Review of the 1974 Project Independence Evaluation System

OPA-76-20: Published: Apr 21, 1976. Publicly Released: Apr 21, 1976.

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GAO reviewed the complex evaluation, forecasting, and analysis system developed by the Federal Energy Administration (FEA) and used in preparing the November 1974 Project Independence report.

Under severe time constraints, FEA developed an innovative framework for analyzing the complex and interdependent sectors of the U.S. energy system. Nonetheless, the 1974 Project Independence System (PIES-74) contained serious problems. The major problems were; (1) the approach used in the development of oil and natural gas supply estimates; (2) the development of energy price elasticities; (3) the approach used to relate energy and economic forecasts; (4) the static nature of PIES-74; and (5) the incomplete assessment of environmental, economic, and international impacts. GAO found that, while sensitivity testing was conducted on some parts of PIES-74 and FEA stated that some parts of PIES-74 were validated, no systematic validation or sensitivity testing program was conducted on the entire system. In addition, although FEA stated that it conducted extensive verification of PIES-74, this effort was not documented.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: FEA should add to its plan: (1) an analysis of problems resulting from the static nature of the system and the procedures which can be used to alleviate them; (2) an analysis of the limitations in the environmental impact analysis and the procedures which can be applied to correct them; and (3) a comprehensive, well-documented verification, validation, and sensitivity testing effort. In implementing the plan, FEA should give priority to the following areas: (1) the methodological approach used to estimate energy supply, in particular crude oil and natural gas; (2) the energy demand estimation technique regarding calculating energy price elasticities; (3) the representation of the relationship between the energy system an the economy; and (4) a more thorough assessment of the economic, environmental, and international impacts of alternative U.S. energy policies.

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