Saving Energy

Hazel O'Leary has fended off the abolitionists for now, but the question remains: Does the Energy Department really have a future worth preserving?


n the tumultuous first act of the Republican revolution, Congress may have featured its balanced-budget drive in the center ring, but a major sideshow was the freshmen-led effort to shrink government by eliminating four Cabinet departments.

The annals of government reorganization will record only that the Commerce Department was seriously threatened in 1995. But historians will also conclude that the Republicans' drive to cut government had a major impact on other targeted agencies, including the Energy Department, which took the ax to its own programs and staff as it struggled to avoid a grimmer fate.

Last year's debate about these and other agencies began to persuade lawmakers that a wholesale reorganization of federal responsibilities may be worth pursuing, even in light of failed reorganization efforts in the past. Legislation to establish a commission to issue recommendations on how to restructure the executive branch may be enacted, with recommendations ticketed for consideration in the 105th Congress.

The Energy Department's near-death experience in 1995 shed light on the difficulties involved in abolishing any large agency and redistributing functions that must continue. It also illuminated the need to rationalize Energy's missions and organization. DOE succeeded in stiff-arming the abolitionists for now, but at the same time it has brought into focus questions about its essential purpose and how long it should survive in its present form.

The department instituted significant internal reforms to streamline program administration and make its huge contractor operations more performance-driven. Its combative and articulate secretary, Hazel O'Leary, challenged her department's detractors with one initiative after another to demonstrate that change was possible within the current framework.

Nevertheless, the department has been a quiet casualty of the Cold War's end. The nuclear weapons program, which was once DOE's centerpiece and the glue that held together its vast network of field operations, is a virtual shadow of its former self. Instead of weapons development and manufacture, the program now focuses on "stockpile maintenance" and the massive cleanup of former production operations. Two-thirds of the department's funding still goes to weapons program-related tasks, but the urgency of this mission has disappeared like air rushing from a balloon.

Memories of long lines at gas stations during the 1970s oil embargoes have also faded, and the once all-powerful Organization of Oil Exporting Countries (OPEC) is no longer seen by consumers as a major economic threat. The American public's disillusionment with government and its perceived incompetence in allocating fuel supplies in times of crisis largely undercut one of the department's major original missions of planning and managing national energy reserves.

Target for Abolition

The Energy Department was one of four cabinet departments selected by a group of House Republican freshmen for abolition a month after the 1994 election. Flushed with their victory at the polls, the freshmen wanted to demonstrate by specific and bold actions that government could be made smaller and less intrusive for the average citizen. What better device than eliminating whole departments?

Initial sketches of their plans were made public in February 1995. A month later, Senate Majority Leader Robert Dole, R-Kan., endorsed elimination of the four departments. Then, on June 30, Rep. Todd Tiahrt, with nearly 50 of his colleagues as co-sponsors, introduced HR 1993, the "Department of Energy Abolishment Act." Tiahrt, who dealt with public utilities issues as a member of the Kansas legislature, believed that re-evaluating the Energy Department's roles was not enough; many functions needed to be eliminated, managed better by other departments or transferred to the private sector.

The Heritage Foundation and Cato Institute weighed in with reports supporting wholesale contracting out of Cabinet responsibilities and dramatic outsourcing of DOE's programs and facilities.

Heritage characterized Energy as a department in search of a mission: "Despite the lack of a purpose, DOE has grown in tax dollars spent and functions performed-the result of 15 years of searching for something to do." The foundation also criticized the department's inefficiency, citing problems with the Environmental Management Program. The General Accounting Office has estimated that over 30 years, potential losses in the program could total more than $70 billion.

In July testimony before the Senate Committee on Energy and Natural Resources, Cato's Jerry Taylor advocated abolishing the department; creating an independent National Nuclear Weapons Agency; privatizing DOE's national laboratories; selling assets of the power marketing administrations, the Strategic Petroleum Reserve, the Naval Petroleum Reserves and all oil shale reserves; eliminating energy conservation and renewable fuel subsidies; and canceling several other programs, including research and development. Annual savings, according to Taylor's "back-of-the-envelope calculation," would be about $10 billion.

Tiahrt's bill would accomplish most of this agenda. However, instead of creating an independent agency to manage the nuclear weapons program, the bill would transfer it to the Defense Department (a move strongly opposed by Defense Secretary William Perry) and establish a commission to evaluate the DOE national labs and research programs. The department would be redesignated the "Energy Programs Resolution Agency," which would wind up the department's affairs during a three-year termination period.

Anticipating those bold moves, the administration weighed in with a plan hurriedly constructed in December 1994 to significantly downsize DOE and four other federal organizations. Deputy Energy Secretary William White promised budget cuts of "at least $10.5 billion" from existing levels of funding. Change was already under way, he noted, through eliminating layers of middle management, reducing internal regulations and "historic changes" in DOE contracting practices to promote competition and better contractor performance. However, the specifics of what turned out to be a budget savings mandate of $14 billion over five years came later.

Shifting Missions

Of all the departments created in the 20th century, perhaps none has seen more change in its environment and raison d'etre than has the Energy Department in its relatively brief 18 years of existence. Its roots can be traced to the World War II Manhattan Project to develop the atomic bomb and to the decision in 1946 to place atomic energy under civilian control. For 30 years, the Atomic Energy Commission developed and built a huge stockpile of nuclear warheads for the Defense Department, and it helped create a civilian reactor program with dozens of nuclear power plants developed and owned by the nation's electric utilities.

With the OPEC oil embargo in 1973, the nation came to realize it had a larger problem than could be solved by nuclear energy alone. And nuclear energy itself was under attack, as environmentalists were increasingly raising health and safety questions about nuclear power plants, even raising the specter of a catastrophic nuclear plant meltdown. The accident and subsequent shutdown at the Three Mile Island plant in Pennsylvania in 1979 reinforced such fears.

Government began to broaden its energy focus during the Nixon Administration, says James R. Schlesinger, who was chairman of the AEC at the time and later became the first secretary of energy. President Nixon agreed in 1972 that the federal research focus on nuclear energy needed to change. Following the oil embargo a year later, the Federal Energy Office was created.

The Ford Administration was the first to consider forming a Department of Energy, and President Carter's plan, which served as the basis for congressional action, was heavily based on the Ford blueprint, Schlesinger says. Then-Sen. Henry M. Jackson, D-Wash., a powerful force in Congress on energy and defense matters, wanted to create a department of energy and natural resources which would include environmental programs. But Carter resisted this idea because he thought the President, not a Cabinet secretary, should decide on trade-offs between energy and the environment.

DOE was established in 1977 by Public Law 95-91, probably the longest and most complex organic statute for any federal department. The tensions between competing forces were reflected in a statement of purpose: The department was to coordinate energy policies in ways which promoted "maximum possible energy conservation measures." A "balanced and comprehensive" energy research and development program was to include requirements assessment, priority setting and program implementation for "optimal development of the various forms of energy development and conservation." No longer would the nuclear element dominate, and conservation would be promoted along with additional means of production.

One of the new department's key roles was the development of a comprehensive national energy policy to deal with the nation's near-term, intermediate, and long-term energy problems and needs. America was perceived to be facing an energy crisis threatening both its national security and economic well-being. Government was to step in and coordinate the response. Steps were taken, including establishment of the strategic petroleum reserve and investment in alternative energy development projects, but of course the sense of crisis abated before long. In 1995, 18 years later, the department issued another in a series of energy policy documents, as required by law, but it was more than two years late and has had little influence on private-sector energy suppliers, according to GAO officials interviewed by Government Executive.

In recent years, the Defense Department has been serving as the government's principal instrument for energy policy. The Gulf War serves as the best example. As Schlesinger said in a 1992 speech, "Put quite simply, what the American people learned from the Gulf War is that it's a helluva lot easier and a helluva lot more fun to 'kick ass' in the Middle East than it is to make any sacrifices to limit the U.S.'s dependency on imported crude."

In an August 1995 report, GAO said that DOE bore little resemblance to the department Congress created in 1977. "The end of the Cold War has dramatically altered DOE's missions and priorities," GAO said. "Making nuclear weapons, which dominated DOE's budget for years, has largely given way to environmental cleanup. The national laboratories are now highly diversified." GAO published a table contrasting the department's traditional missions with its current functions and found that none of the former were included in the latter. In a parallel exercise, O'Leary has issued a new "mission statement" for the department, summarizing in one sentence what it had taken Congress, 18 years earlier, 19 paragraphs to define. The statement was widely posted in department facilities. It was an ambitious characterization of DOE's goals-giving the department a role in environmental policy, economic competitiveness and national defense in addition to energy policy.

However one defined the department's contemporary missions, its basic operating methods remained the same. In World War II, the government called on a few of the nation's premier institutions, such as E.I. DuPont de Nemours and the University of California, to develop its nuclear complex. These and successor contractors remained in charge of the department's installations under multiple-year, cost-type contracts. While the department is changing both its contractors and incentives under which they work, the basic model of a large contractor workforce managed by a small cadre of civil servants in the department remains in place.

Qualifying for the Cabinet

Defining the goals of federal energy policy is one thing; deciding whether a Cabinet department is required to accomplish them is another. The federal government, for example, set up its basic programs for education assistance in the mid-1960s, but it took President Carter, with some prodding from the National Education Association, to generate the steam necessary to create a Department of Education a dozen years later. The Veterans Administration's large bureaucracy was in place for nearly 50 years before President Reagan gave the final push needed to achieve veterans' groups long-standing goal of a Cabinet department.

The advent of the Department of Veterans Affairs, however, provided an opportunity for the National Academy of Public Administration (NAPA), at congressional request, to develop some criteria for judging when a government function should achieve Cabinet status. These criteria have been cited repeatedly since they were published in 1988 as benchmarks for not only achieving but retaining Cabinet status.

Foremost among the criteria is whether an agency or set of programs "serves a broad national goal or purpose not exclusively identified with a single class, occupation, discipline, region, or sector of society." This criterion traces back to the first Hoover Commission of the 1940s, says Alan Dean, a member of the panel that wrote NAPA's criteria. Says Dean, "A department has to be responsible for major, ongoing and continuing purposes of government. The purpose must be broad enough that there are complex and multiple programs, preferably affecting all citizens and not a special-purpose clientele."

Clientele-based departments, such as Labor, have been less successful because their Cabinet secretaries are torn between administering programs on behalf of the public and serving as a representative in government policy circles for the client group, Dean argues.

The Energy Department seems to qualify as fulfilling a broad national purpose-that is, contributing to the national security and assuring energy supplies at reasonable prices. But the American public has looked to other sources to achieve this purpose in the last decade or so. When specific functions are examined, Dean noted that the four major purposes espoused by Secretary O'Leary bump up against responsibilities of other departments and agencies. Moreover, says Dean, "national security, economic competitiveness, advancing science and improving the environment do not provide a cohesive basis for an ongoing department."

The second NAPA criterion asks whether there are significant issues the President or Congress could better address by having them at the Cabinet table. The answer was yes at the time DOE was established, as the Cold War raged and government was seen as responsible for assuring energy supplies through a national energy strategy.

Now such issues are much less discussed in the White House. Maintaining the weapons stockpile, cleaning up nuclear waste and running the national laboratories are second- or third-order issues compared to deficit reduction, Medicare reform, welfare policy and the like.

A longer view is needed to provide continuing justification for Energy's Cabinet status. As Schlesinger warned in an interview with Government Executive, the benign structure that emerged from the collapse of the Soviet Union is not guaranteed in perpetuity. U.S. relationships with Saudi Arabia and other nations which emerged at the end of the Persian Gulf War and provide a stable market can scarcely be counted on to last forever. Robert Galvin, chairman of Motorola Corp.'s executive board and head of a task force that studied the national laboratories, provided more positive rationale for retaining the department. During an interview, Galvin observed that energy is key to the whole world's well-being. Assuring low-cost energy supplies while protecting the environment provides a long-term rationale for the laboratory complex and the department as well, he asserted.

The question is whether the American public and Congress see a department with a mixed track record of efficiency and accomplishment as fully necessary to achieve this goal.

O'Leary's Strategy

Secretary O'Leary has fended off DOE's critics by waging an aggressive campaign to downsize and reform the department while at the same time taking on her detractors face to face. Pete Didisheim, one of O'Leary's assistants, says: "She's gone to every battlefield and taken on her opponents successfully. She's also spent a lot of time one-on-one with Members of Congress."

The Clinton Administration's pledge of $14 billion in savings over five years would be achieved through downsizing, spinoffs and internal reforms. Staff would be cut in half by 2000 through a combination of office closings, job eliminations, and spinoffs of agencies. The Federal Energy Regulatory Commission would become independent, certain power marketing administrations would be privatized, and the Bonneville Power Administration would become a government corporation.

O'Leary detailed her initiatives in hearings before House and Senate committees in May and July. She outlined the department's core missions in national security and non-proliferation, weapons site cleanup, energy resources and science and technology, characterizing them as "inherently governmental responsibilities [which] cannot be abandoned." She said dismantlement of the department would simply be a "symbolic political victory" for its advocates and asserted that the price would be "severe disruption to missions that affect the security and quality of life of millions of Americans."

O'Leary's strong defense found a sympathetic ear among DOE's allies on Capitol Hill. Sen. Pete Domenici, R-N.M., as chairman of the Budget Committee and the Appropriations subcommittee responsible for the department, has been a key supporter. When the House Budget Committee targeted the department for elimination, its Senate counterpart refused to go along. Domenici vowed DOE abolitionists would lose a Senate vote if a bill were brought to the floor, according to one press report.

Major DOE facilities are located in New Mexico, including Sandia and Los Alamos laboratories, but Domenici has been careful to couch his concerns in broader terms than constituent interests. He has also been a stern taskmaster, cutting the department's 1996 budget well below the Administration request and warning O'Leary that DOE would continue to be in peril as long as the department's performance lagged on key programs.

While DOE's opponents appear to be stymied for the moment and downsizing initiatives are proceeding, there is much work to do to respond to the department's radically changed environment. Two task forces published reports on energy research and development operations in 1995 that provide a full plate for Energy Department executives.

One panel, chaired by Daniel Yergin, president of Cambridge Energy Research Associates, assessed the rationale for federal support of energy R&D and program priorities. Acknowledging that American R&D enterprise is in transition and that public support and funding have declined, the task force recommended last June that DOE develop an integrated strategic plan and process for research and development led by one person who reports directly to the secretary.

A task force headed by Galvin reported in February on alternatives for the DOE national laboratories. It was highly critical of what it called a "counterproductive federal system of operation," involving the department, contractors, the labs and Congress. "The long-term quality and effectiveness of these laboratories already is in serious jeopardy, owing to patterns of management and organization that have grown in complexity, cost and intrusiveness over a long period," the report said, blaming both Congress and the agency for the problem. The task force recommended an "independent management structure"-something like a government corporation-to provide greater independence from the department and encourage the labs to work more closely together. It also concluded the laboratory system was oversized for its assignments.

The department rejected the Galvin report's organizational recommendation in favor of a Laboratory Operations Board headed by the DOE undersecretary. Didisheim said the board-composed of eight top DOE officials and eight private-sector executives-does not have decision-making authority but instead serves as a "conscience to keep the department honest." But Galvin said in an interview that he thinks the board is counterproductive, because, in his view, it only adds another layer to departmental oversight.

Dispersing Agencies

If the Energy Department were dismantled, enormous and unpopular responsibilities would have to be shifted elsewhere. But the Defense Department doesn't want the weapons program. No one has stepped up to claim the national laboratories, nor to take on environmental cleanup and restoration programs. And energy policy planning is almost forgotten except in times of crisis.

The Environmental Protection Agency would have a tough time absorbing the cleanup task when it is facing a 20 percent to 30 percent cut in funding for its other programs. The National Science Foundation, a logical home for the labs, is primarily a grant-making agency, and its mission would change dramatically if it absorbed this major operational responsibility. Rep. Robert S. Walker, R-Pa., has suggested creating a Department of Science, but he has generated little support and has not even introduced a bill. There's potential synergy between some DOE and Interior Department programs, but no one has suggested a Department of Natural Resources since the Nixon years. Another possibility would be setting up a Department of Energy and Science, but few proponents of that idea have come forward.

A Grander Scheme

It is increasingly clear that abolishing departments one by one accomplishes little either to rationalize existing programs or to save money for the taxpayer. There would be significant dislocation of programs, federal employees and contractors, followed by years of uncertainty and adjustment for relocated or privatized programs and newly formed organizations.

Government organization specialists in the House and Senate have recognized this, and have been advocating that a study commission be created before major organizational reforms are undertaken. The Senate Governmental Affairs Committee in October reported a bill to create a "Commission 2000." The House actually passed a measure to establish a "Citizens Commission on 21st Century Government," though it never reached the President's desk.

Two phenomena appear to be occurring simultaneously. First, both Congress and the President (to a lesser extent) have come to realize that neither executive initiatives like the National Performance Review nor bills to abolish specific Cabinet departments are the appropriate vehicles for streamlining, modernizing and otherwise preparing government for the 21st century. Second, the specter of wholesale reorganization, given such a black eye by past failures, no longer seems unthinkable, if both branches and both parties get behind the effort.

The remaining question is one of timing. Can any of this be done before the next election? Perhaps a commission could get started, but it will be up to the next President and the 105th Congress to do most of the work and complete the task.

Whether or not there is such a commission, it is unlikely the Energy Department will survive in its present form. Proposals have already been made to spin off units such as FERC and the power marketing administrations. Notwithstanding the President's announcement that the three major weapons labs will remain open, it is unlikely that all 30 DOE labs will be retained in their present form, nor is the governance structure likely to survive for long.

DOE's basic mission remains largely undefined except in terms of its components, and the pieces no longer add up to a coherent whole. In an August 1995 report, GAO concluded that "until a more fundamental reevaluation of DOE's missions and alternatives is undertaken-including opportunities to restructure and privatize operations-it is not clear if the department and its missions are still needed in their present form." In an interview, GAO energy specialist Victor Rezendes suggested a "bipartisan effort between the President and Congress to determine what the government should be doing and how." Rezendes noted, however, that Congress lacks consensus on energy organization, and the secretary is reorienting the department according to the way she thinks it ought to be structured.

Results of next November's elections could accelerate the pace of reform at DOE, but even if voters don't continue to demand rapid change in government, the department's future will surely bear only modest resemblance to its past.

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