emd-78-88 gao work involving title v of the energy policy

DOCUMENT RESUME

07376 - [C2827934]

GAO Work Involving Title V of the Energy Policy and ConservationAct of 1975. ELD-78-88; B-178726. October 4, 1978. 1 pp. +appendix (15 pp.).

Report to the Congress; by Elmer B. Staats, Comptroller General.

Issue Area: Energy (1600); Data Collected from Non-FederalSources: Reliability and Accuracy of Information (3101).

Contact: Energy and Minerals Div.Budget Function: Natural Resources, Environment, and Anergy:

Energy (305); Commerce and Transportation (400).Organization Concerned: Executive Office of the President;

Energy Information Administration.Congressional Relevance: Congress.Authority: Energy Policy and Conservation Act of 1975, t4 'le V

(42 U.S.C. 6381). Department of Energy C.rganization Act (42U.S.C. 7297). Natural Gas Act of 1938, as amended (15 U.S.C.717). Emergency Natural Gas Act of 1977 (P.L. 95-2).

Title V of the Energy Policy and Conservaion Act of1975 authorized GAO to independently verify energy data and toinspect the books and records of private persons and companies.The act also directed that GAO annually report to the Congresson energy or financial information reviewed under title V and todiscusss actions taken to correct any noted deficiencies.Findings/Conclusions: As of July 31, 1978, GAO had requestedinformation from 74 different energy companies and had conductedonsite audits of certain books and records of 37 companies.Reports issued and assignments underway Pertained to a varietyof energy sources and addresssed a broad range of issues andtypes of energy data, Title V is an effective statutory tool inconducting energy reviews, but it should be recognized thatGAO's role in energy verification is limited to the particularissues being studied and not to systematic collection andanalysis of energy data. Although some delays have beenexperienced in receiving information, there have been nooutright refusals to comply with requests. A discussion ofreports issued and assignments in process is included. (RRS)

BY THE COMPTROLLER GENERAL

Report To The CongressOF THE UNITED STATES

GAO Work Involving Title VOf The Energy Policy AndConservation Act Of 1975

This report summarizes the results of GAOaudit work under Title V of the Energy Policyand Conservation Act of 1975, authorizingGAO to examine the records of private energyorganizations to assess and verify the accu-racy, reliabl,'ty, and adequacy of energy andfinancial info, mation.

This is GAO's first separate report on Title Vwork and covers calendar year 1977 and thefirst 7 months of 1978. GAO found Title V tobe an effective statutory tool in completingits energy reviews--both congressionally re-quested and self-initiated--and beiieves itholds great promise for future audit work onsubstantive issues of U.S. energy policy. Thelaw is satisfactory for these purposes as it nowstands.

,E, 'D ST7 2';"

EMD-78-88

'fCCtOUI4'~ OCTOBER 4, 1978

COMm'ROLLER GENERAL OF THE UNITED AnTUt*w~~~ ~~WASHINGTON, D.C. aOI"

B-178726

To the President of the Senate and theSpeaker of the House of Representatives

T;he appendix summarizes the results of our audit workthat involved Title V of the Energy Policy and ConservationAct of 1975 (Puolic Law 94-163). The report covers the 19-month period ended July ..1, 1978.

Title V gave us authority to examine the records ofcertain private ener9v organizations to assess and verify theaccuracy, reliability, and adequacy of energy and financialinformation. We refer to these studies as 'verification exam-inations."

Title V also requires that we report to the Congress onthe results of our verification examinations. Several assign-ments were started in 1976, and were summarized in the 1976Comptroller General's Annual Report to the Congress. Ourefforts during 1977 were also briefly summarized in the 1977Annual Report.

This is the first separate report on our Title V work andcovers calendar year 1977 and the first 7 months of 1978.During this period, we completed six assignments and had fourmore in process.

We have found Title V to be an effective statutory tool incompleting our energy reviews--both congressionally requestedand self-initiated--and believe it holds great promise for ourfuture work on substantive issues of U.S. energy policy. Webelieve the law is satisfactory for these purposes as it nowstands.

Our Energy and Minerals Division is responsible for energyverification examination activities authorized under Title Vof the Act.

Comptroller Generalof the United States

APPENDIX I APPENDIX I

SUMMARY OFENERGY DATA VERIFICATION EXAMINATIONS

(January _, 197 _-Juy 31, 1978)

STATUTORY MANDATE

Title V of the Energy Policy and Conservation Act of 1975(42 U.S.C. 6381-4) gav' GAO new responsibilities for energydata. Specifically. it authorized GAO to independently verifyenergy data and stated that this authority be used to inspectthe books and records of private persons and companies underthe following conditions:

1. If a company is legall;, required to submit energyinformation to the Federal Energy Administration, theFederal Power Commission 1/, or the Department of theInterior.

2. If a company 'is engaged in the energy business, otherthan at the retail level, and

a. furnishes energy information directly or indi-rectly to any Federal agency, excluding theInternal Revenue Service, and

b. GAO determines that the Federal agency uses thisinformation in carrying out its official func-tions.

3. If the energy information is any financial informa-tion pertaining to a vertically integrated petroleumcompany.

Section 502(f) of the Act directs that we annually reportto the Congress on energy or financial information reviewedunder Title V, and discuss action(s) taken to correct anynoted deficiencies.

1/Now the Secretary of Energy and the Federal EnergyRegulatory Commission under Section 707, Department ofEnergy Organization Act (42 U.S.C. 7297).

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GAO OPERATIONS UNDER TITLE V

Following passage of the Act, we began an intensiverecruiting program both within and outside GAO to assemble theexpertise necessary to meet the challenges of Title V work.Working initially with a headquarters core staff and a staffat a new Houston suboffice of our Dallas, Texas, regional of-fice, we gradually expanded our Title V work to other GAOstaffs and offices. In addition to auditors, we have staffwith specialized training such as petroleum accounting, petro-leum engineering, geology, economics, data systems, and theenvironment.

As of July 31, 1978, we had requested information underour Title V authority from 74 different energy companies andhad conducted on-site audits of -ertain books and records of37 companies. The reports issued and assiginments underwaypertained to a variety of energy scurces (oil, coal, naturalgas, synthetic fuels, and uranium) and addressed a broad rangeof issues and types of energy data.

Because credible energy data and analyses contribute tothe effectiveness of our work as a whole, we have found Title Vto be an effective statutory tool in conducting self-initiatedas well as congressionally requested energy reviews. Theability to get behind the information reported to governmentand otherwise publicly available has permitted us to dealdirectly with the credibility problem which has plagued decis-ionmakers and has generated widespread public skepticism overthe seriousness of the energy situation.

At the same time, it should be recognized that our role inenergy verification is limitA to the particular issues beingstudied and not to systematic collection and analysis of energydata. That role is the responsibility of other Federal agn-cies, primarily the Department of Energy (DOE) and, specifical-ly, DOE's Energy Information Administration.

With the Energy Information Administration as the FederalGovernment's primary collector of energy information, GAO canindependently check the validity of that information. This isconsistent with GAO's usual role in governme-t and with itscurrent operations under Title V.

Although we have experienced delays in receiving infor-mation from some companies, we have not faced outright refusalsto comply with our requests. In some cases, we believe thedelays were justified in that data we sought were historicalor not held by the company in the form we desired. Some com-panies were defensive about U.S. Government involvement, and

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they were sensitive about complying with GAO requests forinformation, especially where proprietary or competitive datawere called for. Still, we have been able to obtain, withoutsubpoena, the evidence necessary to complete our reviews.

GAO values the legal authority Title V gives it to obtainenergy information from companies, and wishes to leave no doubtabout its willingness to use that authority if necessary.

At the same time, GAO is aware that the delays inherentin Title V enforcement by compulsory process could hindertimely completion of reviews and reporting to the Congress.Therefore, we encourage to the extent possible voluntary co-operation of energy companies in providing access to theinformation we need.

REPORTS ISSUED ANDASSIGNMENTS IN PROCESS

As of July 31, 1978, six Title V assignments had beencompleted and four were in process.

"Transportation Charges for Imported Crude Oil--AnAssessment of Company Practices and GovernmentRegulation" EMD-76-105, Oct. 27, 1977)

This assignment was requested by the Chairman, HouseCommittee on Interstate and Foreign Commerce. We were askedto determine whether transportation costs claimed by companiesimporting crude oil were allowable under Federal Energy Admin-istration (FEA) regulations, and to assess the effectivenessof those regulations in supporting only dollar-for-dollarpassthrough of crude oil cost increases.

We found that FEA's regulations governing how companiescompute and report crude oil transportation costs were inade-quate, thereby giving companies the opportunity to collect morethan actual costs. One apparent violation of the FEA regula-tions existed at that time, but we found no evidence of intentto misstate transportation charges.

Individual company computations of transportation chargeswere generally accurate. However, because of inconsistenciesin the way companies computed and reported transportationcharges, the overall reliability of FEA's transportation coststatistics was questionable.

FEA had assigned low-priority audit status to importedcrude oil transportation charges. Because of factors such as

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a limited number of auditors and the complexity and interpre-tive nature of FEA's regulations, much of the reported datawas not verified. The audit work that was completed variedin quality, and when problems were detected FEA did not vigor-ously pursue them.

Over $26 million in reported transportation charges wereeither 'overcharges' or 'questioned charges'. The overchargestotalled about $1 million and resulted from unintentionalaccounting errors by five companies. Of the questioned char-ges, $24 million were made by three companies and could notbe supported by an industrywide measure for computing trans-portation charges nor by actual cost data which the companiesgave GAO.

An additional $900,000 in questioned charges involved anunusually high fee by one company for moving crude oil from theCaribbean to U.S. ports. The company involved did not supportto GAO's satisfaction that the fees represented actual costs.

We recommended that the Secretary of Energy verify thatthe companies have reported cost adjustments for the overchar-ges, determine if the charges we questioned represent recov-eries greater than cost and, if so, require companies to makeappropriate adjustments.

FEA considered the report's conclusions and recommenda-tions to be reasonable and stated that in each case action hadbeen initiated or would be taken to implement them.

Exxon, Getty, and Mobil took issue with certain reportstatements and made substantial comments. We made appropriatechanges to certain data and statements in the report. However,the transportation charges which we considered to be over-charges or questionable charges remained at about $26 million.

"More Attention Should be Paid to MakingtheU.S. Less Vulnerable to Foreign ilPrice andSupply Decisions" (EMD-78-24, Jan. 3, 1978)

The Chairman of the Joint Economic Committee's Subcommit-tee on Energy requested that GAO

-- review the role of oil companies in the productiondecisions of the Organization of Petroleum ExportingCountries' (OPEC) member nations,

-- evaluate the impact on price maintenance,

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-- assess OPEC ambitions, and

-- evaluate U.S. Government options.

As part of this major study of U.S. policy options indealing with OPEC, it was necessary to use our Title V author-ity.

We examined oil company records to verify data on foreigncrude oil acquisitions that the companies had reported to FEA.Our review involved the acquisition reports submitted for thesecond quarter of 1976 by the five major U.S. oil companies--Exxon, Gulf, Mobil, Socal, and Texaco. They reported acquisi-tions totalling about 10.3 million barrels of oil per day,or 87 percent of the total acquisitions reported by all U.S.companies.

In conducting the review, we examined company recordsand OPEC government decrees, contracts, and agreements; inter-vieved corporate officials and officials of the companiestrading subsidiaries; and traced data back to individual com-pany transactions.

We concluded that the five major companies were reportinggenerally accurate information in accordance with FEA regula-tions, and that the data fairly represented the price and vol-umes of their acquisitions of OPEC crude oil for that period.

"Emergency Natural Gas Purchases: Actions Neededto Correct Program Abuses and Consumer Inequities"(EMD-78-l, Jan. 6, 1978_

This was a self-initiated study to determine how effec-tively the Federal Power Commission (FPC) was regulatingemergency natural gas purchases under the Natural Gas Act of1938, as amended (15 U.S.C. 717 et seq.); and how effectivelythe Emergency Natural Gas Act of-T977~(ENGA), Public Law 95-2,was being implemented by its Administrator.

Under the 1938 act, FPC had authority to take certainsteps to cope with emergencies caused by natural gas shortagesand curtailments. To combat the natural gas shortages duringthe unusually severe 1976-77 winter, ENGA was enacted to pro-vide the President additional authority to assure adequatenatural gas supplies. The Chairman. FPC, was appointed by thePresident as the Administrator of ENGA, but the act did notcome under the authority of FPC.

We reviewed the emergency purchase regulations issuedunder the 1938 act, the provisions of ENGA, and the orders

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issued under ENGA. We examined all emergency purchases madeunder the 1938 act for the 2-year period ended April 30, 1977.and all emergency purchases made under ENGA. We also inter-viewed officials responsible for administering both acts.

Under our Title V authority, we obtained information fromover 40 private companies on their involvement in and use ofthese emergency provisions. These companies were serving someof the St,'tes most severely affected by natural gas shortagesduring the 1976-77 winter.

We found that the way in which FPC regulated the emergencypurchase provisions of the 1938 act allowed some intrastatepipeline companies to

--avoid price and other Commission regulations whiledealing in the interstate market, and

--enjoy the highest prices set by the forces of supplyand demand in the intrastate market.

As a consequence, many interstate pipeline companies wereable to purchase emergency natural gas from intrastate pipe-lines to increase or maintain sales to low-priority customersthat had alternate fuels capabilities. This was clearly coun-terproductive to national conservation policies.

We made a number of recommendations to the Congress, DOE,and the Federal Energy Regulatory Commission (FERC)--FPC'ssuccessor agency--aimed at (1) curbing low-priority uses ofemergency natural gas, and (2) improving the administrationof emergency purchase programs.

We also recommended that DOE review certain purchasesunder ENGA to determine which, if any, were ineligible andapply any appropriate penalties required under the act. DOEsaid it would take the necessary action to implement our recom-mendation.

FERC has not formally responded to our recommendations.However, as we recommended, the agency did initiate an actionto improve administration of emergency purchase programs.

On August 14, 1978, FERC issued for public comment anotice of proposed rulemaking. The proposed rules betterdefine what a natural gas "emergency" is. Pipelines would berequired to assign the higher costs of emergency natural gasonly to those customers that use it. The proposed rules alsospecify when emergency gas can be purchased, and what step&the purchaser must take to assure the lowest possible cost to

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customers. The rules would require the pipelines to filereports with FERC whenever the "emergency" situations arise.

"The Advance Payment Program: An UncontrolledExeriment" (EMD-78-47, Jul 9)

In 1970, FPC approved a program that permitted interstatepipelines to provide natural gas producers with 'advancepayments'. These advances were interest-free loans to be usedby producers to cover the cost of exploring, developing, andproducing natural gas.

About $3.3 billion in fixed advance payment commitmentswere made during the program, and about $2.2 billion in indef-inite advances can still be made to producers through 1980.

After the court decision which required that FPC fullyevaluate the program, the agency concluded that it could notfind enough evidence that natural gas exploration, development,or production had been accelerated; therefore, FPC cancelledthe program.

The Chairmen of the House Committee on Interstate andForeign Commerce and its Subcommittee on Oversight and Inves-tigations asked GAO to review the now terminated program. Wewere asked to

-- review the adequacy of FPC guidelines to programparticipants,

-- review FPC's monitoring and evaluation of programaccomplishments, and

-- analyze the program's impact on natural gas customers,pipelines, and producers.

We studied the operaticn of the advance payment programat FPC headquarters, at two pipeline companies, and at twoprod,,:er companies. We selected these companies because (1)the pipelines were among the largest participants in the pro-gram, (2) the producers were the ones to whom these pipelineshad made the largest amount of advance payments, and (3) theyprovided an opportunity to compare the operation of an affil-iated pipeline and producer with operations of a nonaffiliatedpipeline and producer.

We discussed the origin, operation, and review of theprogram with FPC officials. We also obtained program direc-tives, reports, and other related data about the program.

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At the industry level, we interviewed pipeline andproducer officials to obtain their views on the program'saccomplishments and problems. We reviewed and selectivelytested pertinent program data, reviewed geological and geo-physical data on selc-ted offshore properties, and made othertests of data as necessary to evaluate the program.

We found that FPC had not adequately evaluated theprogram's results nor provided adequate and timely guidanceto participants. FPC had allowed the program to continue forabout 5 years at the expense of customers without knowingwhether the program was accomplishing any of its stated goals.

Although the program's overall accomplishments could notbe measured accurately, it probably played a relatively minorrole in bringing additional gas reserves to the interstatemarket or in bringing them sooner. Tnree facts support GAO'sconclusion:

-- Most of the gas reserves committed to the interstatemarket under the advances would have been committedanyway because they were on federally leased lands andare required to be dedicated to the interstate market.

-- Properties developed with advances were producers'good quality properties that would have been quicklydeveloped regardless of whether advance payments wereinvolved.

--Producers were aided in the financing of drillingoperations only to the extent that the program elimin-ated interest costs resulting from borrowing tofinance such operations.

At best, the advances may have expedited the developmentof proven reserves in some cases. This cannot be determinedexplicitly.

Some customers had to pay increased rates for naturalgas to cover the cost of this experimental program withoutany assurance of benefits in the form of additional naturalgas supplies. Producers benefitted financially because theadvances did not require interest payments.

According to an FPC study, pipeline companies were notadversely affected by the financial burden of the program.

We recommended that the Chairman, FERC:

-- Establish policy guidelines requiring that any specialprograms and experiments provide for measuring the

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results against clearly defined objectives. Theseguidelines should specifically provide that programparticipants keep adequate records to permit the Com-mission to audit and analyze program results.

--Consider the impact of special programs and experimentson the Commission's ability to perform its primaryduty of rate regulation before implementing them.

-- Provide specific guidance regarding how remainingadvance repayment schedules should be structured andtake measures to induce producers and pipeline companiesto modify their repayment schedules to comply with suchregulations.

-- Establish program guidelines to prohibit including inde-finite or tentative commitments of advance payments inthe rate base of pipeline companies.

FERC had not formally responded to those recommendationsby the time we issued this summary report. However, we didnote that on August 9, 1978, FERC adopted a general policythat, absent a showing that an alternative method is lesscostly to ratepayers, advance payments will be removed frompipelines' rates if the producers have not spent the advanceswithin 30 days.

"Lessons Learned From Constructing the Trans-AlaskaO--Pipel n~8n1(__ -52, June 15. 1978'

In August 1970, the eight companies permitted to constructthe Trans-Alaska pipeline system (TAPS) formed the AlyeskaPipeline Service Company as their common agent for designing,constructing, and operating the pipeline system.

A 1968 feasibility cost study had estimated that TAPSwould cost $1.046 billion. The estimate was based on minimalsite-specific data, and contained nto allowance for cost escala-tion. In May 1974 at the start of preconstruction, the costestimate had grown to $4.088 billion. By April 1975, shortlyafter permanent pipeline construction had started, the costestimate had risen to $6.375 billion. The final cost estimateof $7.940 billion was prepared in December 1977, after 6 monthsof pipeline operation.

The Chairman, Senate Committee on Energy and NaturalResources, reauested that GAO examine the increases in theoriginal cost estimates to construct TAPS. We also were askedto address the implications that this project would have forsimilar future large-scale energy projects (such as the Alaskanatural gas niPeline).

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!Je reviewed documentation of the Alyeska Pipeline ServiceCompany at their offices in Anchorage, Alaska. At the timeof Jur study, three separate Government audit groups neededAlyeska data. Alyeska hired a law firm to respond to theserequests and to act as liaison. Alyeska stated that itestablished this procedure to protect its rights in the eventof any future litigation.

In the interest of obtaining as much data as possible forhearings held by the Senate Committee on Energy and NaturalResources, we agreed to this. While we could appreciateAlyeska's need for the arrangement, it caused us proceduraldifficulties in getting the information necessary to carry onour review, and left us with much uncertainty about thecompleteness and accuracy of the information we received.

We interviewed Alyeska officials, construction managementcontractors, execution contractors, unions, and the Departmentof Interior's Alaska Pipeline Office.

With assistance from a labor relations consultant, weevaluated the labor agreement under which the project wasconstructed.

We also reviewed information presented in public hearingsheld from 1968 to 1977 relating to granting rights-of-way andprotecting the environment. We discussed the environmentalconcerns with current officials of environmental organizationsin Washington, D.C.; and Anchorage and Fairbanks, Alaska.

From the standpoint of increases in cost estimates, weconcluded that the initial estimates simply were far too low.They were not based on adequate geotechnical and site-specificwork before construction started. A large part of the costincrease was additional direct labor hours needed because ofunexpected site conditions and construction difficulties.

Alyeska also experienced problems in project management.The contracts were reimbursable cost plus-fixed-fee and fixedoverhead. Contractors would not bid on fixed-price typecontracts because (1) there was no definitive project design,and (2) factors like soil conditions and labor productivityin extremely cold climates were unknown. Under the reimburs-able type contracts, the contractors did not have the sameincentives to minimize costs as they would have under fixed-price type contracts.

The cost reporting system Alyeska initially set l? couldnot provide up-to-date information on actual costs. Il. fact,

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the system did not function properly until December 1975, theend of the second construction year.

We concluded that the following lessons should be learnedfrom the TAPS project:

-- First and subsequent cost estimates should be viewedwith skepticism.

--As much site-specific data as is economically prac-ticable should be obtained.

-- Technical and geological uncertainties should bethoroughly investigated.

--Government approval should be contingent on detailedplanning for management control, including budgetarycontrols.

--The Alaska natural gas pipeline projects's expendituresshould have an ongoing Government audit to protect thepublic interest.

"Inaccurate Estimates of Western Coal ReservesShould be Correcte EM- 7-32, Ju i 178)

The Chairman, Senate Committee on Energy and NaturalResources, and the previous Chairman, Senate Subcommitte onPublic Lands and Resources, asked GAO to review

--the accuracy of coal estimates under Federal lease,

-- leaseholders' past production on Federal leases, and

-- leaseholders' production plans through 1985.

For review, we selected the top 20 leaseholders based onrecoverable Federal coal reserves. They controlled about 75percent of all estimated recoverable reserves on Federal leasesas of September 1976. We conducted the review at the 20 lease-holders' locations in 12 different States, and examined theirreserve estimates, supporting documentation, and estimatingmethodologies.

We visited U.S. Geological Survey offices in seven States,interviewed responsible officials, and examined data files,reports, and maps supporting the agency's reserve estimatesfor the selected leases. We also determined what estimatingcriteria and methodologies the agency used in computing itsestimates.

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We then compared the leaseholder' reserve estimates withthose of the Geological Survey. With assistance from a geolo-gist consultant, we also independently computed reserve esti-mates for four leases and compared our estimates with theagency's and leaseholders'.

Based on these analyses, we concluded that neither theleaseholders nor the Geological Survey had reliable coalreserve estimates.

For the leases reviewed, the leaseholders estimated 10.5billion tons of recoverable coal. This was 18 percent lowerthan the Geological Survey's estimate of 12.8 billion tons.The leaseholders' estimates were generally better supportedby geological evidence, but many were not reliable becausethey did not consider all underground coal in computing recov-erable reserves.

Our analysis of four leases showed more coal than eitherthe agency or leaseholders, because they omitted some coalseams.

In the area of coal production, we found that 87 percentof the leases we reviewed had not produced coal before 1977.The leases had been held an average of 7 1/2 years.

Based on the results of this review, we recommended thatthe Secretary of the Interior:

-- Publish reserve estimate methodology regulations forcommert and hold public hearings so that a standardmethodology can be developed and understood betweenindustry and government.

-- As an interim measure, require the Geological Surveyto use the published estimating criteria contained inits Bulletin No. 1450-B for determining estimates, andreview and update all reserve estimates on existingleases. First priority should be given to producingleases and jeases scheduled to come into productionwithin the next 5 years. When diligent development orcontinued operations requirements are not met by thelessees, as required by law, the leases should beterminated.

--Obtain reserve estimates and cost and pricing data fromleaseholders, and develop procedures for analyzing thisinformation in estimating recoverable reserves.

-- Consider acquiring computer capability to provide formore effective and timely determination of reserveestimates.

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Title V Studies Currently in Process

1. Review of Estim&tion of Natural Gas Reserves. Thiseirst of two reviews request y 30 members

of the U.S. House of Representatives.

In recent years, there have been numerous attemptsby the former FPC and Federal Energy Administration,the Department of the Interior, Federal Trade Commis-sion, and congressional committees to establish anacceptable estimate of natural gas reserves. Theattempts have resulted in conflicting figures andconsiderable controversy.

The primary objective of this review is to evaluatethe government's need for national natural gas re-serve estimates and the approaches that are beingpursued to obtain them. We are concentra ing on theaccuracy of the estimates, the uses made _ them byFederal agencies, and whether there is avoidableduplication of efforts. We are accomplishing thisby reviewing the specific procedures followed by 5private companies in estimating the natural gas re-serves on their leases in the Gulf of Mexico OuterContinental Shelf. We are also examining the method-ologies they used to calculate reserves and whetherthe records they maintained support the reservesestimates they reported to the former FEA and Depart-ment of the Interior.

2. Review of Natural Gas Regulation on Federal Lands.This is the second reg con ucted in responseto the request of 30 members of the U.S. House ofRepresentatives (see No. 1, above). This reviewaddresses Federal regulation of the exploration,development, and production of natural gas in theFederal Domain of the Gulf of Mexico Outer Continen-tal Shelf.

Because natural gas reserves in the U.S. weresufficient to meet demand until the late 1960's, thegovernment did not consider a diligence policy forOuter Continental Shelf lessees. However, theincrease in consumer demand, combined with the con-tinual decline in marketed production since the early1970's, created an increasingly severe energy crunchsituation, especially during short supply periodssuch as recently experienced during the 1976-77winter.

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The objective of this review is to evaluate how theFederal Government regulates lessees' operations onoil and natural gas leases in the Gulf of MexicoOuter Continental Shelf to combat the natural gasshortage.

We are reviewing the Department of the Interior'ssuccess in developing policies and regulations forexploration, development, and production of naturalgas on public lands, and Interior's interface withDOE. Additionally, we are assessing how well DOEis carrying out its new responsibilities in thisarea.

We are also reviewing the exploration and developmentactivities performed by lessees on 235 tracts leasedduring 1970 and 1972 in the Gulf of Mexico Outer Con-tinental Shelf. This includes the review of companyrecords of 5 lessees.

3. Survey of Issues Surrounding Uranium Availability forThis Nation's Nuclear Power Needs. Nuclear power is

Teing relied on to supply a significant portion ofthis Nation's energy requirements for the future.For nuclear power to crow, an adequate uranium supplyto fuel nuclear powerrlants is necessary.

The primary objective of this self-initiated study isto identify and assess major issues, problems, andconstraints affecting the development of economicaland reliable uranium supplies to fuel U.S. nuclearpowerplants.

As part of our examination of uranium demand, we arelooking at (1) the growth of electricity demand andthe portion attributable to nuclear power; (2) socio-economic and environmental concerns; (3) the need forenrichment capacity; (4) decisions on commercial spentfuel reprocessing and related safeguards issues; and(5) high level radioactive waste management policy.

Our examination of uranium supply includes analyzingDOE's uranium supply estimates and its efforts toincrease that supply through the National UraniumResource Evaluation (4URS) Program.

Because domestic utilities are able to use someimported uranium, we also are examining the impact ofpotential foreign ore supplies on domestic supply anddemand.

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Under our Title V authority, we are contacting certainprivate companies to evaluate their estimates of uran-ium reserves on property they own or lease. We arereviewing their methodologies for assessing thereserves, and their supporting documentation.

4. Verification Examination of Company SubmissionsPertaining to Pricing of an LNG ImPort Pro ect. Aspart of an overall evaluation of the dvantages anddisadvantages of 'rolled-in' versus 'incremental'pricing for supplemental natural gas supplies, weare conducting a verification examination of companysubmissions to FERC pertaining to pricing of an LNGimport project.

Under the 'rolled-in' method of pricing, the gascompanies average in the higher costs of LNG with thelower costs of domestic natural gas, and all of acompany's customers share in paying for the LNG.Under the 'incremental' pricing method, only thosecustomers who use the LNG pay for it.

In deciding which pricing method to approve in thecase under study, FPC (now FERC) relied heavily onthe applicant gas company' assertions that the pro-ject could not be financed with incremental pricing.

The objective of our verification examination is todetermine the accuracy, adequacy, and reliability ofthe data provided to FERC by the gas company. Thiswill involve reviewing the company's supporting docu-mentation, as well as other pertinent data substan-tiating the information that was submitted to FERC.

We plan to report our findings to the Chairman, FERC.

CONCLUDING OBSERVATIONS

GAO has found Title V to be a useful and productivestatutory tool for accomplishing reviews in the energy azea.We believe it holds great promise for our future work onsubstantive questions of U.S. energy issues and policy, whichcan only be properly resolved on the basis of accurate, reli-able, and adequate data.

We consider Title V to be satisfactory for these purposesas it now stands, and we believe no further legislative author-ity in this area is requi'ed at this time. Moreover, ourexperience with Title V thus far has not uncovered defects inthe law which would lead GAO to recommend amendments.

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emd-78-88 gao work involving title v of the energy policy

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