millions)[A]: $137.0; 
Percent Used for Electricity: 100.0%; 
Net Electricity Subsidies ($ Millions): $137.7; 
Electricity Generation- Megawatt- Hours: [Empty]. 

Fuel Sources and Transmission: Total; 
Types of Fuels: [Empty]; 
Total Energy Subsidies ($ Millions)[A]: $2,736.6; 
Percent Used for Electricity: [Empty]; 
Net Electricity Subsidies ($ Millions): $2,208.0; 
Electricity Generation- Megawatt- Hours: [Empty]. 

Source: DOE Fiscal Year 2007 Operating Plan and EIA Annual Energy 
Review 2006. 

[A] Program management allocated on a pro rata basis to individual fuel 
types. 

[End of table] 

Research and Development: 

DOE Funding for Electricity-Related Fossil Fuel R&D Varied Slightly 
from FY2002 to FY2007 (2007 dollars):  

Figure: DOE Funding for Electricity-Related Fossil Fuel R&D Varied 
Slightly from FY2002 to FY2007 (2007 dollars):  

This figure is a bar chart showing DOE funding for electricity-related 
fossil fuel R&D Varied Slightly from FY2002 to FY 2007. The X axis 
represents the year 2002 through 2007. The Y axis represents the DOE 
appropriations ($ Millions). 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by DOE. 

[End of figure] 

Research and Development: 

DOE Funding for Electricity-Related Fossil Fuels R&D Programs in FY2007
FY2007: 

Fuel Type: Coal; 
Program: Fuels and Power Systems; 
Description: Provides research to reduce coal power plant emissions and 
improve efficiency to reduce carbon emissions; 
FY 2007 (S Millions): $385.0. 

Fuel Type: Coal; 
Program: Clean Coal Power Initiative; 
Description: Enables and accelerates deployment of advances 
technologies to ensure that the United States has clean, reliable, and 
affordable electricity; 
FY 2007 (S Millions): $74.7. 

Fuel Type: Coal; 
Program: FutureGen; 
Description: Focuses on the technical capability of coproducing 
electricity and hydrogen with near-zero atmospheric emissions; 
FY 2007 (S Millions): $66.8. 

Fuel Type: Natural Gas; 
Program: Natural Gas Technologies; 
Description: Develop technologies to locate and produce gas from 
nonconventional reservoirs; 
FY 2007 (S Millions): $4.1. 

Fuel Type: Oil; 
Program: Oil Technologies; 
Description: Develop technologies to resolve the environmental, supply, 
and reliability constraints of producing oil resources; 
FY 2007 (S Millions): 0.1. 

Total; 
Program: [Empty]; 
Description: [Empty]; 
FY 2007 (S Millions): $530.7. 

Source: GAO analysis of data provided by the DOE. 

[End of table] 

Figure: DOE Funding for Electricity-Related Nuclear R&D Increased from 
FY2002 to FY2007 (2007 dollars): 

This figure is a shaded bar chart showing DOE Funding for electricity-
related nuclear R&D increased from FY2002 to FY 2007 (2007 dollars). 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by DOE. 

[End of figure] 

DOE Funding for Electricity-Related Nuclear R&D Programs in FY2007
FY2007: 

Fuel Type: Nuclear Energy; 
Program: Environmental Cleanup; 
Description: Cleanup Complete the safe clean up of the environmental    
legacy of five decades of nuclear energy research; 
FY 2007 ($ Millions): $349.7. 

Fuel Type: Nuclear Energy; 
Program: Fusion Energy Research; 
Description: National research effort to advance the knowledge base 
needed for an economic and environmentally attractive fusion energy 
source; 
FY 2007 ($ Millions): $319.0. 

Fuel Type: Nuclear Energy; 
Program: Advanced Fuel Cycle Initiative; 
Description: Focuses on the reduction of nuclear fuel waste needing 
geologic disposal and the recovery of spent nuclear fuel energy; 
FY 2007 ($ Millions): $313.6. 

Fuel Type: Nuclear Energy; 
Program: Nuclear Power 2010; 
Description: Joint government/industry effort to identify sites for new 
nuclear power plants, develop advances standardized nuclear plant 
designs, and evaluate the business case for building new nuclear power 
plants; 
FY 2007 ($ Millions): $150.4. 

Fuel Type: Nuclear Energy; 
Program: Other Nuclear Programs; 
Description: Includes Generation IV Nuclear Energy Systems Initiative 
and the Nuclear Hydrogen Initiative; 
FY 2007 ($ Millions): $102.7. 

Total Nuclear; 
Program: [Empty]; 
Description: [Empty]; 
FY 2007 ($ Millions): $1,235.3. 

Source: GAO analysis of data provided by DOE. 

[End of table] 

Research and Development: 

Figure: DOE Funding for Electricity-Related Renewable R&D Decreased 
until FY2007 (2007 dollars): 

This figure is a bar chart showing DOE funding for electricity-related 
renewable R&D decreased until FY2007. The X axis represents the fiscal 
year, and the Y axis represents the DOE Appropriations ($ Millions). 

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by DOE. 

[End of table] 

DOE Funding for Electricity-Related Renewable R&D Programs in FY2007: 

Fuel Type: Renewable; 
Program: Solar; 
Description: Develop and accelerate the widespread commercialization of 
clean solar energy technologies; 
FY 2007 ($ Millions): $202.6. 

Fuel Type: Renewable; 
Program: Wind; 
Description: Improve wind energy technology and address barriers to the 
use of wind energy; 
FY 2007 ($ Millions): $62.7. 

Fuel Type: Renewable; 
Program: Biomass; 
Description: Develop technologies for the successful deployment of 
refineries utilizing biomass resources (plant-derived material); 
FY 2007 ($ Millions): $33.9. 

Fuel Type: Renewable; 
Program: Geothermal; 
Description: Develop the economic production of geothermal systems and 
conduct field verification tests of new technology; 
FY 2007 ($ Millions): $5.8. 

Fuel Type: Renewable; 
Program: Hydropower; 
Description: Develop advanced technology to enhance environmental 
performance and operational efficiency; 
FY 2007 ($ Millions): $0. 
 
Total Fossil Fuel; 
FY2007 ($ Millions): $305.0. 

Source: GAO analysis of data provided by DOE. 

[End of table] 

Tax Expenditures: 

Tax Expenditures are Large and Growing Support Provided to Electricity 
Production: 

We estimate electricity-related tax expenditures totaled $18.2 billion 
from FY2002 to FY2007 (2007 dollars).[Footnote 9] 

* $13.7 billion for fossil fuels; 

* $2.8 billion for renewables; 

* $1.7 billion for transmission; 

* None assigned to nuclear; 

Electricity-related tax expenditures increased from $2.2 billion to 
$4.1 billion (2007 dollars) from FY2002 to FY2007. 

* Fossil fuels: $1.9 billion to $2.7 billion (43% increase); 

* Renewables: $238 million to $790 million (232% increase); 

Many tax expenditures applied to multiple fuels. 

* We made assignments to fuels based, in part, on EIA data. 

Many electricity-related tax expenditures created since 2005, others 
extended or expanded. 

Several Key Tax Expenditures Apply to Multiple Fuels: 

Tax expenditure: New technology credit (credit for renewable 
electricity production and credit for renewable energy 
investment[Footnote 10]); 
Eligible fuels: Wind, biomass, poultry waste, geothermal, solar, small 
irrigation power, municipal solid waste, hydropower, refined coal, and 
Indian coal, plus fuel cells and microturbines. 

Tax expenditure: Alternative fuel production credit; 
Eligible fuels: Synthetic fuels produced from coal and gas produced 
from biomass.

Tax expenditure: Clean Renewable Energy Bond credit (CREBs); 
Eligible fuels: Projects may include wind facilities, closed and open 
loop biomass facilities, geothermal or solar facilities, small 
irrigation power facilities, landfill gas facilities, trash combustion 
facilities, refined coal production facilities, and certain hydropower 
facilities.

We were unable to identify sufficient criteria to allocate revenue loss 
estimates for the credit to the specific fuels and technologies. Three 
fuels—wind, geothermal, and solar energy— likely receive the bulk of 
the credit. 

Figure: Electricity-Related Tax Expenditures Increased from $2.2 
billion to $4.1 Billion from FY2002 to FY2007 (2007 dollars) Dollars in 
millions (in constant 2007 dollars): 

This figure is a shaded bar chart showing electricity-related tax 
expenditures increased from $2.2 billion to $4.1 Billion from FY2002 to 
FY2007 (2007 dollars). 

[See PDF for image] - graphic text: 

Source: GAO analysis of tax expenditure data in OMB budget reports for 
fiscal years 2004-2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. 

[End of figure] 

Figure: Electricity-related Tax Expenditures for Renewable Fuels Grew 
from $238 million to $790 million from FY2002 to FY2007 (2007 dollars): 

This figure is a shaded bar chart showing electricity-related tax 
expenditures for renewable fuels grew from $238 million to $790 million 
from FY2002 to FY2007: 

[See PDF for image] - graphic text: 

Source: GAO analysis of tax expenditure data in OMB budget reports for 
fiscal years 2004-2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. 

[End of figure] 

Most CREBs Set to Finance Solar and Wind Projects: 

Table: Borrowers and Projects Receiving Initial CREB Volume Cap 
Allocations Borrower: 

Borrower: Governmental; 
Type of project: Solar: 401; 
Type of project: Wind: 99; 
Type of project: Landfill gas: 23; 
Type of project: Open-loop biomass: 1; 
Type of project: Hydropower: 8; 
Type of project: Refined coal production: 0; 
Total: 532. 

Borrower: Cooperative; 
Type of project: Solar: 33; 
Type of project: Wind: 13; 
Type of project: Landfill gas: 13; 
Type of project: Open-loop biomass: 12; 
Type of project: Hydropower: 6; 
Type of project: Refined coal production: 1; 
Total: 78. 

Total; 
Type of project: Solar: 434; 
Type of project: Wind: 112; 
Type of project: Landfill gas: 36; 
Type of project: Open-loop biomass: 13; 
Type of project: Hydropower: 14; 
Type of project: Refined coal production: 1; 
Total: 610. 

Source: Internal Revenue Service. 

Note: The national limit on CREBs is $1.2 billion of which a maximum of 
$750 million can be granted to governmental bodies. 

[End of table] 

Clean Renewable Energy Bonds (CREBs) Provide Financing for Renewable 
Energy Projects: 

The Energy Policy Act of 2005 (Pub. L. No. 109-58) authorized Treasury 
to allocate an $800 million volume cap in tax credit bonds to fund 
projects that can generate clean renewable energy. 

Electric cooperatives and state and local governmental bodies have the 
ability to issue CREBs. 

In November 2006, IRS reported that 610 projects for state and local 
governmental and electrical cooperative borrowers will receive 
authority to issue tax credit bonds under the CREBs program. 

The Tax Relief and Health Care Act of 2006 (Pub. L. No. 109-432) 
increased the volume cap for CREBs to $1.2 billion and extended the 
program until December 31, 2008. 

Tax credit bonds provide a greater subsidy than state and local 
government tax-exempt (municipal) bonds because the issuer does not pay 
interest. 

Figure: Electricity-related Tax Expenditures for Fossil Fuels Grew from 
$1.9 billion to over $2.7 billion from FY2002 to FY2007 (2007 dollars): 

This figure is a shaded bar chart showing Electricity-related Tax 
Expenditures for Fossil Fuels Grew from $1.9 billion to over $2.7 
billion from FY2002 to FY2007 (2007 dollars). The X axis is the fiscal 
year, and the Y axis represents the dollars in millions (in constant 
2007 dollars). 

[See PDF for image] - graphic text: 

Source: GAO analysis of tax expenditure data in OMB budget reports for 
fiscal years 2004-2008. 

Note: Summing tax expenditures estimates does not take into account 
interactions between individual provisions. 

[End of figure] 
 
Figure: Tax Expenditures for Fuels Used for Electricity Production, 
FY2007 For fiscal year 2007: 

This figure is a shaded bar chart with text showing tax expenditures 
for fuels used for electricity production FY2007 for fiscal year 2007. 
The X axis represents the Fiscal year 2007. The Y axis represents 
dollars in millions. 

For fiscal year 2007, we identified 15 tax expenditures available to 
electricity E producers, with revenue losses totaling $5.8 billion. 

We allocated $3.5 billion of these tax expenditures to specific fuel 
sources used to produce electricity ($2.7 billion for fossil fuels and 
$0.8 billion for renewables) based on EIA data.

Deferral of gain from dispositions of transmission .($0.5 billion in 
revenue losses) benefits property electricity producers, but we could 
not allocate to specific fuel sources. 

The remaining $1.7 billion we could not assign to electricity producers 
or their fuel choices.

Source: GAO analysis of tax expenditure data in OMB budget reports for 
fiscal years 2004-2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. 

[End of figure] 

Table: GY 2007 Electricity-Related Tax Expenditure Estimates: 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for holding clean renewable energy bonds (CREBs); 
Tax expenditure estimate: $60; 
Assigned to electricity: $60. 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for investment in clean coal (power generation) facilities; 
Tax expenditure estimate: $30; 
Assigned to electricity: $27. 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for alternative fuel production; 
Tax expenditure estimate: $2,370; 
Assigned to electricity: $2,095. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exclusion of interest on energy facility bonds; 
Tax expenditure estimate: $40; 
Assigned to electricity: $40. 

Tax expenditure related to electricity production in fiscal year 2007: 
New technology credit; 
Tax expenditure estimate: $690; 
Assigned to electricity: $690. 

Tax expenditure related to electricity production in fiscal year 2007: 
Amortize all geological and geophysical expenditures over 2 years; 
Tax expenditure estimate: $60; 
Assigned to electricity: $16. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exception from passive loss limitation for working interests in oil and 
gas properties; 
Tax expenditure estimate: $30; 
Assigned to electricity: $6. 

Tax expenditure related to electricity production in fiscal year 2007: 
Excess of percentage over cost depletion, fuels; 
Tax expenditure estimate: $790; 
Assigned to electricity: $160. 

Tax expenditure related to electricity production in fiscal year 2007: 
Expensing of exploration and development costs, fuels; 
Tax expenditure estimate: $860; 
Assigned to electricity: $224. 

Tax expenditure related to electricity production in fiscal year 2007: 
Natural gas distribution pipelines treated as 15-year property; 
Tax expenditure estimate: $50; 
Assigned to electricity: $15. 

Tax expenditure related to electricity production in fiscal year 2007: 
Partial expensing for advanced mine safety equipment; 
Tax expenditure estimate: $10; 
Assigned to electricity: $9. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exclusion of special benefits for disabled coal miners; 
Tax expenditure estimate: $50; 
Assigned to electricity: $44. 

Tax expenditure related to electricity production in fiscal year 2007: 
Capital gains treatment of royalties on coal; 
Tax expenditure estimate: $170; 
Assigned to electricity: $150. 

Tax expenditure related to electricity production in fiscal year 2007: 
Temporary 50% expensing for equipment used in the refining of liquid 
fuels; 
Tax expenditure estimate: $30; 
Assigned to electricity: $1. 

Tax expenditure related to electricity production in fiscal year 2007: 
Deferral of gain from dispositions of transmission property to 
implement Federal Energy Regulatory; 
Tax expenditure estimate: $530; 
Assigned to electricity: $530. 

Tax expenditure related to electricity production in fiscal year 2007:  
Commission (FERC) restructuring policy; 
Tax expenditure estimate: [Empty]; 
Assigned to electricity: [Empty]. 

Sum of tax expenditure revenue loss estimates;  
Tax expenditure estimate: $5,770; 
Assigned to electricity: $4,067. 

Source: GAO analysis of tax expenditure data in OMB budget report for 
fiscal year 2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. 

[End of table] 

Table: FY2007 Electricity Related Tax Expenditure Estimates by Fuel 
Source: 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for holding clean renewable energy bonds (CREBs); 
Assigned to electricity: Fossil Fuel: $0; 
Assigned to electricity: Renewables: $60; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $60. 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for investment in clean coal (power generation) facilities; 
Assigned to electricity: Fossil Fuel: $27; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $27. 

Tax expenditure related to electricity production in fiscal year 2007: 
Credit for alternative fuel production; 
Assigned to electricity: Fossil Fuel: $2,095; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $0. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exclusion of interest on energy facility bonds; 
Assigned to electricity: Fossil Fuel: $0; 
Assigned to electricity: Renewables: $40; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $40. 

Tax expenditure related to electricity production in fiscal year 2007: 
New technology credit; 
Assigned to electricity: Fossil Fuel: $0; 
Assigned to electricity: Renewables: $690; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $690. 

Tax expenditure related to electricity production in fiscal year 2007: 
Amortize all geological and geophysical expenditures over 2 years; 
Assigned to electricity: Fossil Fuel: $16; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $16. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exception from passive loss limitation for working interests in oil and 
gas properties; 
Assigned to electricity: Fossil Fuel: $6; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $6. 

Tax expenditure related to electricity production in fiscal year 2007: 
Excess of percentage over cost depletion, fuels; 
Assigned to electricity: Fossil Fuel: $160; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $160. 

Tax expenditure related to electricity production in fiscal year 2007: 
Expensing of exploration and development costs, fuels; 
Assigned to electricity: Fossil Fuel: $224; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $224. 

Tax expenditure related to electricity production in fiscal year 2007: 
Natural gas distribution pipelines treated as 15-year property; 
Assigned to electricity: Fossil Fuel: $15; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $15. 

Tax expenditure related to electricity production in fiscal year 2007: 
Partial expensing for advanced mine safety equipment; 
Assigned to electricity: Fossil Fuel: $9; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $9. 

Tax expenditure related to electricity production in fiscal year 2007: 
Exclusion of special benefits for disabled coal miners; 
Assigned to electricity: Fossil Fuel: $44; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $44. 

Tax expenditure related to electricity production in fiscal year 2007: 
Capital gains treatment of royalties on coal; 
Assigned to electricity: Fossil Fuel: $150; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $150. 

Tax expenditure related to electricity production in fiscal year 2007: 
Temporary 50% expensing for equipment used in the refining of liquid 
fuels; 
Assigned to electricity: Fossil Fuel: $1; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $0; 
Assigned to electricity: Estimate sum: $1. 

Tax expenditure related to electricity production in fiscal year 2007: 
Deferral of gain from dispositions of transmission property to 
implement FERC restructuring policy; 
Assigned to electricity: Fossil Fuel: $0; 
Assigned to electricity: Renewables: $0; 
Assigned to electricity: Not assigned: $530; 
Assigned to electricity: Estimate sum: $530. 

Sum of tax expenditure revenue loss estimates;  
Assigned to electricity: Fossil Fuel: $2,747; 
Assigned to electricity: Renewables: $790; 
Assigned to electricity: Not assigned: $530; 
Assigned to electricity: Estimate sum: $4,067. 

Source: GAO analysis of tax expenditure data in OMB budget report for 
fiscal year 2008. 

Note: Summing tax expenditure estimates does not take into account 
interactions between individual provisions. 

[End of table]

GAO Recommended Examining Tax Expenditures alongside Related Spending 
and Reevaluating the Energy R&D Funding Mix: 

GAO has recommended that tax expenditures be considered alongside 
related spending programs in performance reviews and recommended 
developing a framework for evaluating tax expenditures.[Footnote 11] 

Review of major programs and policies, including tax expenditures, can 
help establish their relevance to today’s needs, and direct scarce 
resources to the most effective tools to deliver federal support. 

GAO has suggested that Congress consider focusing more of the R&D 
funding mix on advanced energy technologies.[Footnote 12] 

For biofuels,[Footnote 13] GAO recommended that DOE: 

* Develop a strategic approach to coordinate a range of production and 
distribution programs and policies; 

* Collaborate with Treasury in evaluating the extent to which biofuel- 
related tax expenditures are achieving their goals; 

A number of electricity-related tax expenditures enacted or expanded in 
2005 are set to expire in coming years. 

Congressional review prior to expiration could offer an opportunity to 
examine the results and consider which to keep, modify, or eliminate.

* Examine alongside related program funding. 

* Examine coordination between DOE and Treasury. 

Other Ways the Federal Government May Subsidize Electricity: 

GAO Identified Specific Areas that Would Require Additional Work to 
Evaluate: 

1. Federal government provides some federal electricity producers with 
access to low-cost financing; 

2. USDA Rural Development loans money to some electricity producers and 
sellers at low interest rates; 

3. New program at DOE could expand loan guarantees for renewables and 
nuclear; 

4. USDA electricity-related programs support electricity; 

5. DOE’s Tribal Energy Activities Program and Renewable Energy 
Production Incentives Program encourage development of renewable energy 
sources; 

6. Price-Anderson Act limits nuclear operator liability; 

7. Decontamination and decommissioning of nuclear fuel manufacturing 
facilities may result in federal costs; 

8. Construction and operation of commercial nuclear reactor waste 
storage may result in federal costs; 

Federal Government Provides Low-Cost Financing to Federal Electricity 
Producers: 

Federal entities have access to low-cost financing. 

* Power marketing administrations, PMAs) other than the Bonneville 
Power Administration (BPA) finance capital expenditures through 
federally appropriated debt repaid at various terms. 

* BPA is responsible for repaying previously appropriated debt, federal 
borrowing, and nonfederal debt related to several capital expenditures. 

- Columbia River Power System; 

- Corps of Engineers fish-related investment; 

- BPA transmission investments made prior to 1978; 

- Corps of Engineers and Bureau of Reclamation hydroelectric 
improvements; 

* The Tennessee Valley Authority finances capital expenditures through 
privately issued bonds that are highly rated due to perceived federal 
guarantee (despite notation on bonds).

Low cost of borrowing may amount to a subsidy. 

* Critics have noted these rates, terms, and conditions may be 
preferential compared to market rates, terms, and conditions. 

Methodologies to measure subsidies can produce a range of results. 

More work could be done: 

* Detailed comparison of rates, terms and conditions; 

* Identification of appropriate comparison group; 

PMA and BPA Borrowing May Constitute a Subsidy: 

PMAs and BPA use appropriated debt. 

* PMAs other than BPA receive appropriations for capital expenditures 
(called appropriated debt).

* Western Area Power Administration (WAPA), Southeastern Power 
Administration (SEPA), and Southwestern Power Administration (SWPA) use 
appropriated debt.

* BPA repays previously appropriated debt and uses other federal 
borrowing. 

- In FY1997, BPA’s appropriated debt was restructured from $6.85 
billion, with an average interest rate of 3.5 percent, to $4.1 billion, 
with an interest rate of 7.1 percent. 

- BPA estimated the present value of the principal after restructuring 
increased by $100 million.

- BPA also uses direct federal borrowing and acquires some capital 
assets via private sector lease.

Appropriated debt must be repaid with interest and outstanding 
appropriated debt may constitute a subsidy. 

* A net financing cost can exist if PMA interest rates are below 
Treasury rates. 

* As of September 30, 2006, weighted average interest rates for 
outstanding appropriated debt are: 

- SEPA 4.7%; 

- SWPA 3.2%; 

- WAPA 5.5%; 

TVA’s Implicit Federal Guarantees on Borrowed Funds May Reduce 
Borrowing Costs and Amount to a Subsidy TVA borrows from private debt 
markets. 

* TVA is authorized to issue bonds and notes in private markets. 

* Authority to issue bonds and notes is set by Congress and currently 
cannot exceed $30 billion outstanding at any given time. 

TVA bonds are highly rated due, in part, to perceived federal backing.

* Debt rating services (Standard and Poor’s, Moody’s, Fitch) give TVA 
credit their highest ratings. 

According to Standard and Poor’s, TVA’s rating “reflects the U.S. 
government’s implicit support of TVA due to its status as a wholly 
owned government corporation, despite the lack of a binding legal 
obligation, as well as the authority’s underlying business and 
financial risk.”

Figure: Federal Debt Generally Pays Favorable Rates Relative to Private 
Debt Ratings: 

This figure is a chart with text showing federal debt generally pays 
favorable rates relative to private debt ratings. 

Interest rates on federal borrowing vary: 

* BPA rates vary from 5.1% to 6.7% (average rates on all outstanding 
debt at the end of FY06 for bonds and appropriations, respectively); 

* TVA debt is rated AAA or equivalent. 

* PMAs (SEPA, SWPA, WAPA) ranged from 3.2% to 5.5% in FY2006. 

Comparison group varies: 

* Many investor-owned utilities carry debt ratings in the BBB+ to BBB 
range; 

[See PDF for image] - graphic text: 

Source: Reuters Pricing Service and [hyperlink, 
http://www.Bondsonline.com]. 

Note: Yields on 10-year U.S. Treasury and corporate utility bonds for 
July 30, 2007. Table compares current 10-year rates for Treasury bonds 
and utility debt with average interest rates for PMAs, which includes 
debt issued in many different years. IOU interest expense is tax 
deductible and this can lower their cost of borrowing. 

[End of figure] 

USDA Rural Development Lends Money to Some Electricity Producers and 
Sellers at Low Interest Rates USDA Rural Development provides loans and 
loan guarantees to rural electric cooperatives at low rates. 

* Cooperatives generally serve areas that are historically rural, but 
may now include some portions of highly populated metropolitan areas. 

Rural Development loans may provide a subsidy. 

* Rural Development interest rates may be lower than market rates. 

* Rural Development loan defaults could end up costing the federal 
government money.

Rural Development provides an estimate of the subsidy associated with 
its loans. 

* GAO has not done recent work to review Rural Development estimates or 
otherwise evaluate potential subsidies. 

More work is needed to develop robust estimates of potential subsidies.

* Detailed comparison of rates, terms and conditions of Rural 
Development loans to those available to comparable entities. 

* Identification of appropriate comparable entities. 

USDA Rural Development: 

Figure: Rural Development Provides Loans Directly and Guarantees Loans 
Made by Others: 

This figure is a chart with text showing rural development provides 
loans directly and guarantees loans made by others: 

Rural Development makes three types of direct loans for electricity 
purposes: 

* Hardship rate loans offered at a 5% interest rate; 

* Municipal rate loans offered at interest rates available in the 
municipal bond market for similar maturities (from 3.625% to 4.250% for 
third quarter Average interest rate paid 2007); 

* Treasury rate loans at interest rates 5.34% established daily by the 
United States Treasury from 4.31% to 4.88% as of August , 2007)

Rural Development guarantees loans made by others:

* Treasury’s Federal Financing Bank; 

* National Rural Utilities Cooperative Finance Corporation; 

* National Bank for Cooperatives; 

[See PDF for image] - graphic text: 

Sources: U.S. Department of Agriculture, 2005 Statistical Rural 
Electric Borrowers, IP 201-1 (Washington, D.C.: December 2006) and 
Federal Reserve Board publication of Moody’s Yield on Seasoned 
Corporate Bonds. 

[End of figure] 

Estimated Subsidy Costs of Loans and Loan Guarantees: 

Authorized amounts of Rural Development electricity loan and loan 
guarantee totaled $21.9 billion from FY2002 to FY2006. 

* Loan disbursements from these authorized funds total $14.9 billion, 
according to the most recent USDA estimates. 

* Current estimate of the subsidy cost for the disbursed portion of 
these loan and loan guarantees are $2.4 million. Sources: USDA and the 
Federal Credit Supplement and Appendix to the Administration's Fiscal 
Year 2007 and 2008 Budgets. 

New Program at DOE Could Expand Loan Guarantees for Renewables and 
Nuclear: 

Incentives for Innovative Technologies Loan Guarantee Program: 

* Authorized by the 2005 Energy Policy Act. DOE has yet to fund 
projects under this program. 

* Potentially eligible projects include renewable energy systems and 
advanced nuclear energy facilities. 

* For fiscal year 2007, Congress provided DOE with authority to issue 
guarantees for up to $4 billion in loans. 

* For fiscal year 2008, DOE requested $9 billion in loan guarantee 
authority.

GAO is required to annually review the status of this program. 

Other USDA Programs Support Electricity: 

The Farm Security and Rural Investment Act of 2002 added or augmented 
several provisions to support renewable energy, such as wind power’s 
growth, including: 

Conservation Reserve Program; 

Business and Industry Direct Loan and Loan Guarantee Program Value-
Added Agriculture Product Market Development Grants; 

Energy Audit and Renewable Energy Development Program; 

Renewable Energy Systems and Energy Efficiency Improvements; 

We reported in September 2004[Footnote 14] that many USDA stakeholders 
considered the Renewable Energy Program the key USDA program for 
promoting renewable energy sources on farms, ranches, or other rural 
lands.

Table: USDA Renewable Energy Program Dollar Amounts of Grants Offered 
and Loans Guaranteed, FY2003 to FY2006 Renewable technology: 

Renewable technology: Grant program: Wind; 
Fiscal year: 2003: $7,388,903; 
Fiscal year: 2004: $7,888,830; 
Fiscal year: 2005: $12,533,783; 
Fiscal year: 2006: $5,417,525; 
FY02-06 total: $33,277,041. 

Renewable technology: Grant program: Biomass-anaerobic digester; 
Fiscal year: 2003: $7,444,530; 
Fiscal year: 2004: $9,508,946; 
Fiscal year: 2005: $5,018,017; 
Fiscal year: 2006: $2,880,957; 
FY02-06 total: $24,854,450. 

Renewable technology: Grant program: Biomass-bioenergy; 
Fiscal year: 2003: $259,005; 
Fiscal year: 2004: $3,133,844; 
Fiscal year: 2005: $2,118,391; 
Fiscal year: 2006: $6,993,218; 
FY02-06 total: $14,774,458. 

Renewable technology: Grant program: Energy efficiency; 
Fiscal year: 2003: $1,504,252; 
Fiscal year: 2004: $1,815,262; 
Fiscal year: 2005: $1,610,429; 
Fiscal year: 2006: $4,512,936; 
FY02-06 total: $9,442,879. 

Renewable technology: Grant program: Hybrid systems; 
Fiscal year: 2003: $2,112,977; 
Fiscal year: 2004: $126,992; 
Fiscal year: 2005: $199,863; 
Fiscal year: 2006: $81,404; 
FY02-06 total: $2,521,236. 

Renewable technology: Grant program: Solar; 
Fiscal year: 2003: $725,566; 
Fiscal year: 2004: $54,822; 
Fiscal year: 2005: $661,855; 
Fiscal year: 2006: $782,396; 
FY02-06 total: $2,224,639. 

Renewable technology: Grant program: Geothermal; 
Fiscal year: 2003: $0; 
Fiscal year: 2004: $285,353; 
Fiscal year: 2005: $94,930; 
Fiscal year: 2006: $540,999; 
FY02-06 total: $921,282. 

Renewable technology: Grant program total; 
Fiscal year: 2003: $21,707,233; 
Fiscal year: 2004: $22,812,049; 
Fiscal year: 2005: $22,237,268; 
Fiscal year: 2006: $21,209,435; 
FY02-06 total: $87,965,985.

Renewable technology: Loan Program: Wind; 
Fiscal year: 2003: [Empty]; 
Fiscal year: 2004: [Empty]; 
Fiscal year: 2005: [Empty]; 
Fiscal year: 2006: $279,111; 
FY02-06 total: $279,111. 

Renewable technology: Loan Program: Biomass-anaerobic digester; 
Fiscal year: 2003: [Empty]; 
Fiscal year: 2004: [Empty]; 
Fiscal year: 2005: [Empty]; 
Fiscal year: 2006: $1,065,850; 
FY02-06 total: $1,065,850. 

Renewable technology: Loan Program: Biomass-bioenergy; 
Fiscal year: 2003: [Empty]; 
Fiscal year: 2004: [Empty]; 
Fiscal year: 2005: $10,100,000; 
Fiscal year: 2006: $22,212,821; 
FY02-06 total: $32,312,821. 

Renewable technology: Loan program: Energy efficiency; 
Fiscal year: 2003: [Empty]; 
Fiscal year: 2004: [Empty]; 
Fiscal year: 2005: [Empty]; 
Fiscal year: 2006: $601,080; 
FY02-06 total: $601,080.  

Renewable technology: Loan guarantee program total; 
Fiscal year: 2003: [Empty]; 
Fiscal year: 2004: [Empty]; 
Fiscal year: 2005: $10,100,000; 
Fiscal year: 2006: $24,158,862; 
FY02-06 total: $34,258,862.  

Source: USDA.

[End of table] 

Other Ways the Federal Government May Subsidize Electricity 

DOE’s Tribal Energy Activities Program and Renewable Energy Production 
Incentives Program Encourage Development of Renewable Energy Sources 
DOE’s Tribal Energy Activities Program helps assess Native American 
energy needs and provides technical and financial assistance for energy 
efficiency and renewable energy project developments. 

* From FY2002 to FY2007, this program received $28.7 million in funding 
(in 2007 dollars).

DOE’s Renewable Energy Production Initiatives Program provides 
financial incentive payments for renewable energy electricity produced 
and sold by qualified renewable energy generation facilities. 

* Qualifying facilities are eligible for annual incentive payments of 
1.5 cents per kilowatt-hour (1993 dollars and indexed for inflation) 
for the first 10-year period of their operation. Funds are subject to 
the availability of annual appropriations. 

* From fiscal years 2002 to 2007, this program received $29.1 million 
in funding (in 2007 dollars).

GAO has not evaluated the effectiveness of these programs. RIB

Figure: DOE Funding for Tribal Energy Activities and Renewable Energy 
Production Incentives Similar from FY2002 to FY2007 (in 2007 dollars): 

This figure is a combination bar chart showing DOE funding for tribal 
energy activities and renewable energy production. The X axis 
represents the fiscal year, and the Y axis represents DOE 
Appropriations ($ Millions).

[See PDF for image] - graphic text: 

Source: GAO analysis of data provided by DOE and EIA. 

[End of figure] 

Price-Anderson Act Limits Nuclear Operator Liability: 

Price-Anderson Act, as amended, sets liability limits and establishes 
insurance requirements. 

* Establishes requirement for operators to purchase primary insurance. 
The amount is currently set at $300 million per plant. 

* Creates a secondary retrospective insurance pool of about $10 billion 
(in 2006). 

* Congress will determine plans and sources of funds, including 
possible industry sources, if an accident occurs that results in 
damages exceeding this limit. 

Price-Anderson Act may constitute a subsidy. 

* Limits the insurance needs and premium costs of the industry. 

No credible quantification of the value is available. 

Estimating the value will require among other things 

* Estimate of the probability of an extraordinary nuclear occurrence 
for each plant, and: 

* Estimate of the extent of potential offsite economic damages. 

Decontamination and Decommissioning of Nuclear Fuel Manufacturing 
Facilities May Result in Federal Costs: 

Federal government has had a role in uranium enrichment. 

* For several decades, the federal government was responsible for 
nuclear fuel production (uranium enrichment) in the United States. 

* Uranium Enrichment Decontamination and Decommissioning Fund 
established under Energy Policy Act of 1992. 

* Unless reauthorized by Congress, contributions to the Fund will end 
in 2007. 

May constitute a subsidy: 

* If the Fund is insufficient and the federal government pays for costs 
attributable to commercial nuclear operations, a potential subsidy 
exists. 

Little is known about the value of this potential subsidy. 

* GAO estimated costs could exceed fund by $100 million to $4.2 
billion[Footnote 15] (in 2007 dollars). 

Estimating the value will require among things: 

* Cost and schedule to complete decontamination and decommissioning of 
facilities.

* Potential congressional actions if the fund is insufficient. Action 
may depend on DOE report that will be available by the end of 2007. 

Construction and Operation of a Geologic Repository for Disposal of 
Radioactive Waste May Result in Federal Costs: 

The federal government is to build and operate a facility to 
permanently dispose of waste.

* Nuclear Waste Policy Act of 1982 directs DOE to take title to and 
dispose of nuclear waste by 1998. 

* DOE efforts to develop a permanent repository are required by statute 
to be solely focused on a yet-to-be-built repository at Yucca Mountain, 
Nevada. Most recent estimate is that facility will not be ready before 
2017. 

* Nuclear Waste Fund fees collected on nuclear power generation are set 
to fully recover estimated cost due to nuclear power of building and 
operating a geologic repository.

There may be an implicit subsidy in the program because, under the Act, 
the federal government has potentially assumed risks of cost over runs 
and schedule delays for the repository.

* A shortfall in the fund could become a potential government liability 
if fees are not adjusted.

* Government liabilities to nuclear power companies approaching $7 
billion are for failing to comply with the statutory requirement that 
DOE begin disposing of waste by 1998.

Additional work required to evaluate trust fund balances and potential 
subsidy, if any. 

Selected GAO Products Related to Electricity Subsidies: 

General: 

National Energy Policy: Inventory of Major Federal Energy Programs and 
Status of Policy Recommendations. GAO-05-379. Washington, D.C.: June 
10, 2005. 

Federal Research and Development: 

Department of Energy: Key Challenges Remain for Developing and 
Deploying Advanced Energy Technologies to Meet Future Needs. GAO-07-
106. Washington, D.C.: December 20, 2006. 

Federal Research: Changes in Electricity-Related R&D Funding. GAO/RCED-
96-203. Washington, D.C.: August 16, 1996. 

Tax Expenditures: 

Biofuels: DOE Lacks a Strategic Approach to Coordinate Increasing 
Production with Infrastructure Development and Vehicle Needs. GAO-07-
713. June 8, 2007. 

Government Performance and Accountability: Tax Expenditures Represent a 
Substantial Federal Commitment and Need to Be Reexamined. GAO-05-690. 
September 23, 2005. 

Renewable Energy: 

Renewable Energy: Wind Power’s Contribution to Electric Power 
Generation and Impact on Farms and Rural Communities. GAO-04-756. 
Washington, D.C.: September 3, 2004. 

Rural Utilities Service Rural Utilities Service: Opportunities to 
Better Target Assistance to Rural Areas and Avoid Unnecessary Financial 
Risk. GAO-04-647. Washington, D.C.: June 18, 2004. 

Rural Development: Financial Condition of the Rural Utilities Service’s 
Loan Portfolio. GAO/RCED- 97-82. April 11, 1997. 

Power Marketing Administration/Bonneville Power 
Administration/Tennessee Valley Authority: 

Bonnevile Power Administration: Better Management of BPA’s Obligation 
to Provide Power Is Needed to Control Future Costs. GAO-04-694. 
Washington, D.C.: July 9, 2004. 

Tennessee Valley Authority: Bond Ratings Based on Ties to the Federal 
Government and Other Nonfinancial Factors. GAO-01-540. Washington, 
D.C.: April 30, 2001. 

Federal Electricity Activities: The Federal Government’s Net Cost and 
Potential for Future Losses Volume 1. GAO/AIMD-97-110. Washington, 
D.C.: September 19, 1997. 

Federal Electricity Activities: Appendixes to The Federal Government’s 
Net Cost and Potential for Future Losses Volume 2. GAO/AIMD-97-110A. 
Washington, D.C.: September 19, 1997. 

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities. GA/AIMD-96-145. Washington, D.6.: 
September 19, 1996. 

Federal Loan Guarantee Programs: 

The Department of Energy: Key Steps Needed to Help Ensure the Success 
of the New Loan Guarantee Program Tor Innovative Technologies by Better 
Managing Its Financial Risk. GAO-07- 339R. Washington, D.C.: February 
28, 2007. 

Nuclear Issues: 
Uranium Enrichment: Decontamination and Decommissioning Fund Is 
Insufficient to Cover Cleanup Costs. GAO-04-692. Washington, D.C.: July 
2, 2004. 

[End of section] 

Appendix II: Comments from the Department of Energy's Power Marketing 
Liaison Office: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

Department of Energy: 
Power Marketing Liaison Office: 
Washington, DC 20585: 

October 16, 2007: 

Mr. Mark Gaffigan: 
Acting Director, Natural Resources and Environment: 
Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Gaffigan: 

Thank you for the opportunity to comment on the draft Government 
Accountability Office (GAO) report "Federal Electricity Subsidies: 
Information on Research Funding, Tax Expenditures, and Other Activities 
That Support Electricity Production." Southeastern, Southwestern and 
Western Area Power Administrations, three of the four power marketing 
administrations (PMAs) of the Department of Energy (DOE), previously 
submitted technical comments on the report via e-mail. The following 
are general comments on the report that we would like included in 
Appendix II if possible. 

* The PMAs are fulfilling their congressionally mandated mission of 
repaying all costs associated with Federal power production, as well as 
all costs assigned to power at the multipurpose Federal power projects 
within each agency's purview. The PMAs have determined the interest 
rates assigned to investments by law or by administrative procedures 
pursuant to law. The PMAs continue to have great concern with the 
methodologies GAO utilized when they performed their earlier work, 
which is referenced in this report, regarding financing costs assigned 
to investments that have not yet been fully repaid (referred to in this 
report as "appropriated debt").

(See Comment 1): 

* GAO has previously studied the PMAs in the following reports: 
GAO/RECD-86- 186BR, "Federal Electric Power: Pricing Alternatives for 
Power Marketed by the Department of Energy," September 1986; GAO/AIMD-
96-145, "Power Marketing Administrations: Cost Recovery, Financing and 
Comparison to NonFederal Utilities," September 1996; GAO/AIMD-97-110, 
"Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses," September 1997; GAO/RCED/AIMD-96-9FS, 
"Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations," October 1995; GAO/AIMD-98-164, "Power 
Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring," June 1998; and GAO/AIMD-00-114, "Power Marketing 
Administrations: Their Ratesetting Practices Compared with Those of 
Nonfederal Utilities," March 2000. The PMAs' responses included in 
these reports are still valid and directly relate to the current GAO 
efforts.

(See Comment 1):  

* In comparing the PMAs' interest rates with those of investor-owned 
utilities, no mention is made of the PMAs' inability to refinance their 
debt. As a result of not being able to refinance their debt, the PMAs 
have established a best business practice for controlling interest 
expense where higher interest investments are repaid first. Repayment 
of highest interest-bearing investment first is compatible with keeping 
PMA power and transmission rates as low as possible consistent with 
sound business principles, which is mandated by law and delegation 
order. DOE policy and guidelines permit balloon payment methodology and 
the repayment of highest interest-bearing investment first. As a 
result, much of the unpaid interest-bearing investment has interest 
rates from years ago when interest rates were lower. This issue was 
previously addressed on page 48 of the March 2000 report entitled 
"Power Marketing Administrations: Their Ratesetting Practices Compared 
with Those of Nonfederal Utilities." 

(See Comment 2):  

* We suggest adding the following narrative to the report: "PMAs have 
lower imbedded costs because most Federal hydroelectric facilities were 
constructed at a time when costs of construction were lower." This 
sentence is taken directly from the October1995 report entitled 
"Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations," GAO/RCED/AIMD-96-9FS, page 52. 


(See Comment 3): 

* The impact of initial project investments on the weighted interest 
rate average is to lower the overall weighted average. PMAs current 
investments are assigned interest rates provided by Treasury in meeting 
requirements of Department of Energy Order No. RA6120.2, paragraph 11 
(b), and the authorizing legislation for the Colorado River Storage 
Project. 

(See Comment 4):

* We suggest either deleting slide 36 or excluding the PMAs. We believe 
the comparison made on Slide 36 is not valid for several reasons. 
First, if the PMAs are to be compared with the electric industry, it 
would be more appropriate to compare their interest rates to other not-
for-profit utilities. Second, the SEPA, SWPA and WAPA average interest 
rates on outstanding unpaid investment are compared with current bond 
rates. A comparison of the PMAs' current interest rates to current bond 
rates would be more accurate. Finally, the PMAs have different terms on 
their debt than other utilities. For example, the PMAs are not able to 
refinance their debt. Comparing the PMAs' interest rates to other 
utilities' rates implies the same terms on their debt, which is not 
accurate. 

(See Comment 5): 

* GAO indicates on Slide 33 that more work could be done in the future. 
If this occurs, GAO should factor in the "subsidy" power provides to 
the water community in terms of irrigation assistance (this applies to 
Western Area Power Administration, not Southeastern or Southwestern 
Power Administrations). In addition, in the case of the participating 
projects for the Colorado River Storage Project, power customers pay 5 
times the irrigation capital costs to insure that all participating 
States receive their share of future construction funds. These are 
subsidies paid by power customers that benefit irrigators and the 
participating States.

(See Comment 6): 

Thank you for considering our comments. If you have any questions, 
please call me at 202-586-5581. 

Sincerely,

Signed by: 

R. Jack Dodd: 
Assistant Administrator: 
for Power Marketing Liaison: 

cc:
Dianne Williams, DOE Audit Liaison Specialist Sharon Sutton, DOE Audit 
Coordinator Jon Worthington, Administrator, Southeastern Power 
Administration Mike Deihl, Administrator, Southwestern Power 
Administration Timothy Meeks, Administrator, Western Area Power 
Administration: 

The following are GAO's comments on the Department of Energy's Power 
Marketing Liaison Office letter dated October 16, 2007. 

GAO Comments: 

1. We acknowledged PMA concerns during our previous work cited in the 
Liaison Office comments. We stand by the methodologies used when 
performing this earlier work, and our responses to PMA concerns 
regarding this earlier work are still valid. 

2. The briefing slides included points for overall discussion rather 
than detailed information about the rates, terms, and conditions of PMA 
financing versus investor-owned utility financing. As we note in Power 
Marketing Administrations: Their Ratesetting Practices Compared With 
Those of Nonfederal Utilities, GAO/AIMD-00-114 (Washington, D.C.: Mar. 
30, 2000), direct comparisons of financing costs are somewhat difficult 
because the financing structures of PMAs and investor-owned utilities 
differ. We note that the PMAs' ability to defer repayment of 
appropriated debt and repay highest interest rate appropriated debt 
first offsets their general inability to refinance appropriated debt. 
We note this could be a disadvantage during times of declining interest 
rates. Here, Treasury bears the risk of increases in interest rates and 
PMAs, to some degree, bear the risk of decreases in interest rates. 

3. This sentence is taken from the Department of Energy's Power 
Marketing Liaison Office letter commenting on the GAO report, rather 
than the actual GAO report. As noted, this portion of the briefing 
included points for overall discussion rather than detailed conclusions 
about the rates, terms, and conditions of PMA financing. As noted in 
the briefing, more work would be needed to do better quantify the 
subsidy, if any. 

4. As noted, this portion of the briefing included points for overall 
discussion rather than detailed conclusions about the rates, terms, and 
conditions of PMA financing. 

5. Comparing financing costs among federal, public, and investor-owned 
utilities is difficult and the briefing slide was meant for overall 
discussion rather than specific conclusions about relative financing 
costs. We indicate that we would need to do additional work in this 
area to provide Congress with more information on the relative 
financing costs of these groups. 

6. Any future work we do in this area would include close coordination 
and input from the PMAs. 

[End of section] 

Footnotes:  

[1] Many of the briefing slides presented in app. I consist of high- 
level talking points and were not designed to represent a complete or 
exhaustive review of the programs and issues discussed. 

[2] All dollar amounts for R&D funding and tax expenditures discussed 
in this report are inflation adjusted to 2007 dollars. Of the $11.5 
billion amount, we could assign $10.7 billion to fuel types. The 
remaining unassigned portion of R&D funding was related to efforts to 
improve the transmission of electricity. In nominal dollars, we 
estimate that DOE's appropriations for electricity-related R&D totaled 
$10.8 billion from fiscal year 2002 through fiscal year 2007. 

[3] Summing tax expenditure estimates provides a gauge of general 
magnitude but does not take into account interactions between 
individual provisions. Of the $18.2 billion amount, we could assign 
$16.5 billion to fuel types. We could not assign one electricity- 
related tax expenditure, deferral of gain from dispositions of 
transmission property, to a fuel type. This tax expenditure totaled 
$1.7 billion during the period of our analysis. All tax expenditure 
estimates are based on projections using prior year data; whereas 
historical data are available for federal receipts and outlays, the 
last available values for tax expenditures remain estimates. 

[4] The tax credit for alternative fuel is scheduled to expire at the 
end of calendar year 2007. If this tax credit expires, the total tax 
expenditures for fossil fuels used for electricity production would 
fall significantly. 

[5] The PMAs are BPA, Southeastern Power Administration, Southwestern 
Power Administration, and Western Area Power Administration. 

[6] The Rural Utilities Service, an agency of USDA, will be referred to 
in this report as Rural Development. 

[7] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-
734SP (Washington, D.C.: Sept. 2005). 

[8] Funding for hydrogen increased 154%; however, this fuel type was 
not allocated to electricity since it is used primarily as an 
alternative fuel for transportation. 

[9] Summing tax expenditures does not take into account interactions 
between individual provisions. 

[10] The new technology credit includes both a tax credit for 
production of electricity from renewable fuels and a tax credit for 
business investment in renewable fuel energy equipment. Currently, 10 
renewable fuels and 2 renewable fuel technologies are eligible for the 
credit. 

[11] GAO, Government Performance and Accountability: Tax Expenditures 
Represent a Substantial Federal Commitment and Need to Be Reexamined, 
GAO-05-690 (Washington, D.C.: Sept. 23, 2005). 

[12] GAO, Department of Energy: Key Challenges Remain for Developing 
and Deploying Advanced Energy Technologies to Meet Future Needs, GAO-07-
106 (Washington, D.C.: Dec. 20, 2006). 

[13] GAO, Biofuels: DOE Lacks a Strategic Approach to Coordinate 
Increasing Production with Infrastructure Development and Vehicle 
Needs, GA-0-07-713 (Washington, D.C.: June 8, 2007). 

[14] GAO, Renewable Energy: Wind Power’s Contribution to Electric Power 
Generation and Impact on Farms and Rural Communities, GAO-04-756 
(Washington, D.C.: Sept. 3, 2004). 

[15] GAO, Uranium Enrichment: Decontamination and Decommissioning Fund 
Is Insufficient to Cover Cleanup Costs, GAO-04-692 (Washington, D.C.: 
July 2, 2004). 

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